<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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USA.NET, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4822 84-1163852
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1155 KELLY JOHNSON BOULEVARD, SUITE 400
COLORADO SPRINGS, CO 80920
(719) 265-2930
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
JOHN W. STREET
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
USA.NET, INC.
1155 KELLY JOHNSON BOULEVARD, SUITE 400
COLORADO SPRINGS, CO 80920
(719) 265-2930
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
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JAMES C. T. LINFIELD, ESQ. WILLIAM D. SHERMAN, ESQ.
CARRIE L. SCHIFF, ESQ. TAMARA POWELL TATE, ESQ.
MARK G. SENEKER, ESQ. BRIAN LEWANDOWSKI, ESQ.
COOLEY GODWARD LLP MORRISON & FOERSTER LLP
2595 CANYON BOULEVARD, SUITE 250 19900 MACARTHUR BLVD., SUITE 1200
BOULDER, CO 80302-6737 IRVINE, CA 92612-2445
(303) 546-4000 (949) 251-7500
</TABLE>
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Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.001 par value............................... $100,000,000 $27,800.00
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(1) Includes shares that the underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
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
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
SHARES
[USA.NET, INC. LOGO]
COMMON STOCK
-------------------------
This is an initial public offering of our common stock. We are selling all of
the shares offered under this prospectus. We anticipate that the
initial public offering price will be between $ and $ per share.
Up to of the shares being offered may be reserved for sale to our
employees, directors and other persons we designate. See "Underwriting."
There is currently no public market for the shares. We have applied to have our
common stock approved for listing on the Nasdaq National Market under the symbol
"MBOX."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
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<CAPTION>
PER
SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
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-------------------------
The underwriters may purchase up to an additional shares from us at
the initial public offering price less the underwriting discount to cover
over-allotments.
-------------------------
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
CIBC WORLD MARKETS
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
INSIDE FRONT COVER
USA.NET Vision:
To set the global standard in email and advanced messaging services.
USA.NET Mission:
To provide comprehensive, advanced messaging services focused on
reliability, user needs and innovation.
USA.NET is an electronic messaging company dedicated to setting the global
standard in email and advanced messaging services. Our advanced messaging
technology leverages the advantages of the Web to provide businesses and
consumers with premium email and advanced message outsourcing solutions.
[Logos of PC Magazine, CNET and
Windows Magazine awards appear here]
GATEFOLD
[Pictures of the USA.NET, NET@DDRESS, Netscape
WebMail, AmExMail, register.com and commercial
message outsourcing Web pages appear here]
INSIDE BACK COVER
[Logos of our advertisers appear here]
<PAGE> 4
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER USA.NET, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.
---------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary..................... 1
Risk Factors........................... 5
Forward-Looking Statements; Market
Data................................. 16
Use of Proceeds........................ 17
Dividend Policy........................ 17
Capitalization......................... 18
Dilution............................... 19
Selected Financial Data................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
</TABLE>
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PAGE
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Business............................... 29
Management............................. 50
Principal Stockholders................. 59
Certain Transactions................... 61
Description of Securities.............. 64
Shares Eligible for Future Sale........ 67
Underwriting........................... 68
Legal Matters.......................... 70
Experts................................ 70
Where You Can Find Additional
Information.......................... 70
Index to Financial Statements.......... F-1
</TABLE>
---------------------
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information in this prospectus. You should read the
entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors," before investing in our common stock.
We are a leading provider of email and advanced messaging solutions on the
Internet for consumers, Web portals and businesses. As of March 31, 1999, we
managed over 9.6 million mailboxes across all of our service offerings and
processed over 190 million messages during the month of March 1999. Our consumer
email service, NET@DDRESS (www.netaddress.com), is the largest independent
Web-based email service on the Internet with more than 6.7 million mailboxes.
Netscape and register.com, a business-oriented portal site, constitute our
primary Web portal clients. We currently manage over 2.7 mailboxes for
Netscape's Netcenter Web portal. Our commercial messaging solutions include
specialized business applications for companies such as American Express Travel
Related Services Company, as well as comprehensive message outsourcing services
for a wide range of businesses. We base our messaging solutions on highly
reliable and scalable technology that includes advanced features, universal
accessibility and a high level of security.
The Internet is quickly becoming an important communications tool,
advertising medium and sales channel for both consumers and businesses
worldwide. We believe that email and advanced messaging services will continue
to be key drivers of Internet usage and growth because they are among the most
popular Internet applications today. According to Forrester Research, the number
of email users in the U.S. is expected to increase from 75 million in 1998 to
135 million in 2001. Jupiter Communications projects that the total number of
email messages sent per day in the United States will increase from 246 million
in 1998 to 576 million in 2002. In addition, Jupiter Communications estimates
that online advertising revenue will grow from approximately $1.9 billion in
1998 to approximately $7.7 billion in 2002.
We believe that many businesses, including those that have already
implemented their own in-house email systems, will outsource their messaging
services to ensure a more reliable, cost effective and less resource-intensive
solution. According to the Gartner Group, the percentage of large businesses
that expect to outsource at least some of their email systems is estimated to
grow from 10% in 1998 to 25% in 2000.
We have developed a range of reliable, easy-to-use advanced messaging
solutions to meet the following needs of consumers, Web portals and businesses:
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CONSUMERS WEB PORTALS AND BUSINESSES
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<S> <C>
- - Permanent email address - Rapid deployment and reduced operating
- - Anytime, anywhere easy access to email costs
- - Robust set of basic features - Scalability, reliability and security
- - Optional advanced functionality - Anytime, anywhere easy access to email
- - Account privacy and security - Customized "look and feel"
- Compatibility with existing email software
- Specialized applications
- Sophisticated customer service and support
</TABLE>
CONSUMERS. In April 1996, we launched NET@DDRESS, the first Web-based email
service for consumers.
- NET@DDRESS is offered free of charge to consumers. We generate revenue
from NET@DDRESS by selling advertising space and by offering fee-based
premium services such as virus scanning, email forwarding and message
notification.
- Since January 1, 1999, NET@DDRESS has added an average of 11,465
mailboxes per day.
- In 1998, NET@DDRESS won awards for its superior features from PC
Magazine, CNET and Windows Magazine.
1
<PAGE> 6
- In December 1998, MediaMetrix, an Internet usage measuring firm, ranked
NET@DDRESS as the sixth most popular site on the Web based on time spent
online by Internet users.
WEB PORTALS. We provide our solutions to Web portals to enhance our
reputation as a premier provider of messaging services and to build our brand
awareness among both consumers and businesses.
- We host and manage the Web-based email services for Netscape's Netcenter
Web portal. Since launching Netscape WebMail Powered by USA.NET in July
1998, we have signed up over 2.7 million mailboxes.
- We are also developing foreign language-based email services for certain
of Netscape's international Netcenter Web portals.
- We generate revenue from Netscape WebMail by selling advertising space
through our internal sales force and from fee-based premium services. We
share this advertising and premium services revenue with Netscape.
- In September 1998, PC Magazine recognized Netscape WebMail as the
top-ranked Web-based email service in a review of the features of 12
major Web portals.
- In March 1999, we entered into an agreement with register.com to offer
businesses an integrated solution that combines our email and advanced
messaging solutions with register.com's domain name registration service.
We plan to generate revenue by charging a monthly fee for each mailbox
established through this relationship.
BUSINESSES. Our commercial messaging solutions are designed to meet
specific business needs and provide comprehensive message outsourcing solutions.
- In April 1998, together with American Express, we launched AmExMail, a
Web-based email service that is available to all consumers but has
special features available exclusively to American Express Cardmembers.
- In June 1998, we introduced our outsourcing service to handle the
increasingly complex messaging requirements of businesses on a
cost-effective and reliable basis. We currently market our services to
companies in a variety of industries, including Internet service
providers, wireline and wireless telecommunications companies,
publishers, information technology service companies, professional
service providers and consumer products companies.
- We generate revenue from these application-specific and outsourcing
solutions primarily by charging a monthly fee for each mailbox. We also
offer fee-based premium services and sell advertising in select
situations.
Our objective is to be the leading provider of email and advanced messaging
solutions for consumers, Web portals and businesses. We intend to pursue this
objective by developing specialized applications to solve unique business needs,
expanding our message outsourcing services, continuing our leadership in
consumer messaging, developing and strengthening our relationships with Web
portals, maintaining our technology leadership position and providing superior
customer service. We believe that our proven experience in meeting the rapidly
evolving messaging needs of consumers, Web portals and businesses positions us
to capitalize on the continuing rapid growth of Internet-based messaging.
-------------------------
Our principal executive office is located at 1155 Kelly Johnson Boulevard,
Suite 400, Colorado Springs, CO 80920, and our telephone number is (719)
265-2930. Our Web site address is www.usa.net. The information contained on our
Web site does not constitute a part of this prospectus.
2
<PAGE> 7
THE OFFERING
Common Stock Offered in this
Offering.............................. shares
Common Stock Outstanding After this
Offering.............................. shares
Use of Proceeds....................... We intend to use the net proceeds
from the offering to expand our sales
and marketing efforts, hire
additional personnel, fund our
capital expenditures and product
development, repay certain
indebtedness, fund our working
capital and for other general
corporate purposes.
Proposed Nasdaq National Market
Symbol................................ MBOX
ADDITIONAL SHARES MAY BE ISSUED AFTER THIS OFFERING UPON THE EXERCISE OF OPTIONS
AND WARRANTS
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of February 28, 1999. We are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock to be outstanding after this offering. The
following is a summary of these additional shares of common stock:
- 802,250 shares that could be issued upon the exercise of options
outstanding as of February 28, 1999 under our stock option plans, at a
weighted average exercise price of $3.55 per share;
- 425,763 additional shares that could be issued under our stock option
plans;
- 45,994 shares that could be issued upon exercise of an outstanding
warrant at an exercise price of $14.75; and
- shares that can be issued to our employees who elect to buy
stock in the future under our employee stock purchase plan.
---------------------
Unless we indicate otherwise, all information in this prospectus:
- Reflects a for forward stock split that we will
effect before we complete this offering;
- Reflects the automatic conversion of all outstanding shares of preferred
stock into 5,536,871 shares of common stock when we close this offering;
and
- Assumes that the underwriters do not exercise their option to purchase
additional shares of common stock after the closing of this offering and
that no other person exercises any other outstanding option or warrant
after February 28, 1999.
---------------------
Unless the context requires otherwise, the "company," "USA.NET," "we," "us"
and "our" in this prospectus refer to USA.NET, Inc.
"USA.NET" and "NET@DDRESS" are registered United States service marks of
ours. Each other trademark, tradename or service mark appearing in this
prospectus belongs to its holder.
3
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
The following tables set forth our summary financial and operating data.
These tables do not present all of our financial information. You should read
this information together with our financial statements and the notes to those
statements beginning on page F-1 of this prospectus and the information under
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Please see note 2 in the notes to the
financial statements for the method of computing pro forma basic and diluted net
loss from continuing operations per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE, PER SHARE
AND MAILBOX DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................. $ 34 $ 782 $ 4,703
Cost of revenue.......................................... 299 1,614 5,329
---------- ---------- ----------
Gross margin........................................... (265) (832) (626)
Operating expenses:
Selling and marketing.................................. 876 2,269 6,904
Product development.................................... 260 1,208 3,042
General and administrative............................. 674 1,490 2,447
Channel acquisition costs.............................. -- -- 6,500
---------- ---------- ----------
Total operating expenses....................... 1,810 4,967 18,893
---------- ---------- ----------
Net loss from operations................................. (2,075) (5,799) (19,519)
Other income (expense), net.............................. -- 125 291
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Net loss from continuing operations...................... $ (2,075) $ (5,674) $ (19,228)
========== ========== ==========
Basic and diluted net loss per share from continuing
operations............................................. $ (6.90) $ (10.68) $ (35.75)
========== ========== ==========
Weighted average common shares outstanding -- basic and
diluted................................................ 300,628 531,110 537,912
========== ========== ==========
Pro forma basic and diluted net loss from continuing
operations per share (unaudited)....................... $ (4.04)
==========
Pro forma weighted average common shares
outstanding -- pro forma basic and diluted
(unaudited)............................................ 4,755,231
==========
NUMBER OF MAILBOXES AT PERIOD END:
Consumers................................................ 135,000 2,496,000 5,676,000
Web portals.............................................. -- -- 1,715,000
Businesses............................................... -- 44,000 217,000
---------- ---------- ----------
Total.......................................... 135,000 2,540,000 7,608,000
========== ========== ==========
</TABLE>
The following table is a summary of our balance sheet data. The as adjusted
column reflects our receipt of the estimated net proceeds of the
shares of common stock we are selling in this offering at an assumed initial
public offering price of $ per share, after deducting estimated underwriting
discounts and expenses.
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DECEMBER 31, 1998
---------------------
ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,563 $
Restricted cash............................................. 1,487
Short-term investments...................................... 3,458
Working capital............................................. 7,079
Total assets................................................ 27,179
Long-term capital lease obligations......................... 3,997
Total liabilities........................................... 10,642
Total stockholders' equity.................................. 16,537
</TABLE>
4
<PAGE> 9
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. The
risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business.
If any of the following risks actually occur, our business, operating
results or financial condition could be materially adversely affected. This
could cause the trading price of our common stock to decline, and you may lose
part or all of your investment.
WE DEPEND ON CONTINUED GROWTH IN THE MARKET FOR OUR SERVICES
The market for Web-based email and advanced Internet messaging services is
new and rapidly evolving. We only recently launched our commercial messaging
services. Our future success depends on businesses' widespread acceptance and
use of outsourcing to solve their email and advanced Internet messaging needs.
Although we have experienced growth in revenue and users in the past, we may not
sustain these growth rates and these growth rates may decrease in the future.
These growth rates may not indicate actual growth rates that we may experience.
We are uncertain if the market for our services will continue to grow and
develop. A number of factors may inhibit the growth of the market for our
services, such as:
- Businesses may be reluctant to outsource their email and advanced
Internet messaging services;
- Internet users may not want to adopt Web-based email solutions;
- We may be unable to forecast the features and functionality our potential
users require;
- We may be unable to market our services to new users;
- We may be unable to differentiate our services from those of our
competitors;
- Our competitors may introduce new services;
- New services that we launch that are not favorably received could damage
our reputation; and
- We may be unable to maintain and strengthen our brand awareness.
If the market for our services fails to develop, develops more slowly than
we expect, or if we fail to accurately design our service enhancements to
satisfy our users on a timely basis, or at all, our business, operating results
and financial condition would be materially adversely affected.
IT IS DIFFICULT TO EVALUATE OUR BUSINESS BECAUSE WE HAVE A LIMITED OPERATING
HISTORY
We did not begin to offer Web-based email services until April 1996 and
commercial messaging services until June 1998. Accordingly, we have only a
limited operating history upon which you can evaluate our business and
prospects. In addition, we have only been selling our commercial messaging
services for a short time. As a young company, we face risks and uncertainties
relating to our ability to successfully implement our business plan. You should
consider the risks, expenses and difficulties encountered by companies in their
early stages of development, particularly companies in new and rapidly evolving
markets. If we do not successfully address these risks and uncertainties, our
business, operating results and financial condition will be materially adversely
affected.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO LOSE MONEY IN THE FUTURE
We have not achieved profitability and we expect to incur net losses for
the foreseeable future. We incurred net losses from continuing operations of
approximately $19.2 million in 1998, $5.7 million in 1997 and $2.1 million in
1996. As of December 31, 1998, our accumulated deficit was $28.6 million.
5
<PAGE> 10
We expect to continue to lose money for the foreseeable future because we
plan to continue to incur significant operating expenses. We have not generated
enough revenue to cover the substantial amounts we have spent to create, launch
and enhance our services. If our revenue does not increase substantially, we may
never become profitable. Even if we do achieve profitability, we may not sustain
or increase profitability on a quarterly or annual basis in the future. Our
operating costs have exceeded our revenue for all quarters. We have historically
funded our operations by selling stock and obtaining loans from banks and not by
generating income from our business.
WE FACE RISKS IN OUR STRATEGIC RELATIONSHIPS
Our strategic relationships expose us to a number of significant risks and
uncertainties, such as:
- The relationships may not be renewed at the end of their respective terms
on commercially reasonable terms or at all;
- We may fail to generate sufficient advertising and other revenue to
offset the expenses and resources we devote to developing, maintaining
and enhancing such services;
- The resources we need to devote to our services may be greater than we
anticipate; and
- These relationships may divert our resources and our management's time
and attention away from our other services, including NET@DDRESS and our
commercial messaging services.
Our agreement with American Express terminates in July 1999. Our agreement
with Netscape with respect to its domestic Netcenter site terminates in June
2000. Our agreement with Netscape with respect to certain international
Netcenter sites terminates two years following the initial service launch. These
termination dates may be as early as April 2001. These agreements may be
terminated early in certain circumstances and they do not contain any automatic
renewal or extension period. Our partners may not renew them at the end of their
respective terms. Further, these relationships provide that American Express and
Netscape will retain the users of the service if the agreements are terminated.
We do not know what impact America Online's merger with Netscape will have
on our relationship with Netscape. America Online provides its subscribers with
email services. It may also use technology provided by certain of our
competitors or invest in or have relationships with our competitors or other
Internet companies. These relationships may result in potential conflicts of
interest, which may not be resolved in our favor. In addition, advertising
revenue on Netscape WebMail Powered by USA.NET accounted for approximately 30%
of our gross revenue in 1998. If Netscape does not renew this relationship and
if we do not replace it with an another significant Web portal strategic
relationship, then our business, operating results and financial condition would
be materially adversely affected.
Our relationships with our existing and future strategic partners may limit
our ability to enter into other strategic relationships or sell our services to
similar businesses. Many companies we may pursue for strategic relationships
also offer competing products and services. As a result, these companies may be
reluctant to enter into strategic relationships with us. Please see our
discussion in "Business -- Strategic Relationships" for additional information
regarding our strategic relationships.
WE FACE INTENSE COMPETITION
We face intense competition in the Web-based email and advanced Internet
messaging services markets. Competition for Internet-based advertising is also
intense. We expect competition to persist and intensify. Barriers to entry may
be insubstantial and we may face substantial and growing competitive pressures
from companies both in the United States and abroad. If we do not respond
successfully to competitive pressures, our business, operating results and
financial condition would be materially adversely affected.
We may not be able to compete successfully against our current or future
competitors. Many of our competitors have greater brand recognition, longer
operating histories, larger customer bases and greater
6
<PAGE> 11
financial, marketing and other resources than we have. These factors may place
us at a disadvantage when we respond to our competitors' pricing strategies,
technological advances and other initiatives. Our inability to successfully
respond to competitive pressures would have a material adverse effect on our
business, operating results and financial condition. Additionally, our
competitors may develop services that are superior to ours or that achieve
greater market acceptance. Please refer to "Business -- Competition" for further
discussion of the companies that we compete against.
WE FACE RISKS OF UNPLANNED SYSTEM INTERRUPTIONS AND CAPACITY CONSTRAINTS
The performance of our network and technological infrastructure is critical
to our success. Our computer and communication hardware systems must operate
efficiently and without interruption. Our systems are currently located at our
data center facilities in Colorado Springs, Colorado. They are vulnerable to
damage from fire, floods, power loss, telecommunications failures, physical
break-ins and similar events.
Our business will suffer if we experience frequent or long system
interruptions. Our customers have experienced some interruptions in our email
service in the past. We believe that these interruptions are likely to occur
from time to time in the future. System failures that cause interruption or
slower response times could result in less traffic to our Web site and those of
the Web portals with whom we partner. Sustained or repeated system failures
could cause us to lose advertisers and users and damage our reputation. These
interruptions may be due to hardware or software failures, unsolicited bulk
mail, computer viruses or "spam" attacks or other causes.
In addition, increased email traffic could cause capacity constraints.
These constraints could result in unanticipated system disruptions, slower
response times, impaired quality and reduced levels of customer service. Slower
response times or system failures could adversely affect our delivery of
advertising impressions. Accordingly, our advertising revenue would decline. If
these problems were to continue, our business, operating results and financial
condition would be materially adversely affected.
WE FACE RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE
Rapid technological change, changing customer needs, frequent new product
and service introductions and evolving industry standards characterize the
Internet messaging market. These market characteristics could render our
existing services, technology and systems obsolete. We must continually improve
the performance, features and reliability of our services to respond to evolving
market demands and competition. Our business, operating results and financial
condition would be materially adversely affected if we are unable to respond in
a cost-effective and timely manner to changing market conditions or customer
requirements.
WE MUST UPGRADE OUR SYSTEMS AND INFRASTRUCTURE TO ACCOMMODATE INCREASES IN EMAIL
TRAFFIC
We must continue to expand and adapt our network infrastructure to
accommodate the number of users and the amount of transmitted information. We
plan to expand our data center operations and network infrastructure in the near
future. The expansion and adaptation of our network will require substantial
financial, operational and management resources. We do not know if we will be
able to successfully connect and manage a substantially larger number of users
at high transmission speeds. We also face risks related to our network's ability
to maintain expected performance levels with more users.
We will also need to make additional investments in our network
infrastructure as the frequency and complexity of messaging increases. The
proliferation of multimedia technology and other new methods of communicating on
the Internet which require large amounts of data may further constrain our
systems and infrastructure. Message infrastructure investments may be expensive
and time consuming. Additionally, we may not be able to accurately project the
rate or timing of messaging traffic increases or upgrade our systems and
infrastructure to accommodate future traffic levels. We may also not be able to
achieve or maintain a sufficiently high capacity of data transmission as
customer usage increases.
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<PAGE> 12
We are likely to encounter equipment or software incompatibility as we
upgrade our infrastructure. We may not be able to expand or adapt our
infrastructure to meet additional demand or our users' changing requirements in
a timely manner or at all. If we fail to do so, our business, operating results
and financial condition would be materially adversely affected.
WE FACE RISKS ASSOCIATED WITH INTERNET COMMUNICATIONS AND SYSTEM SECURITY
We must securely transmit confidential information over public networks.
People may attempt to breach our security or that of our users to misappropriate
proprietary information or cause interruptions in our operations. Security
breaches that result in access to confidential information could damage our
reputation and expose us to a risk of loss or liability.
Our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. These problems could lead to interruptions,
delays or loss of data. We may need to expend significant capital and other
resources to protect against security breaches or to alleviate problems caused
by any breach. Our failure to prevent security breaches may have a material
adverse effect on our business, operating results and financial condition.
WE DEPEND ON THIRD PARTIES TO DISTRIBUTE OUR COMMERCIAL MESSAGING SOLUTIONS
We sell our commercial messaging solutions through our internal sales force
and indirect channels such as Internet, telecommunications and other service
providers, as well as distributors, resellers and Web portals. To the extent
these third parties do not successfully distribute our services, or the amounts
we pay these third parties to market and sell our services do not provide
adequate incentives, our business, operating results and financial condition
would be materially adversely affected.
WE FACE RISKS BY RELYING ON THIRD PARTY TECHNOLOGIES
We license certain technology from third parties, such as Sun Microsystems
and Oracle. We expect to increase our reliance on third party technology in the
future to enhance our services and remain competitive. We may not be able to
license these technologies on commercially reasonable terms or at all. In
addition, we may fail to successfully integrate licensed technology into our
systems. Our inability to obtain any of these licenses could delay service
development or the timely introduction of new services and divert our resources.
Any such delays could materially adversely affect our business, operating
results and financial condition.
OUR SERVICES MAY BE AFFECTED BY UNKNOWN SOFTWARE DEFECTS
Our services depend on complex software developed by us and third parties.
Software often contains defects, particularly when first introduced or when new
versions are released. We may not discover software defects that affect our
services or enhancements until we deploy the software. These defects could cause
service interruptions, which could damage our reputation, increase our service
costs, cause us to lose revenue, delay market acceptance or divert our
development resources, any of which could materially adversely affect our
business, operating results and financial condition.
OUR ANNUAL AND QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS
Our annual and quarterly operating results have fluctuated significantly in
the past and we expect them to fluctuate significantly in the future. Our
operating results fluctuate because of a variety of factors, not all of which
are in our control. These factors include:
- Our expenses and revenue from our strategic relationships;
- The timing of our or our competitors' introduction of new, enhanced or
alternative email services and the market acceptance of those services;
- The amount and timing of revenue, operating costs and capital
expenditures;
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<PAGE> 13
- Seasonal trends and budgeting cycles in advertising sales and Internet
usage;
- Pricing, service or marketing decisions that we make in response to
competition;
- System downtime or technical difficulties that affect our operations or
the Internet in general; and
- Economic conditions relating to the Internet and general economic
conditions.
In addition, we base our operating expenses largely on our expectations of
future revenue. Accordingly, our operating results are particularly sensitive to
fluctuations in revenue because we may be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If our revenue is below our
plan, or if we increase our spending ahead of our revenue growth, our business,
operating results and financial condition would be materially adversely
affected.
You should not rely on annual or quarter-to-quarter comparisons of our
operating results as an indication of future performance. It is possible that in
some future periods our results may be below expectations of public market
analysts and investors. If this were to occur, the price of our common stock
would likely fall.
WE MUST ESTABLISH, MAINTAIN AND STRENGTHEN OUR BRANDS
To be successful, we believe that we must establish, maintain and
strengthen our brands. We must succeed in our marketing efforts, provide
high-quality services and increase our user base to build our brand awareness.
These efforts have required, and will continue to require, significant expenses.
If consumers, Web portals, businesses or advertisers do not perceive our
services to be of high quality, or if users reject our new services, the value
of our brands would be diluted. If we are unable to establish, maintain and
strengthen our brands, our business, operating results and financial condition
would be materially adversely affected.
WE DEPEND ON KEY PERSONNEL AND OUR ABILITY TO HIRE ADDITIONAL PERSONNEL
We believe that our success will depend on the continued services of our
senior management team and other key personnel. The loss of the services of any
of our senior management team or other key employees could materially adversely
affect our business, operating results and financial condition. We do not have
long-term employment agreements with any of our senior management or other key
personnel.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate highly skilled technical, managerial and sales and
marketing personnel. For example, the complexity and implementation of our
Internet messaging services requires highly trained sales and marketing
personnel to educate prospective users regarding the use and benefits of our
services. We recently expanded and expect to continue to expand our operations.
Competition for skilled personnel is intense, and we cannot guarantee that we
will successfully attract, assimilate or retain a sufficient number of qualified
personnel. In particular, we have experienced difficulties in retaining
employees due to significant competition for experienced personnel in our
market. Our failure to attract and retain the necessary technical, managerial,
sales and marketing and administrative personnel could materially adversely
affect our business, operating results and financial condition.
WE MAY NOT MANAGE OUR GROWTH EFFECTIVELY
Our recent rapid growth has significantly strained our managerial,
operational and financial resources. We expect to continue to significantly
augment our infrastructure at an accelerated pace. We must effectively manage
our operational, customer service and financial systems, procedures and controls
to manage this future growth. Our failure to manage our growth effectively could
materially adversely affect our business, operating results and financial
condition.
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<PAGE> 14
WE MAY LOSE USERS BECAUSE OF "SPAM"
Unsolicited bulk mail, or "spam," and our attempts and other's attempts to
control spam could harm our business. Technologies and processes designed to
detect and block spam are not entirely effective. As a result, unwanted spam may
be delivered while legitimate messages are not delivered. To the extent our spam
blocking efforts are not effective, our systems may become unavailable or may
suffer from reduced performance. Additionally, spam-blocking efforts by others
may result in others blocking our users' legitimate messages. Any of these
events may cause users to become dissatisfied with our service and terminate
their use of our services, which could cause our business, operating results and
financial condition to be materially adversely affected.
WE RELY ON GENERATING REVENUE FROM ADVERTISING ON THE INTERNET
We have derived substantially all of our revenue to date from the sale of
advertisements. Advertising customers may not continue to purchase advertising
space and services from us. We may not be successful in attracting additional
advertisers or achieving sufficient page impressions for our advertisers. If the
Internet advertising market develops more slowly than we expect or if we are
unsuccessful in increasing our advertising revenue, our business, operating
results and financial condition will be materially adversely affected. We expect
that revenue from Internet advertising will continue to account for a
significant amount of our revenue for the foreseeable future. Since the Internet
advertising market is new and rapidly evolving, it is difficult for us and
advertisers to gauge its effectiveness as compared to traditional advertising
outlets.
In addition, many of our current advertising customers have limited or no
experience using the Internet as an advertising medium and have not devoted a
significant portion of their advertising expenditures to the Internet. Further,
advertisers may not find our advertising to be effective for promoting their
products and services.
It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements. We depend on
third parties to provide certain of these measurement services. If they are
unable to provide these services in the future, we will need to perform them
ourselves or obtain them from another provider. This could cause us to incur
additional costs or cause interruptions in our business. Companies may choose
not to advertise with us or may pay less for advertising if they do not perceive
our measurements or measurements provided by third parties to be reliable.
It is difficult to predict which pricing models Internet advertisers will
accept. This uncertainty makes it difficult to project our future advertising
rates and revenue. Our revenue could be adversely affected if advertisers reject
our pricing models. Also, "filter" software programs that limit or prevent us
from delivering advertising to a user's computer are available. Widespread
adoption of this software could adversely affect the commercial viability of
Internet advertising.
WE FACE RISKS UNDER OUR ADVERTISING CONTRACTS
We derive a significant portion of our revenue from short-term advertising
contracts that typically last one to two months. Our revenue and operating
results for a given quarter will depend to a significant extent on contracts
entered into within that quarter. The cancellation or deferral of advertising
contracts, or the failure to obtain sufficient new advertising contracts, could
materially adversely affect our business, operating results and financial
condition.
Our advertising revenue is based in part on the amount of traffic to the
sites on which we sell advertising. Any significant shortfall in traffic in
these sites could have a material adverse effect on our business, operating
results and financial condition. In addition, substantially all of our
advertising contracts require that we guarantee a minimum number of impressions.
If we do not meet these minimum impressions, we must provide credit for
additional impressions. Our ability to sell additional advertising would be
materially adversely affected and our advertising rates may decline.
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<PAGE> 15
THE LOSS OF A MAJOR ADVERTISER COULD HARM OUR BUSINESS
In 1998, Egghead.com accounted for approximately 27% of our total revenue.
In 1997, Egghead.com, 24/7 Media (an advertising agency that buys advertising on
behalf of others) and Webstakes accounted for approximately 18%, 15% and 11%,
respectively, of our total revenue. Generally, our advertising agreements are
short-term and can be easily terminated by the other party. Sales of our
advertising space or of our services to a limited number of customers could
account for a high percentage of our revenue in the future. Our future success
depends on our ability to retain our existing customers and attract new
customers. The loss of a major customer or our inability to attract new
customers could have a material adverse effect on our business, operating
results and financial condition.
WE DEPEND ON THE CONTINUED GROWTH OF THE INTERNET
Our success depends on consumers and businesses increasing their use of the
Internet. Consumers and businesses might not use the Internet for a number of
reasons, such as:
- High Internet access costs;
- Perceived security risks;
- Legal and regulatory issues;
- Inconsistent service quality; and
- Unavailability of cost-effective, high-speed service.
Even if consumers and businesses increase their use of the Internet, the
Internet infrastructure may not be able to support the demands of this growth.
Further, the Internet's performance and reliability may decline. Similarly,
users may experience interruptions in their services as a result of outages and
other delays occurring throughout the Internet network infrastructure. If these
outages or delays occur frequently, consumers and businesses may slow or stop
their use of the Internet as a commercial or business medium. If consumers and
businesses do not increase their use of the Internet, our business, operating
results and financial condition would be materially adversely affected.
WE DEPEND ON COST-EFFECTIVE, EFFICIENT TRANSMISSION OF DATA OVER THE INTERNET
The recent growth of the Internet has caused frequent interruptions and
delays in accessing the Internet and in transmitting data over the Internet. Any
deterioration in the performance of the Internet as a whole could undermine the
benefits of our services. We rely on the speed and reliability of the networks
operated by third parties. Therefore, we depend on improvements being made to
the entire Internet infrastructure to alleviate overloading and congestion.
In addition, we rely on a number of public and private Internet
connections, which are arrangements among access providers to carry each other's
traffic. Our ability to transmit our message traffic would be reduced if these
providers were to discontinue these arrangements and alternative providers did
not emerge or were to increase the cost of providing access.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
We intend to expand into international markets and to spend significant
financial and managerial resources to do so. We have limited experience in
international markets and may not be able to compete effectively in
international markets. We also face certain risks inherent in conducting
business internationally, such as:
- Legal and governmental regulatory requirements;
- Difficulties and costs of staffing and managing international operations;
- Differing technology standards;
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<PAGE> 16
- Language and cultural differences;
- Trade barriers;
- Difficulties in collecting accounts receivable and longer collection
periods;
- Seasonal business activity in certain parts of the world;
- Political and economic instability;
- Fluctuations in currency exchange rates;
- Imposition of currency exchange controls;
- Potentially adverse tax consequences; and
- Reduced protection for intellectual property rights in certain countries.
Any of these factors could materially adversely affect our international
operations and, consequently, our business, operating results and financial
condition.
WE MAY NEED AND BE UNABLE TO OBTAIN ADDITIONAL FUNDING
We believe that, following this offering, our cash reserves and cash flows
from operations should be adequate to fund our operations for at least the next
twelve months. If our capital requirements or revenue vary materially from our
current plans or if unforeseen circumstances occur, we may require additional
financing sooner than we anticipate. This financing may not be available on a
timely basis, in sufficient amounts or on terms acceptable to us. This financing
may also dilute existing stockholders.
If we cannot obtain adequate funds on acceptable terms, then we may not be
able to:
- Fund our capital requirements;
- Take advantage of strategic opportunities;
- Develop or enhance our services; or
- Respond to competitive pressures.
Any of these failures could have a material adverse effect on our business,
operating results and financial condition.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
The Year 2000 issue may impact our internal information technology ("IT")
and non-IT systems. We use software and hardware developed by third parties both
for our network and internal information systems. We rely on third party network
infrastructure providers to gain access to the Internet. We have not performed
any testing of such third-party software or hardware to determine Year 2000
compliance.
Failure of our internal computer systems or third party hardware or
software, or of systems maintained by third parties, to operate properly with
regard to Year 2000 and thereafter could cause systems interruptions or loss of
data or could require us to incur significant unanticipated expenses to remedy
any problems. Presently, we believe we are unable to reasonably estimate the
duration and extent of any such interruption, or quantify the effect it may have
on our future revenue. We have not yet developed a comprehensive contingency
plan to address these issues, which could result from such failure. We are
prepared to develop such a contingency plan if our ongoing assessment indicates
areas of significant exposure.
If our present efforts to address the Year 2000 compliance issues are not
successful, or if third party vendors, licensors and providers of hardware,
software and services with which we conduct business do not successfully address
such issues, our business, operating results and financial condition would be
materially
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<PAGE> 17
adversely affected. Please refer to our discussion in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000
Issues."
WE MAY BE EXPOSED TO RISKS OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
INFRINGEMENT
Trademarks, service marks, trade secrets, copyrights and other proprietary
rights are important to our success and competitive position. We seek to protect
our proprietary rights, but our efforts may be inadequate to protect our
proprietary rights or to prevent others from claiming violations of their
proprietary rights. Effective trade secret, copyright, patent and trademark
protection may not be available in every country in which we make our services
available through the Internet. The unauthorized misappropriation of our
proprietary technology could have a material adverse effect on our business,
financial condition and operating results. We may also be subject to claims
alleging that we have infringed third party proprietary rights. If we were to
discover that any of our services infringed a third party's rights, we may not
be able to obtain permission to use those rights on commercially reasonable
terms. If we resort to legal proceedings to enforce our proprietary rights or
defend against alleged infringements, the proceedings could be burdensome and
expensive and could involve a high degree of risk. Any of these events could
have a material adverse effect on our business, operating results and financial
condition.
WE MAY FACE INCREASED GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Any new legislation or regulation regarding the Internet, or the
application or uncertainty relating to the application of existing laws and
regulations to the Internet, could materially adversely affect our business,
operating results and financial condition. There are an increasing number of
laws and regulations pertaining to the Internet.
Legislation in these areas could impair the growth of the Internet and
decrease the acceptance of the Internet as a communications and commercial
medium. This could decrease the demand for our services, increase our cost of
doing business or otherwise have a material adverse affect on our business,
financial condition and operating results.
Further, the growth and development of the Internet messaging market may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on companies conducting business online. For example, because
we rely on the collection and use of personal data from our users for targeting
advertisements, any laws or regulations that restrict our ability to collect or
use such information may harm us. Some states, including New York and
California, have enacted laws or adopted regulations that apply various consumer
fraud and false advertising requirements to parties who conduct business over
the Internet. There have also been numerous legislative initiatives proposed to
address the prevalence of spam on the Internet. These laws may impose additional
burdens on our business. Please refer to our discussion in
"Business -- Government Regulation" for additional information.
WE FACE RISKS FROM POTENTIAL TELECOMMUNICATIONS REGULATIONS
Several telecommunications carriers are advocating that the Federal
Communications Commission regulate the Internet in the same manner as other
telecommunications services by imposing access fees on Internet service
providers. Any such regulations could substantially increase the costs of
communicating on the Internet. This, in turn, could slow the growth in Internet
use and thereby decrease the demand for our products and services or otherwise
have a material adverse effect on our business, operating results and financial
condition.
WE MAY BE LIABLE FOR INFORMATION RECEIVED FROM THE INTERNET AND INTERNET-RELATED
PROBLEMS
As a provider of Internet messaging services, we may be subject to legal
claims involving matters such as defamation, negligence, invasion of privacy,
copyright infringement and other claims based on the nature and content of the
materials transmitted via email. We do not and cannot screen all of the content
generated by our users and we could be exposed to liability with respect to this
content. Online content restrictions cover many areas, including indecent or
obscene content and gambling. Several federal and
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<PAGE> 18
state regulations prohibit the transmission of indecent or obscene information
and content. Certain foreign governments have enforced laws and regulations
related to content distributed over the Internet that are more strict than those
currently in place in the United States.
In October 1998, the Children's Online Privacy Protection Act was signed
into law, which directs the Federal Trade Commission ("FTC") to develop
regulations for the collection of data from children by commercial Web site
operators. Separately, the Federal Trade Commission Act prohibits unfair and
deceptive practices in and affecting commerce. The FTC Act authorizes the FTC to
seek injunctive and other relief for violations of the FTC Act and provides a
basis for government enforcement of fair information practices. For instance,
failure to comply with a stated privacy policy may constitute a deceptive
practice in some circumstances and the FTC would have authority to pursue the
remedies available under the FTC Act for any violations. Furthermore, in some
circumstances, information practices may be inherently deceptive or unfair,
regardless of whether the entity has publicly adopted any privacy policies. The
FTC has begun investigations into the privacy practices of companies that
collect information on the Internet.
We are continuing to review our practices in light of the recent FTC
activity and the enactment of the Children's Online Privacy Protection Act.
However, we cannot predict the exact form of the regulations that the FTC may
adopt. Accordingly, we cannot assure you that our current practices will comply
with the regulatory scheme which the FTC ultimately adopts or that we will not
have to make significant changes to comply with such laws.
At the international level, the European Union adopted a directive that
requires EU member countries to impose restrictions on the collection and use of
personal data, effective October 25, 1998. Among other provisions, the directive
generally requires member countries to prevent the transfer of
personally-identifiable data to countries that do not offer equivalent privacy
protections. At present, the EU has indicated that the United States does not
provide protections equivalent to that of the directive. The directive could,
among other things, affect United States companies that collect information over
the Internet from individuals in EU member countries, and may impose
restrictions that are more stringent than current Internet privacy standards in
the United States.
We may also be subject to risks from claims resulting from unsolicited
email (or spamming), lost or misdirected messages, illegal or fraudulent use of
email or interruptions or delays in service. Even to the extent these claims do
not result in liability, we could incur significant costs in investigating or
defending against these claims, or in implementing measures to reduce our
exposure to such liability. These types of claims may also hurt our reputation.
Our insurance may not cover claims of these types or may not provide
sufficient coverage. Any imposition of liability that our insurance does not
cover or exceeds our insurance coverage could materially adversely affect our
business, financial condition and operating results.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
The market price of our common stock could fall if our stockholders sell
substantial amounts of common stock, including shares issued upon the exercise
of outstanding options, in the public market following this offering. Such sales
might also make it more difficult for us to sell equity securities in the future
at a time and price that we deem appropriate. Please refer to our discussion in
"Shares Eligible for Future Sale."
OUR CORPORATE DOCUMENTS DISCOURAGE OUR ACQUISITION BY OTHERS
Our corporate documents and Delaware law could make it more difficult for a
third party to acquire us, even if a change in control would be beneficial to
our stockholders. These and other provisions might discourage, delay or prevent
a change in control of us or of our management. These provisions could also
limit the price that investors might be willing to pay in the future for shares
of common stock. Please refer to our discussion in "Description of Capital
Stock."
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<PAGE> 19
AFTER THIS OFFERING, OUR OFFICERS AND DIRECTORS MAY STILL CONTROL US
Our executive officers and directors will, in the aggregate, beneficially
own approximately % of the common stock following this offering. These
stockholders may be able to exercise control over all matters that we require
our stockholders to approve, including electing directors and approving
significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of us, which could
result in a lower stock price.
THE PRICE FOR OUR COMMON STOCK IS LIKELY TO BE HIGHLY VOLATILE
The market price of our common stock is likely to be highly volatile as the
stock market in general, and the market for Internet-related and technology
companies in particular, has been highly volatile. Investors may not be able to
resell their shares of our common stock following periods of volatility because
the market reacts adversely to volatility. The trading prices of many technology
and Internet-related companies' stocks reached historical highs within the last
52 weeks and reflect relative valuations that are substantially above historical
levels. During the same period, these companies' stocks have also recorded lows
well below historical highs. We cannot assure you that our stock will trade at
the same levels of other Internet stocks or that we can sustain our stock's
trading price and price/earnings ratio.
Factors that could cause such volatility may include, among other things:
- Actual or anticipated variations in our quarterly operating results;
- If we or our competitors announce technological innovations;
- If we launch new sales formats or new services;
- If securities analysts change their financial estimates for us or our
competitors;
- Conditions or trends in the Internet industry;
- If other Internet companies experience changes in their market
valuations;
- General conditions or trends in the stock market;
- If we or our competitors announce significant acquisitions, strategic
partnerships or joint ventures;
- If we add or lose key personnel; and
- If our stockholders sell common stock.
Many of these factors are beyond our control. These factors may materially
adversely affect the market price of our common stock, regardless of how we
operate.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share will significantly exceed the
net tangible book value per share. Accordingly, investors purchasing shares in
this offering will suffer immediate and substantial dilution of their
investment.
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<PAGE> 20
FORWARD-LOOKING STATEMENTS; MARKET DATA
We make many statements in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and elsewhere that are
forward-looking and are not based on historical facts. These statements relate
to our future plans, objectives, expectations and intentions. We may identify
these statements by the use of words such as "believes," "expects,"
"anticipates," "intends," "plans" and similar expressions. Because we make
forward-looking statements that involve risks and uncertainties, you need to
consider the important factors that could cause our actual results to differ
materially from those we express or imply in these forward-looking statements,
including those we discuss under "Risk Factors." Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those we discuss in "Risk Factors" and
elsewhere in this prospectus. The forward-looking statements speak only as of
the date of this prospectus and we caution you not to place undue reliance on
those statements.
This prospectus contains market data related to us and the Internet. This
data has been included in the studies the Internet market research firms of
International Data Corporation, Jupiter Communications, Gartner Group, Forrester
Research, Electronic Mail and Messaging Systems, Creative Networks and
MediaMetrix publish. These market research firms assume certain events, trends
and activities will occur and they project information on those assumptions. If
the market research firms are wrong about any of their assumptions, then their
projections may also be wrong.
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<PAGE> 21
USE OF PROCEEDS
We estimate that we will receive approximately $ million in net
proceeds from this offering ($ if the underwriters' exercise their
over-allotment option in full) based upon an assumed initial public offering of
$ per share. This amount reflects deductions from the gross proceeds of the
offering of approximately $ for underwriting discounts and an estimated
$ for the expenses of this offering.
We expect to use the net proceeds to:
- Expand our sales and marketing efforts;
- Hire additional personnel;
- Repay outstanding borrowings under our revolving credit facility;
- Fund our capital expenditures and product development; and
- Fund working capital and for other general corporate purposes.
In particular, we estimate that in 1999 we will use approximately $20
million of the net proceeds for equipment purchases and expansion of our data
centers. We also expect to use approximately $1.7 million of the net proceeds to
repay outstanding borrowings under our revolving credit facility. At March 31,
1999, borrowings outstanding under this facility were approximately $1.7
million. Borrowings under this credit facility bear interest at the bank's prime
rate, which was 7.75% at March 31, 1999. The amounts we actually expend in the
areas described above may vary significantly and will depend on a number of
factors, including our future revenue. Accordingly, management will retain broad
discretion in the allocation of the net proceeds of this offering. You will not
have the opportunity to evaluate the economic, financial or other information on
which we base our decisions on how to use the proceeds. A portion of the net
proceeds may also be used to acquire or invest in complimentary businesses,
technologies, services or products. We have no current plans, agreements or
commitments with respect to any such acquisition or investment, and we are not
currently engaged in any negotiations with respect to any such transaction.
Pending such uses, the net proceeds of this offering will be invested in
short term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, operating results, capital requirements and such
other factors as the board of directors deems relevant.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998.
Our capitalization is presented:
- On an actual basis;
- On a pro forma basis to reflect the automatic conversion of all
outstanding shares of preferred stock into 5,536,871 shares of common
stock at the same time as the closing of this offering; and
- As adjusted to give effect to the sale of shares of common
stock offered in this offering at an assumed initial public offering
price of $ per share (after deducting the estimated underwriting
discounts and commissions and offering expenses) and the application of
the net proceeds therefrom.
This table should be read together with the financial statements and notes
to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term debt
and capital lease obligations............................. $ 3,007 $ 3,007 $
Long-term capital lease obligations, less current portion... 3,997 3,997
Stockholders' equity:
Preferred stock, $.001 par value, 6,222,726 shares
authorized, 5,536,871 shares issued and outstanding
actual; no shares issued and outstanding pro forma and
as adjusted............................................ 44,787 --
Common stock, $.001 par value, 16,655,988 shares
authorized; 543,610 shares issued and outstanding
actual; 6,080,481 shares issued and outstanding pro
forma; shares issued and outstanding pro
forma as adjusted...................................... 1 6
Additional paid-in capital.................................. 7 44,789
Warrants for common stock................................... 313 313
Accumulated deficit......................................... (28,571) (28,571)
-------- -------- --------
Total stockholders' equity............................. 16,537 16,537
-------- -------- --------
Total capitalization.............................. $ 23,541 $ 23,541 $
======== ======== ========
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of February 28, 1999. We are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock to be outstanding after this offering. The
following is a summary of these additional shares of common stock:
- 802,250 shares that could be issued upon the exercise of options
outstanding as of February 28, 1999 under our stock option plans, at a
weighted average exercise price of $3.55 per share;
- 425,763 additional shares that could be issued under our stock option
plans;
- 45,994 shares that could be issued upon exercise of an outstanding
warrant at an exercise price of $14.75; and
- shares that can be issued to our employees who elect to buy
stock in the future under our employee stock purchase plan.
18
<PAGE> 23
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was
$16,537,000, or approximately $2.72 per share. Pro forma net tangible book value
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of common stock outstanding, assuming conversion of all
outstanding shares of preferred stock into common stock. Without taking into
account any other changes in the net tangible book value after December 31,
1998, other than to give effect to our receipt of the net proceeds from the sale
of the shares of common stock in this offering at an assumed initial public
offering price of $ per share, our pro forma net tangible book value as of
December 31, 1998 would have been approximately $ , or $ per share.
This represents an immediate increase in net tangible book value of $ per
share to existing stockholders and an immediate dilution of $ per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
offering............................................... $2.72
Increase per share attributable to new investors.......... $
-----
Pro forma net tangible book value per share after this
offering..................................................
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1998, the differences between existing stockholders and the new investors with
respect to:
- The number of shares of common stock purchased, assuming conversion of
all outstanding shares of preferred stock into common stock;
- The total consideration paid; and
- The average price per share existing stockholders and new investors pay
when they buy common stock in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 6,080,481 % $46,688,971 % $7.68
New investors................... % % $
--------- ----- ----------- ------ -----
Total................. 100.0% $ $100.0%
========= ===== =========== ======
</TABLE>
The foregoing discussion and tables assume no exercise of the underwriters'
over-allotment option or of any outstanding stock options or warrants after
December 31, 1998. As of December 31, 1998, there were outstanding options to
purchase 831,400 shares of common stock at a weighted average exercise price of
$3.64 per share and a warrant to purchase 45,994 shares at an exercise price of
$14.75 per share. You will suffer further dilution to the extent any of these
options or this warrant is exercised.
19
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements, the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this prospectus. The selected financial data as of
December 31, 1996, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998, are derived from the audited financial statements
included elsewhere in this prospectus. The selected financial data as of and for
the year ended December 31, 1995 are derived from audited financial statements
not included elsewhere in this prospectus. The selected financial data as of and
for the year ended December 31, 1994 have been excluded because the statement of
operations and balance sheet data relate entirely to discontinued operations.
Historical results are not necessarily indications of the results to be expected
in the future. We have also included the number of mailboxes managed by us at
certain dates, which is not derived from our audited financial statements.
Please see note 2 in the notes to the financial statements for the method
of computing pro forma basic and diluted net loss from continuing operations per
share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997 1998
------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE, PER SHARE
AND MAILBOX DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................. $ -- $ 34 $ 782 $ 4,703
Cost of revenue.......................................... -- 299 1,614 5,329
------- ---------- ---------- ----------
Gross margin........................................... -- (265) (832) (626)
Operating expenses:
Selling and marketing.................................. 48 876 2,269 6,904
Product development.................................... 304 260 1,208 3,042
General and administrative............................. 185 674 1,490 2,447
Channel acquisition costs.............................. -- -- -- 6,500
------- ---------- ---------- ----------
Total operating expenses........................ 537 1,810 4,967 18,893
------- ---------- ---------- ----------
Net loss from operations................................. (537) (2,075) (5,799) (19,519)
Other income (expense), net.............................. -- -- 125 291
------- ---------- ---------- ----------
Net loss from continuing operations...................... $ (537) $ (2,075) $ (5,674) $ (19,228)
======= ========== ========== ==========
Basic and diluted net loss per share from continuing
operations............................................. $(11.79) $ (6.90) $ (10.68) $ (35.75)
======= ========== ========== ==========
Weighted average common shares outstanding -- basic and
diluted................................................ 45,566 300,628 531,110 537,912
======= ========== ========== ==========
Pro forma basic and diluted net loss from continuing
operations per share (unaudited)....................... $ (4.04)
==========
Pro forma weighted average common shares
outstanding -- pro forma basic and diluted
(unaudited)............................................ 4,755,231
==========
NUMBER OF MAILBOXES AT PERIOD END:
Consumers................................................ -- 135,000 2,496,000 5,676,000
Web portals.............................................. -- -- -- 1,715,000
Businesses............................................... -- -- 44,000 217,000
------- ---------- ---------- ----------
Total........................................... -- 135,000 2,540,000 7,608,000
======= ========== ========== ==========
</TABLE>
The following table is a summary of our balance sheet data. The as adjusted
column reflects our receipt of the estimated net proceeds from the sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting estimated underwriting
discounts and expenses.
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1998
-------------------------------- ------------
1995 1996 1997 1998 AS ADJUSTED
---- ------ ------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 6 $ 393 $2,159 $ 6,563 $
Restricted cash......................................... -- -- 1,885 1,487
Short-term investments.................................. -- -- -- 3,458
Working capital (deficit)............................... (27) (135) 2,218 7,079
Total assets............................................ 888 1,048 7,016 27,179
Long-term capital lease obligations and notes payable... 348 -- 1,235 3,997
Total liabilities....................................... 763 543 3,482 10,642
Total stockholders' equity.............................. 125 505 3,533 16,537
</TABLE>
20
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Financial Data" and the financial statements and notes attached to
those statements included elsewhere in this prospectus. This discussion contains
certain forward-looking statements that involve risks and uncertainties. Please
see "Risk Factors" and "Forward-Looking Statements; Market Data" elsewhere in
this prospectus.
We are a leading provider of email and advanced messaging solutions on the
Internet for consumers, Web portals and businesses. As of March 31, 1999, we
managed over 9.6 million mailboxes across all of our service offerings and
processed over 190 million messages during March 1999. Our consumer email
service, NET@DDRESS (www.netaddress.com), is the largest independent Web-based
email service on the Internet with more than 6.7 million mailboxes. Netscape and
register.com, a business-oriented portal site, constitute our primary Web portal
clients. Our commercial messaging solutions include specialized business
applications for companies such as American Express, as well as comprehensive
message outsourcing services for a wide range of businesses.
We started our business in 1991 to provide online services, including
Internet access, to consumer and commercial customers. In 1995, we began the
development of our email solutions and in 1996 we launched NET@DDRESS, one of
the first Web-based email services available for consumers free of charge.
Before March 1997, we derived a significant portion of our revenue from the
Internet access business. In March 1997 we sold our Internet access business to
an entity in which certain of our stockholders hold an ownership interest. For
more information about that business, please refer to notes 3 and 9 in the notes
to the financial statements. We are treating our former Internet access business
as a discontinued operation. Since March 1997, our operating activities have
related primarily to planning and developing our advanced messaging solutions,
recruiting personnel, marketing our services, establishing operational
infrastructure, raising capital and purchasing technology infrastructure and
operating assets.
We currently generate revenue from these services:
- Messaging Services for Consumers. We generate revenue from NET@DDRESS by
selling advertising and fee-based premium services.
- Messaging Services for Web Portals and Businesses. We generate revenue
from advertising sales, fee-based premium services and monthly
per-mailbox fees. We share with Netscape and American Express a portion
of our advertising and premium service revenue from Netscape WebMail and
AmExMail.
Our advertising revenue consists of the following:
- Banners, Buttons and Log Out Pages. Banners, buttons and log out pages
refer to the advertising we place on our Web-based email access sites. We
charge different rates for the advertising we display on specific areas
of the Web site.
- Direct Delivery Content. We receive revenue for displaying advertising
and promoting content subscription programs for third parties, such as
news agencies, product information, etc.
We typically sell banners, buttons and log out pages under short-term
contracts, which range from one week to one year in length. We also sell
longer-term and exclusive sponsorships, which combine banner advertisements,
button placements and log out pages. We typically guarantee minimum numbers of
impressions, or a stated number of times that an advertisement appears in pages
viewed by users of our email services, in our advertising agreements. If we fail
to supply the guaranteed number of impressions, our advertisers may terminate
their relationships with us. If, and to the extent that, we do not supply the
minimum guaranteed number of impressions, we recognize the corresponding revenue
only when we achieve the minimum guaranteed number. We recognize advertising
revenue as we display the advertising and we generally bill our advertisers on a
monthly basis.
21
<PAGE> 26
In June 1998, we launched our commercial messaging services. We sell our
commercial messaging services on a turnkey basis with a complete customer
service package, including both account management and technical support. Our
commercial messaging customers pay for mailboxes on a monthly basis and we
recognize revenue as we perform the services. We compensate our direct and third
party sales force primarily through commissions, a variable cost that we
determine based on a percentage of the gross revenue that the sales person
generates.
Through December 31, 1998, we generated substantially all of our revenue
through advertising sales and less than 1% from our commercial messaging
services. We believe that our revenue mix will change as we generate more sales
from the services that we recently launched, including our specialized business
messaging solutions, message outsourcing solutions and fee-based premium
services. We anticipate that our mix of revenue from advertising may change in
the future as Internet advertising trends change and we develop new advertising
products. We expect that our gross margins may decrease for certain of our
co-branded services as the percentage of revenue that we share with certain of
our strategic partners increases over time. We also may spend significantly on
channel acquisition to ensure our position on strategic Web portals in the
future.
To continue to execute our business plan, we intend to expand our
operations and employee base, including our sales, marketing, technical,
operational and customer support resources. We also intend to further develop
new and existing strategic relationships to expand our distribution channels. We
intend to develop strategic sales offices and data centers throughout the United
States. We plan to build an additional data center in 1999.
We have incurred significant losses since our inception, and as of December
31, 1998 had an accumulated deficit of $28,571,068. Prior to March 1997, we were
an S corporation for tax purposes, and tax net operating losses prior to that
date are not available to offset any future taxable income. We intend to
continue to make investments in technology, which may involve the development,
acquisition or licensing of technologies that complement or augment our existing
services and technologies. We also intend to continue to invest heavily in sales
and marketing activities. We expect to incur significant operating losses for
the foreseeable future because of these aggressive expansion plans.
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that our revenue and operating results, including
our gross profit margin and operating expenses as a percentage of total revenue,
should not be relied upon as indications of future performance. We do not
believe that our historical growth rates are indicative of future results.
RESULTS OF CONTINUING OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Revenue. Revenue consists of advertising revenue and per-mailbox fees.
Revenue increased to $4,703,000 in 1998 from $782,000 in 1997 and $34,000 in
1996. Substantially all of these increases were due to increases in advertising
revenue. Since 1996, the increased number of users of our email and advanced
messaging solutions, our sales and marketing efforts, and the increased number
of advertisers allowed us to generate additional advertising revenue. The number
of NET@DDRESS mailboxes increased to 5.7 million at December 31, 1998 from 2.5
million at December 31, 1997 and 135,000 at December 31, 1996. Egghead.com
accounted for 27.0% of total revenue in 1998 and 18.1% of total revenue in 1997.
24/7 Media accounted for 14.9% of revenue and Webstakes accounted for 11.4% of
revenue in 1997.
During 1998, we launched Netscape WebMail Powered by USA.NET. At December
31, 1998, Netscape WebMail had over 1.7 million mailboxes. Also in 1998,
together with American Express, we launched AmExMail Powered by USA.NET. At
December 31, 1998, AmExMail had over 214,000 mailboxes. We share with Netscape
and American Express a portion of the revenue that we generate under our
relationships with them. For 1998, the Netscape WebMail and AmExMail services
accounted for approximately 30.4% and 1.4% of revenue, respectively.
22
<PAGE> 27
Cost of Revenue. Cost of revenue consists primarily of Netscape's and
American Express' share of revenue that we generate under our relationships with
them, sales commissions, Internet connection charges, depreciation, salaries and
benefits of operating and customer service personnel, occupancy costs and other
related operating costs. Since 1996, the growth in the number of mailboxes we
manage has increased the cost of revenue. Cost of revenue increased to
$5,329,000 in 1998 from $1,614,000 in 1997 and $299,000 in 1996. During 1998,
these costs were approximately 113.3% of total revenue. Our cost of revenue
increased primarily due to increased personnel costs, depreciation expense and
sales commissions. We significantly increased the number of operations and
customer support personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
- ----------------- ------
<S> <C> <C>
December 31, 1998 ................................. 67
December 31, 1997 ................................. 25
December 31, 1996 ................................. 6
</TABLE>
In addition, we acquired substantial equipment for our data center
throughout 1998, and as a result, our depreciation expense increased in 1998.
Selling and Marketing. Selling and marketing expenses consist primarily of
compensation for our sales and marketing personnel, advertising, and other
promotional costs. Selling and marketing expenses increased to $6,904,000 in
1998 from $2,269,000 in 1997 and $876,000 in 1996. The increases in 1998 and
1997 were primarily due to increases in the number of personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
- ----------------- ------
<S> <C> <C>
December 31, 1998 ................................. 44
December 31, 1997 ................................. 7
December 31, 1996 ................................. 2
</TABLE>
In addition, an increase in the purchase of Web-based advertising to
promote our services and an increased promotional effort for our commercial
messaging solution during 1998 contributed to the increase in selling and
marketing expenses.
Product Development. Product development expenses consist primarily of
salaries and related benefits of development engineers, occupancy costs and
consulting fees. Product development expenses increased to $3,042,000 in 1998
from $1,208,000 in 1997 and $260,000 in 1996. The increase in product
development expenses in each year since 1996 is primarily due to ongoing costs
relating to the development of features and functionality of our current
consumer and commercial messaging solutions, as well as increases in the number
of product development personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
- ----------------- ------
<S> <C> <C>
December 31, 1998 ................................. 43
December 31, 1997 ................................. 12
December 31, 1996 ................................. 5
</TABLE>
General and Administrative. General and administrative expenses include
salaries and related expenses for executives, finance personnel, corporate
support, as well as occupancy costs, professional fees and similar expenses.
General and administrative expenses increased to $2,447,000 in 1998 from
$1,490,000 in 1997 and $674,000 in 1996. The increase in each year since 1996 is
primarily due to the increased number of general and administrative personnel as
follows:
<TABLE>
<CAPTION>
AS OF NUMBER
- ----------------- ------
<S> <C> <C>
December 31, 1998 ................................. 22
December 31, 1997 ................................. 11
December 31, 1996 ................................. 3
</TABLE>
23
<PAGE> 28
In addition, outside consulting, professional fees, recruiting fees and
travel expenses associated with our increased business activities added to the
increase in general and administrative expenses.
Channel Acquisition Costs. During 1998, we paid Netscape $5,000,000 for the
exclusive right to provide email services to Netscape's domestic Netcenter
portal and $1,500,000 for similar international rights. Our policy on payments
to acquire channels to additional users is to capitalize them if the related
agreement provides minimum revenue guarantees that support the amount paid. The
agreements with Netscape do not provide minimum guarantees. As a result of this
and other factors, we expensed the payments to Netscape as channel acquisition
costs.
Other Income. Other income consists primarily of interest earnings on our
cash, cash equivalents and short-term investments. We completed a private
placement of equity securities in August 1998, which provided net proceeds of
$21,390,000. During 1998, we also completed additional closings on prior private
placements, which provided proceeds of $10,835,000. As a result of these
closings, interest and other income increased to $521,000 in 1998 from $134,000
in 1997. Our other income in 1997 was primarily the result of interest income on
short-term investments.
We have incurred interest expense on notes payable and capital lease
obligations. During 1998, interest expense was $230,000 compared to $9,000 for
1997. The increase in interest expense is due to our use of capital leases to
fund equipment purchases.
INCOME TAXES
No provision or benefit for federal and state income taxes (actual or pro
forma) has been recorded because we incurred net operating losses from inception
through December 31, 1998. Prior to March 1997, we were an S corporation for tax
purposes. As of December 31, 1998 we had approximately $18,779,000 of federal
and state operating loss carryforwards available to offset future taxable income
which expire in varying amounts beginning in 2012. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances, including significant changes in
ownership interests. Our existing net operating loss carryforward may be
restricted due to changes in ownership or from future tax legislation.
We have established a valuation allowance against the entire amount of our
deferred tax asset because our management has not been able to conclude that it
is more likely than not that we will be able to realize the deferred tax asset,
due primarily to our history of operating losses.
24
<PAGE> 29
QUARTERLY OPERATING DATA
The following table sets forth selected unaudited statements of operations
data and the number of mailboxes for each quarter in 1998. The financial
information for each quarter has been prepared on substantially the same basis
as the audited statements included in other parts of this prospectus and, in the
opinion of management, includes all adjustments, consisting of only normal
recurring adjustments necessary for a fair presentation of the results of
operations for such periods. This financial information should be read in
conjunction with the audited financial statements and the notes attached to
those financial statements included elsewhere in this prospectus. Historical
results are not necessarily indicative of the results to be expected in the
future and the results of the interim periods are not indicative of results of
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
----------- ----------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................. $ 520,075 $ 778,883 $ 1,495,108 $ 1,908,647
Cost of revenue.......................... 709,244 905,134 1,462,715 2,252,142
----------- ----------- ----------- -----------
Gross margin........................... (189,169) (126,251) 32,393 (343,495)
Operating expenses:
Selling and marketing.................. 914,400 1,661,259 1,809,175 2,518,776
Product development.................... 481,039 588,671 749,780 1,222,735
General and administrative............. 345,953 523,049 751,707 826,006
Channel acquisition costs.............. -- 5,000,000 -- 1,500,000
----------- ----------- ----------- -----------
Total operating expenses....... 1,741,392 7,772,979 3,310,662 6,067,517
----------- ----------- ----------- -----------
Net loss from continuing operations...... (1,930,561) (7,899,230) (3,278,269) (6,411,012)
Other income (expense), net.............. 35,574 92,507 118,688 274,409
Interest expense......................... (23,309) (49,434) (60,058) (97,092)
----------- ----------- ----------- -----------
Net loss from continuing operations...... $(1,918,296) $(7,856,157) $(3,219,639) $(6,233,695)
=========== =========== =========== ===========
NUMBER OF MAILBOXES AT PERIOD END:
Consumers................................ 3,385,000 4,027,000 4,769,000 5,676,000
Web portals.............................. -- -- 869,000 1,715,000
Businesses............................... 83,000 118,000 168,000 217,000
----------- ----------- ----------- -----------
Total.......................... 3,468,000 4,145,000 5,806,000 7,608,000
=========== =========== =========== ===========
</TABLE>
Our revenue and cost of revenue during these periods closely tracked our
growth in users from quarter to quarter. Our operating expenses increased
quarter over quarter as we grew our sales and marketing capabilities, our
service offerings under development, and our administrative infrastructure.
Other factors that influenced our quarterly results in 1998 include the
following:
- In April 1998 and November 1998, we paid Netscape channel acquisition
costs, as discussed above;
- In June 1998 we launched our commercial messaging services; and
- In March 1998 and August 1998 we sold equity to investors.
Our annual and quarterly operating results have fluctuated significantly in
the past and we expect them to fluctuate significantly in the future. Please
refer to our discussion in "Risk Factors" for a discussion of the factors that
may cause our quarterly results to fluctuate.
25
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents, restricted cash and short-term investment
securities increased by $7,464,000 from December 31, 1997 to $11,508,000 at
December 31, 1998. This net change occurred because we raised $32,231,000 in net
proceeds from the sale of equity securities and incurred a net loss of
$19,228,000 during 1998 due to the expansion of our organization and operations.
Our investment in property and equipment during 1998 was $12,294,000, of which
$5,542,000 was financed with capital leases. Installation of network
infrastructure equipment in our data center, equipment for new employees and
leasehold improvements related to office and data center expansions accounted
for most of the increase in our capital expenditures in 1998. We expect that our
investment in property and equipment will continue to grow as we increase our
capacity to provide email services, although we have no formal commitments to do
so. We may also have to pay an additional $625,000 and $375,000 to Netscape in
1999 and 2000, respectively, subject to completion of certain tasks by Netscape.
We have a credit facility with a bank that provides for borrowings up to
$2,000,000. As of December 31, 1998, $1,767,000 was outstanding under this
credit facility. Borrowings under this credit facility bear interest at the
bank's prime rate, which was 7.75% at December 31, 1998. Certain of our assets
collateralize borrowings under this facility and a stockholder that is an
officer and director has guaranteed the facility. Our capital lease obligations,
including both short-term and long-term portions, increased by $5,237,000 during
1998 (net of repayments) because we secured financing for a substantial share of
our additions to property and equipment.
We have financed the majority of our operations through the issuance of
equity securities. We have sold common stock and preferred stock generating
aggregate net proceeds of $44,292,000, of which $1,487,000 was restricted at
December 31, 1998 for certain marketing and technical development efforts and is
reflected as restricted cash on our balance sheet.
To date, we have derived substantially all of our revenue from the sale of
advertising on our Web sites. The Internet has not been available as an
advertising medium long enough to gauge its effectiveness as compared to
traditional advertising outlets. We may not be successful in marketing our
current services or other new or enhanced services. In addition, the market for
our services is characterized by rapid technological developments, frequent new
service introductions and evolving industry standards. These changes require us
to continually improve the performance, features, and reliability of our
services, particularly in response to competition. We may not be successful in
responding to these changes.
We believe that the net proceeds from the sale of common stock offered
hereby, together with our current cash, cash equivalents and short-term
investment balances, cash generated from operations and cash available under our
credit facility, will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months. Our operating and
investing activities may require us to obtain additional equity or debt
financing. In addition, although there are no present understandings,
commitments or agreements with respect to any acquisition of other businesses,
products, and technologies, to consummate potential acquisitions, we may need
additional equity or debt financing in the future.
We believe that capital is available to us from third parties if this
offering is not consummated. If this capital is not made available, a
stockholder has committed to fund our operations through 1999, if necessary.
YEAR 2000 ISSUES
The Year 2000 issue arose because many computer programs were written using
two digits rather than four to define the applicable year. Any computer programs
or hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the Year 2000. This could result in
system failures or miscalculations causing disruptions of operations for any
company using such computer programs or hardware, including, among other things,
an inability to connect to the
26
<PAGE> 31
Internet, process transactions, send invoices or engage in normal business
activities. As a result, many companies must upgrade or replace their computer
systems to avoid "Year 2000" issues.
We are a comparatively new enterprise, and, accordingly, the software and
hardware we use to manage our business has all been purchased or developed by us
within the last 24 months. While this fact pattern does not uniformly protect us
against Year 2000 exposure, we believe we gain some mitigation from the fact
that the IT we use to manage our business is not based upon "legacy" hardware
and software systems. "Legacy system" is a term often used to describe hardware
and software systems that were developed in previous decades when there was less
awareness of Year 2000 issues. Generally, hardware and software design within
the current decade and the past several years in particular has given greater
consideration to Year 2000 issues. All of the software code we have internally
developed to manage our network traffic, for example, is written with four
digits to define the applicable year.
We are in the process of testing our internal IT and non-IT systems. We
have a dedicated Year 2000 project manager and our own personnel have performed
all of the testing we have completed. To date, we have completed testing of our
internally developed IT and non-IT software. Based on such testing, we believe
that such software is Year 2000 compliant.
In addition to our internally developed software, we use software and
hardware developed by third parties both for our network and internal
information systems. We have not performed any testing of such third-party
software or hardware to determine Year 2000 compliance. We are, however, in the
process of obtaining certifications from our key vendors to ensure that their
hardware and software is Year 2000 compliant. Based on our initial evaluation of
our list of material software and hardware providers, we believe that these
providers are presently compliant or are reviewing and implementing their own
Year 2000 compliance programs. We intend to work with these providers to address
the Year 2000 issue and continue to seek assurances from them that their
products are Year 2000 compliant.
In addition, we rely on third party network infrastructure providers to
gain access to the Internet. If such providers experience business interruptions
as a result of their failure to achieve Year 2000 compliance, our ability to
provide Internet connectivity could be impaired, which could have a material
adverse effect on our business, results of operations and financial condition.
Our users' success in maintaining Year 2000 compliance is also significant
to our ability to generate revenue and execute our business plan. Interruptions
in our users' services and on-line activities caused by Year 2000 problems could
have a material adverse effect on our revenue.
We have not incurred any significant expenses to date and we are not aware
of any material costs associated with our anticipated Year 2000 efforts.
However, if we, a significant number of our users, our providers of hardware and
software or our third-party network providers fail to remedy any Year 2000
issues, we could experience a material loss of revenue that could materially
adversely affect our business, results of operations and financial condition. We
would consider an interruption in our ability to provide our services to be the
most reasonably likely unfavorable result of any failure by us, or failure by
the third parties upon whom we rely, to achieve Year 2000 compliance. Presently,
we believe we are unable to reasonably estimate the duration and extent of any
such interruption, or quantify the effect it may have on our future revenue. We
have not yet developed a comprehensive contingency plan to address these issues,
which could result from such failure. We are prepared to develop such a
contingency plan if our ongoing assessment indicates areas of significant
exposure.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to adverse changes in financial
and commodity market prices and rates. We are exposed to market risk in the
areas of changes in United States interest rates and changes in foreign currency
exchange rates as measured against the United States Dollar. These exposures are
directly related to our normal operating and funding activities. Historically
and as of December 31, 1998, we have not used derivative instruments or engaged
in hedging activities.
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INTEREST RATE RISK
The interest payable on our credit facility is variable based on the prime
rate, and, therefore, affected by changes in market interest rates. At December
31, 1998 and 1997, approximately $1,767,000 and $1,500,000 was outstanding on
the note payable. The note payable matures in January 2000. We manage interest
rate risk by investing excess funds in cash equivalents and short-term
investments bearing variable interest rates, which are tied to various market
indices. As a result, we do not believe that near-term changes in interest rates
will result in a material effect on our future earnings, fair values or cash
flows.
FOREIGN CURRENCY RISK
We may enter into contracts where we pay or a third party pays us in a
foreign currency. This exposes us to changes in exchange rates. Changes in the
foreign exchange rates may positively or negatively affect our financial
position, results of operations or cash flows. We do not believe that near-term
changes in exchange rates will result in a material effect on future earnings,
fair values or cash flows, and therefore, have chosen not to enter into foreign
currency hedging instruments. There can be no assurance that such an approach
will be successful, especially in the event of a significant and sudden decline
in the foreign exchange rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of such software. SOP No. 98-1 is effective
for financial statements for fiscal years beginning after December 15, 1998. The
Company does not expect that the adoption of SOP No. 98-1 will have a material
impact on its 1999 financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Company is required to
adopt SFAS No. 133 in the year ended December 31, 2000. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. To
date, the Company has not entered into any derivative financial instruments or
hedging activities.
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BUSINESS
We are a leading provider of email and advanced messaging solutions on the
Internet for consumers, Web portals and businesses. As of March 31, 1999, we
managed over 9.6 million mailboxes across all of our service offerings and
processed over 190 million messages during the month of March 1999. Our consumer
email service, NET@DDRESS (www.netaddress.com), is the largest independent
Web-based email service on the Internet with more than 6.7 million mailboxes.
Netscape and register.com, a business-oriented portal site, constitute our
primary Web portal clients. Our commercial messaging solutions include
specialized business applications for companies such as American Express, as
well as comprehensive message outsourcing services for a wide range of
businesses. We base our messaging solutions on highly reliable and scalable
technology that includes advanced features, universal accessibility and a high
level of security. We believe that our proven experience in meeting the rapidly
evolving messaging needs of consumers, Web portals and businesses positions us
to capitalize on the continuing rapid growth of Internet-based messaging.
CONSUMERS
In April 1996, we launched NET@DDRESS, the first Web-based email service
for consumers. NET@DDRESS, which we offer as a free service, has allowed us to
quickly build a large user base, establish our reputation for providing quality
service and scale-up our technology infrastructure. In 1998, NET@DDRESS won
awards for its superior features from PC Magazine, CNET and Windows Magazine. In
December 1998, MediaMetrix, an Internet usage measuring firm, ranked NET@DDRESS
as the sixth most popular site on the Web based on time spent online by Internet
users. We generate revenue from NET@DDRESS by selling advertising space and by
offering fee-based premium services. We intend to increase advertising revenue
from NET@DDRESS by using enhanced targeted marketing techniques and by expanding
our user base. We also plan to offer our users additional fee-based premium
services.
WEB PORTALS
We provide our messaging solutions to Web portals to enhance our reputation
as a premier provider of messaging services and to build our brand awareness
among both consumers and businesses. We host and manage the Web-based email
services for Netscape's Netcenter Web portal. Before we launched Netscape
WebMail Powered by USA.NET in July 1998, Netscape did not offer email capability
to its Netcenter members. Netscape WebMail currently has over 2.7 million
mailboxes. According to Netscape, in March 1999 there were approximately 14
million Netcenter members generating more than 50 million pageviews per day. In
September 1998, PC Magazine recognized Netscape WebMail as the top-ranked
Web-based email service in a review of the features of 12 major Web portals. We
are also developing foreign language-based email services for certain of
Netscape's international Netcenter Web portals. We generate revenue from
Netscape WebMail by selling advertising space through our internal sales force
and from fee-based premium services. We share this advertising and premium
service revenue with Netscape. Netscape invested in us in August 1998.
In March 1999, we entered into an agreement with register.com to offer
businesses an integrated solution that combines our email and other advanced
messaging solutions with register.com's domain name registration service. We
plan to generate revenue by charging a monthly fee for each mailbox established
through this relationship.
BUSINESSES
We develop and deploy our application-specific messaging solutions to
address specialized business messaging needs. In April 1998, together with
American Express, we launched AmExMail, a Web-based email service that is
available to all consumers but which has special features available exclusively
for American Express Cardmembers. AmExMail enables American Express to
communicate with its customers and prospects in a variety of ways and helps
American Express build customer loyalty. American Express invested in us in
April 1997 and March 1998.
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We also offer comprehensive message outsourcing services to businesses to
meet their need for a cost-effective and reliable solution to their increasingly
complex messaging requirements. We introduced this service in June 1998 and
currently market it to companies in a wide range of industries, including
Internet service providers, wireline and wireless telecommunications companies,
publishers, information technology service companies, professional service
providers and consumer products companies.
We generate revenue from these application-specific and comprehensive
outsourcing solutions primarily by charging a monthly fee for each mailbox. We
also offer fee-based premium services and sell advertising in select situations.
We believe that we are well positioned to capitalize on the growing
importance of email as a communications medium for consumers, Web portals and
businesses. We believe that our messaging solutions will function as a central
message center that allows users to take advantage of the convergence of email,
voice mail and fax communications over the Internet. We believe that the
development of unified messaging will create new opportunities for expanded
services for a variety of Internet access devices, including computers, wireless
phones, pagers, personal digital assistants and television set-top boxes.
EMAIL AND MESSAGING BACKGROUND AND TRENDS
GROWTH OF THE INTERNET AND INTERNET MESSAGING
The Internet is quickly becoming an important communications tool,
advertising medium and sales channel for both consumers and businesses
worldwide. International Data Corporation estimates that the number of Internet
users worldwide will grow from 97 million in 1998 to 320 million by the end of
2002, and that the number of devices able to access the Internet will increase
from 120 million in 1998 to 515 million by the end of 2002. Jupiter
Communications estimates that online advertising revenue will grow from
approximately $1.9 billion in 1998 to approximately $7.7 billion in 2002.
We believe that email and advanced messaging services will continue to be
key drivers of Internet usage and growth because they are among the most popular
Internet applications today. Email is a powerful yet inexpensive means of
handling a wide variety of business-to-business, business-to-consumer and
personal communications at any time and from any location. According to
Forrester Research, the number of email users in the United States is expected
to increase from 75 million in 1998 to 135 million in 2001. Electronic Mail and
Messaging Systems estimates that the total number of electronic mailboxes
worldwide will increase from approximately 326 million at the end of 1998 to
approximately 400 million at the end of 1999. In addition, Jupiter
Communications projects that the total number of email messages sent per day in
the United States will increase from 246 million in 1998 to 576 million in 2002.
We believe that the growth in the use of email is being driven by its
convenience, speed, relatively low cost and the ability to send multimedia
attachments, such as video clips, graphics files, audio files, documents and
spreadsheets.
DEVELOPMENT OF INDUSTRY PROTOCOLS
The creation and widespread acceptance of industry protocols have driven
the rapid growth in the use of the Internet as a messaging medium. The first
email protocols enabled users to send messages across a variety of computer
operating systems. Recently adopted Internet protocols facilitate a user's
access to messages from a variety of devices. New email solutions, including
those offered free of charge, allow users with a Web browser, such as Netscape
Navigator or Microsoft Internet Explorer, to access their messages from any
computer, terminal or kiosk that is connected to the Internet.
Simple Mail Transport Protocol (SMTP) is currently the standard mail
protocol on the Internet. It allows Internet servers to route mail from the
sender to a destination. All Internet messages are transported using SMTP. Users
of proprietary email systems must convert their internal mail formats to SMTP
before sending messages over the Internet.
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Web-based mail allows users to access their messages from any computer or
device with a Web browser and Internet access. This eliminates the need to
maintain a separate program to access email. Post Office Protocol (POP) and
Internet Messaging Access Protocol (IMAP) are emerging standards that improve
the functionality of email. POP allows users to connect to a shared mail server
and download their mail to their computer or alternative Internet access device.
After a user downloads the mail, the user manages the mail on the user's
computer or device.
IMAP provides greater flexibility at the server level than POP because IMAP
allows a user to sort messages, search for specific text in a message, and
manipulate folders and mailboxes while those files are still on the server host
instead of on the user's computer or alternative Internet access device. This is
particularly valuable for users who access their messages from different
computers with different email software. In addition, IMAP allows users to have
a common mailbox and customized folders and mailboxes that are not specific to a
particular computer or alternative access device.
INTERNET MESSAGING CONVERGENCE
Emerging Internet protocols, such as IMAP, are facilitating a convergence
in messaging. Today, businesses use multiple platforms to communicate by email,
voice mail and fax. These platforms generally use different technologies that
are based on different communications standards. The new Internet standards are
leading to the convergence of email, voice mail and fax communications onto a
single platform with a single standard. For example, these new standards will
allow voice mail messages to become audio attachments and faxes to become image
attachments to email messages. As a result, users will be able to read, view,
listen and respond to different message types using a common interface that can
be accessed by traditional personal computers or a variety of other Internet
connected devices, including wireless phones, network computers, pagers,
personal digital assistants and television set-top boxes.
As email becomes an essential communications medium, businesses and
consumers expect their email service to be as reliable as their telephone
service. To remain competitive, businesses must be able to rapidly deploy an
advanced email system, manage the system effectively and increase its capacity.
As the number of email users grows and the volume and complexity of messages
increases, email systems must be able to accommodate increasing user demand and
rising storage requirements.
SPECIALIZED BUSINESS APPLICATIONS AND MESSAGE OUTSOURCING SERVICES
Today, many businesses have implemented in-house email systems which
require hardware, software and technical and administrative resources. Creative
Networks, an e-business consulting and research firm, estimates that to acquire,
deploy and operate an in-house messaging solution for 5,000 users, a business
must spend approximately $640 per user's mailbox per year. Even with this level
of investment, we believe many businesses still face significant downtime and
unreliable service. According to the Gartner Group, the percentage of large
businesses that expect to outsource at least some of their email systems is
estimated to grow from 10% in 1998 to 25% in 2000. Additionally, Forrester
Research estimates that the amount spent on outsourced email services will
increase from an estimated $8 million in 1997 to over $1 billion in 2002. We
believe that a growing number of businesses will outsource their messaging
services to ensure a more reliable, cost-effective and less resource-intensive
solution than their own in-house email system.
The rapid proliferation in the number of email users, together with
advances in messaging technology, have enabled new applications for Internet
messaging such as enhanced customer care and service and targeted direct
marketing. However, many businesses lack the internal expertise or resources to
exploit these opportunities. We believe there is a significant need for a
provider of solutions for business communications needs.
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USA.NET: MEETING THE MESSAGING NEEDS OF CONSUMERS, WEB PORTALS AND BUSINESSES
Our advanced messaging solutions are designed to capitalize on developing
Internet messaging trends and to service the expanding messaging needs of
consumers, Web portals and businesses. We use our experience in managing
millions of emailboxes to provide our users with a robust set of features that
satisfy these needs.
CONSUMER NEEDS
We believe that consumers want a messaging solution that:
- Provides a permanent email address that does not change when the user
switches employers, schools or Internet service providers;
- Permits users to easily access their messages through any computer or
device connected to the Internet without having to download or install
special software;
- Offers a robust set of basic features to easily retrieve and send
messages, consolidate messages from multiple POP-compliant mailboxes,
filter and organize messages and create automatic replies to incoming
messages;
- Offers optional advanced functionality such as virus scanning, email
forwarding and message notification; and
- Ensures email account privacy and secure delivery of messages.
WEB PORTAL AND BUSINESS NEEDS
We believe that Web portals and businesses require a comprehensive advanced
messaging solution that:
- Eliminates the need to incur significant hardware, software and ongoing
operational support costs;
- Can be rapidly deployed;
- Can be readily upgraded and expanded as their businesses and message
volume grow;
- Allows them to focus management resources on their core competencies;
- Is reliable and provides a high level of security;
- Permits users to easily access their messages through any computer or
device connected to the Internet without having to download or install
special software;
- Can be customized to ensure a consistent "look and feel" with their
corporate images;
- Is compatible with popular software programs such as Netscape Messenger
and Microsoft Outlook;
- Offers specialized applications and value-added features to allow
strategic business-to-business or business-to-consumer communications;
and
- Offers sophisticated and accessible customer service and technical
support.
STRATEGY
Our objective is to be the leading provider of email and advanced messaging
solutions for consumers, Web portals and businesses. We intend to pursue this
objective by employing the following strategies:
DEVELOP SPECIALIZED APPLICATIONS TO SOLVE UNIQUE BUSINESS NEEDS
We are aggressively developing solutions for a wide range of business
communications needs. We believe that our experience and success in developing
specialized messaging services for American Express will help us identify and
develop solutions to address numerous other specific business needs. Our
application-specific messaging solutions allow a business to:
- Improve its ability to directly target promotional offers and other
marketing initiatives to its customer base;
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- Attract and retain customers and increase customer satisfaction through
ongoing communication and interaction on the Internet;
- Differentiate itself from its competitors by offering new and enhanced
services; and
- Improve its business-to-business and business-to-consumer communication
capabilities.
EXPAND OUR MESSAGE OUTSOURCING SERVICES
Our message outsourcing services are designed to address the needs of
businesses for cost-effective, reliable messaging solutions that can handle the
increasingly complex messaging requirements resulting from the convergence of
email, voice and fax communications. As a result, we are devoting significant
attention to expanding our message outsourcing services. We are pursuing this
opportunity by expanding our sales and marketing activities and by establishing
relationships with information technology service companies, resellers and
distributors which have access to a broad customer base. We also intend to focus
on developing strategic partnerships with selected telecommunications and other
service providers to bundle our commercial messaging services with their
communication services.
CONTINUE LEADERSHIP IN CONSUMER MESSAGING
We intend to continue to expand our NET@DDRESS user base and to increase
our average revenue per user. We plan to significantly expand our marketing
activities to broaden consumer awareness of NET@DDRESS and to attract mainstream
consumers, who are increasingly accessing the Internet and using email. We also
seek to increase our average revenue per user by enabling advertisers to pursue
targeted marketing initiatives and by offering fee-based premium services to
existing and new users.
DEVELOP AND STRENGTHEN RELATIONSHIPS WITH WEB PORTALS
We seek to maintain and expand our Netscape and register.com relationships
and to selectively pursue other Web portal relationships. We intend to generate
additional advertising and premium service revenue from Netscape's WebMail, and
we plan to broaden our per-mailbox revenue opportunities through our
relationship with register.com and other Web portals. We are focusing on
developing relationships with additional Web portals that we believe may further
build our reputation and provide us with access to significant user bases and
revenue opportunities.
MAINTAIN TECHNOLOGY LEADERSHIP
We have developed highly reliable and scalable messaging technology, and we
use the best available third party software where appropriate. We plan to
continue to be a leader in advanced messaging by combining the best available
third party hardware and software with our proprietary applications and
technology. We intend to:
- Continue our focus on creating value-added solutions for specialized
business applications;
- Develop software to enhance our services; and
- Ensure that our systems can be easily integrated with those of our users.
PROVIDE SUPERIOR CUSTOMER SERVICE
We are dedicated to providing superior customer service to satisfy
businesses' and consumers' demand for reliable, high quality messaging services.
We provide customer support through live agents at our dedicated call center and
through online services. Our highly trained customer support staff of over 40
people uses the leading voice, e-service and interactive online technologies to
enhance the quality of our support. We plan to expand our customer support staff
and continue to dedicate significant resources to monitoring and improving the
quality of our customer support services.
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OUR ADVANCED MESSAGING SERVICES
We have developed a wide range of reliable, easy-to-use advanced messaging
solutions to meet the rapidly evolving needs of consumers, Web portals and
businesses. We base our messaging solutions on highly reliable and scalable
technology that includes advanced features, universal accessibility and a high
level of security. We have multiple diverse revenue opportunities, including
advertising revenue, fee-based premium services and monthly per-mailbox fees.
MESSAGING SOLUTIONS FOR CONSUMERS
NET@DDRESS users receive a permanent email address of their choice with a
"usa.net" domain name (e.g. [email protected]). We provide the basic service free
of charge. The user's email address does not change regardless of how often the
user switches employers, schools or Internet service providers.
NET@DDRESS users can send or retrieve email through the NET@DDRESS Web site
(www.netaddress.com) from any computer connected to the Internet with a standard
Web browser. Since NET@DDRESS is Web-based, users do not need to download or
install special software to access the service, but if they desire, they can
view their messages through popular software programs such as Netscape Messenger
or Microsoft Outlook.
All NET@DDRESS users can use our robust set of free basic features to:
- Store up to five megabytes of data;
- Consolidate messages from multiple POP-compliant mailboxes into one
mailbox;
- Block unwanted messages;
- Attach large, complex files to their messages;
- Store frequently used email addresses in an address book;
- Spell check messages;
- Organize and archive messages in customized folders;
- Add customized signatures to their messages; and
- Create automatic replies to incoming messages.
NET@DDRESS also offers advanced privacy and security features. Each user
has an account that the user can access only after entering a unique user name
and an individually selected password. Users accessing their accounts via a
public computer or other access device can choose to disable their memory cache,
meaning that viewed pages are expired rather than stored in the browser's memory
so that subsequent users of the public computer or other access device will not
be able to read the user's messages.
NET@DDRESS users can also subscribe to several fee-based premium services,
including virus scanning, pager notification, email forwarding and POP access.
Users pay for these premium services on a monthly or annual basis.
In return for providing basic messaging services free-of-charge, we place
advertising on the NET@DDRESS Web site. We generate revenue from these
advertising sales as well as from the promotion of opt-in content delivery,
which is marketing information and special offers from advertisers that users
can choose to receive. We gather demographic data during the initial
registration process, which we use for targeting advertisements and other
service offerings to users. We offer advertisers a number of programs to target
advertisements to various segments of our user base according to desired
demographic data to increase advertising effectiveness.
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MESSAGING SOLUTIONS FOR WEB PORTALS
Netscape WebMail Powered by USA.NET
In 1998, we entered into a relationship with Netscape to host and manage
email services for Netscape's Netcenter Web portal. Netscape WebMail Powered by
USA.NET is accessible from the Netscape Netcenter Web site (www.netcenter.com)
as well as from a button on the toolbar of Netscape browser software. The email
service offers the same features and functionality as our NET@DDRESS service. We
host the email services at our facilities. Netscape WebMail users are also
automatically enrolled as Netcenter members.
According to Netscape, Netscape WebMail Powered by USA.NET has become the
leading source of attracting new members to Netcenter. We believe that hosting
the Netscape WebMail service has provided us with high visibility and has
significantly helped us build brand awareness. We intend to market our
commercial messaging services to the business users that frequent the Netscape
Netcenter site.
Our agreement with Netscape provides us with multiple revenue
opportunities, including advertising and additional fee-based premium services
similar to those offered by NET@DDRESS users. We are responsible for selling all
advertising space on Netscape WebMail Powered by USA.NET. We share advertising
and premium service revenue with Netscape. We recently expanded the scope of our
agreement with Netscape to develop foreign language-based email services for
certain of Netscape's international Netcenter Web portals. We also expect to
generate revenue on the international Web portals by selling advertising space
and fee-based premium services.
Strategic Partnership with register.com
In March 1999, we entered into an agreement with register.com, a business
portal site that is the largest single domain name registration service on the
Internet. We believe that the first two steps for a business to establish a
presence on the Internet are to register for a domain name and establish email
service. Together with register.com, we expect to provide businesses with a
bundled offering of domain name registration and business messaging services.
Under the terms of our agreement, register.com offers its customers the
opportunity to receive a Web-based email account with the customer's new domain
name. We plan to generate revenue from this relationship by charging a monthly
per-mailbox fee.
MESSAGING SOLUTIONS FOR BUSINESSES
Specialized Messaging Application for American Express
In April 1998, together with American Express, we launched AmExMail Powered
by USA.NET (www.amexmail.com). As of March 31, 1999, AmExMail had over 258,000
mailboxes. The AmExMail service is offered free to all consumers with all of the
features and functionality of our NET@DDRESS service. American Express'
Cardmembers, however, receive without charge certain services and features that
other users must pay for, including POP access and message management features.
We host the AmExMail services on secure servers located at our facilities.
We generate revenue from the AmExMail service from advertisements. We also plan
to offer fee-based premium services to AmExMail users. We share advertising and
premium service revenue from AmExMail with American Express.
Other Specialized Messaging Applications
We plan to develop other specialized messaging applications that address
business needs and to develop value-added solutions that can be integrated with
other technologies to address unique communications needs. We believe that
businesses can apply these solutions to increase customer service quality,
enhance their products and services, interact directly with their customer base,
employ direct
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marketing techniques and increase customer loyalty. Some of the specialized
applications that we are currently developing include solutions for:
- Universities and other groups to establish affinity programs with their
alumni or membership base;
- Telecommunications and wireless service providers to bundle our messaging
solutions with their telecommunications services; and
- Internet service providers and Web hosting companies to combine our
services with theirs and provide a complete communications package for
their customers.
Message Outsourcing Services
We launched our commercial message outsourcing service in June 1998. This
service is a cost-effective, easy-to-use email service that is scalable as a
customer's business grows. We sell this service on a turnkey basis with a
complete customer service package, including both account management and
technical support. We currently sell our commercial messaging services directly
through our sales force and indirectly through sales channel partners, such as
information technology service companies and Internet service providers. We are
also pursuing relationships with resellers and distributors aggressively. We
charge a monthly per-mailbox fee that allows a business to avoid expensive
up-front capital expenditures and to scale its spending as its business grows.
We believe that we may have additional revenue opportunities through the sale of
premium services and advertising space in select situations. We manage these
services at our data center, which is monitored by our team of trained systems
operations professionals seven days a week, twenty-four hours per day.
When a business signs up for the commercial messaging services, it
designates a domain name and selects an initial number of mailboxes. The
business also designates one of its employees as a "postmaster" to
self-administer email addresses, customize the client's email interfaces and add
and delete users when appropriate. We train the postmaster and provide ongoing
customer support.
We designed our commercial messaging services to complement and enhance a
business' existing email software. Our commercial messaging services can
streamline a business' messaging functions because it can integrate disparate
email systems that a business may have in different office locations. These
services also permit businesses to standardize their email services using any
email software, such as Netscape Messenger or Microsoft Outlook. As a result,
our services can be implemented easily and with minimal impact on business
operations. We also designed our commercial messaging services to grow so that
businesses can manage increasing volumes of messages in a cost-effective manner.
Our commercial messaging services can also add new features and
functionality to a business' existing system. For example, we provide gateway
filtering for virus detection, filtering for unwanted junk email, and email
certification and encryption. In addition, because our service is Web-based,
users can access their messages from any Internet-connected device with a Web
browser at any time from any location.
A business can also customize its email for a professional "look and feel"
that fits with its corporate image. A business using our commercial messaging
services receives a unique email address for each employee that contains the
business' domain name (e.g. [email protected]) allowing it to have a
complete professional company image on the Internet that is consistent with any
current or future Web site it may have.
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FEATURES AND FUNCTIONALITY
BASIC SERVICE FEATURES
We designed the features and functionality of our service offerings to
provide reliable, cost-effective solutions to meet our users' messaging needs.
The following table lists features that we currently offer free of charge to
consumers and Web portals, and as basic services to businesses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Message Storage - Five megabytes of storage on - Allows for centralized message
our centralized server storage on our servers rather
than on a user's personal
computer
- Provides secure server-based
storage and back-up, as well
as universal access to
messages
- ---------------------------------------------------------------------------------------------------
Mail Collection - Consolidate messages from - Simplifies message management
multiple POP-compliant by automatically consolidating
mailboxes into one mailbox all messages in one place
- ---------------------------------------------------------------------------------------------------
Spam Blocking - Block or delete unsolicited - Detects and blocks spam before
bulk email it reaches the user's mailbox
- ---------------------------------------------------------------------------------------------------
File Attachment - Attach files of up to five - Allows attachment and
megabytes to messages transportation of documents,
presentations and other text,
graphic or video files via the
Internet rather than by fax,
mail or other traditional
media
- ---------------------------------------------------------------------------------------------------
Address Book - Organize email addresses in an - Permits universal access to
easily accessible address book address book
- Allows users to create and
store individual and group email
addresses
- ---------------------------------------------------------------------------------------------------
Spell Check - Check spelling - Enhances ability to send
accurate and professional
messages by checking for
spelling errors before sending
a message
- ---------------------------------------------------------------------------------------------------
Folder Management - Filter, organize and store - Allows users to classify and
incoming and outgoing messages store messages in personalized
on our servers folders that they establish
according to their own
preferences
- ---------------------------------------------------------------------------------------------------
Message Management - Create rules for screening and - Users can establish
filtering messages instructions and rules to store,
forward or block messages
according to sender, subject,
date and time
- ---------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Unique User Profiles - Establish unique settings for - Users can customize the look
email viewing and feel of their mailbox by,
for example, setting the font
- Change passwords and size of their messages and
signatures for email messages establishing the number of
messages they can view on the
screen
- Allows for customized
signature containing user's
address, phone number or other
information to be attached to
each outgoing message
- ---------------------------------------------------------------------------------------------------
Automatic Responses - Send automatic responses to - Allows users to automatically
incoming email respond to messages before
reading them, for example to
let others know that a user is
on vacation or travelling
- ---------------------------------------------------------------------------------------------------
Email Scheduling - Send emails at designated - Allows users to create a
times message to be sent at a
designated time
- Send reminders of specific
events - Users can schedule message
reminders for specific daily,
weekly, monthly or yearly
events such as meetings,
birthdays or anniversaries
- ---------------------------------------------------------------------------------------------------
Memory Cache Disabling - Viewed pages are expired - Increases privacy and security
rather than stored in the when a user accesses messages
browser's memory cache so that through public computers or
subsequent users of a public other access devices
computer or other access
device will not be able to
read a previous user's
messages
- ---------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 43
BASIC BUSINESS ADMINISTRATIVE FEATURES
We also offer the following administrative services to Web portals and
businesses enabling a comprehensive outsourcing solution.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Web-based Provisioning - Web-based interface for - Provides remote
adding, deleting and modifying self-administration of an
email addresses and services outsourced email environment
- Allows administrators to
retain control and flexibility
- ---------------------------------------------------------------------------------------------------
LDAP-based Provisioning - Lightweight Directory Access - Provides remote
Protocol (LDAP) interface for self-administration of an
adding, deleting and modifying outsourced email environment
email addresses and services
- Allows administrators to
retain control and flexibility
- Provides a means to integrate
end-user provisioning into
pre-existing order processing
systems or applications
- ---------------------------------------------------------------------------------------------------
</TABLE>
PREMIUM SERVICES
We offer the following premium services for a fee or as a special feature
for a select group of users. These features augment the existing capabilities of
our email services and provide us with additional sources of revenue other than
advertising and per-mailbox fees.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Email Forwarding - Forward email messages to - Users can establish rules to
other email accounts forward some or all of their
messages to other email accounts
- ---------------------------------------------------------------------------------------------------
POP Email Access - Download messages using - Users can connect to a shared
standard POP mail server, download messages
to their desktop email
software such as Microsoft
Outlook and work and manage
their messages offline
- ---------------------------------------------------------------------------------------------------
Additional Message - Additional storage on our - Provides increased message
Storage centralized server in five storage space
megabyte increments
- ---------------------------------------------------------------------------------------------------
Advertisement - Suppress advertising banners, - Allows users to elect not to
Suppression buttons and log out pages receive any advertisements
- ---------------------------------------------------------------------------------------------------
Tagline Suppression - Remove our tagline from the - Enhances professional
end of all outgoing messages appearance of outgoing messages
- ---------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 44
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Virus Scanning - Scan for viruses on all - Protects user systems from
incoming messages computer viruses before the
messages reach a user's
mailbox
- ---------------------------------------------------------------------------------------------------
Pager Notification - Send notification of email - Automatically informs users
arrival to any enabled pager or that important messages have
digital phone arrived in their mailbox
- ---------------------------------------------------------------------------------------------------
</TABLE>
PLANNED FEATURES
We are currently developing additional features and premium, fee-based
services for all of our offerings. The following lists examples of some of the
planned features and services that we are developing, either alone or with third
party technology providers.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unified Messaging - Send or receive a fax from an - Allows users to send or
email interface, forward retrieve faxes and voice
messages to a fax from a messages by logging into their
mailbox and retrieve messages email
from any telephone through
text-to-speech technology - Allows users to retrieve faxes
and emails through a telephone
- ---------------------------------------------------------------------------------------------------
Secure Document - Encryption and authentication - Provides enhanced security of
Delivery of messages messages
- Allows users to securely send
sensitive documents over the
Internet without fear of
interception or eavesdropping
- Verifies that the intended
recipient received the message
- ---------------------------------------------------------------------------------------------------
Calendar Services - Web-based calendar integrated - Integrates scheduling function
with email services with the ability to access the
user's schedule and those of
colleagues
- ---------------------------------------------------------------------------------------------------
Greeting Cards - Electronic greeting cards and - Integrates online greeting
messages cards with email
- ---------------------------------------------------------------------------------------------------
Translation Services - Translating Web-based email - Allows display, transfer and
messages from one language to storage of messages and
another attachments in different
languages
- ---------------------------------------------------------------------------------------------------
IMAP - Access and manage messages - Allows users to sort messages,
using IMAP protocol search for specific text in
messages, and manipulate
folders and mailboxes from
multiple email environments
without the need to transfer
the messages from the server
to a user's computer
- ---------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 45
The descriptions in this prospectus regarding our planned service offerings
and the anticipated features of those planned service offerings are
forward-looking statements. Actual services and features could differ materially
from those projected as a result of a variety of factors, some or all of which
may be out of our control. Please refer to "Risk Factors."
CLASSES OF SERVICE
We offer classes of our email services designed to address the specific
needs of businesses and consumers. The classes of services reflect different
combinations of our premium features with our basic services. For example, a
NET@DDRESS user may only need Web access, while a Web portal might want IMAP and
POP access and a business might want all of these services plus encryption.
ADVERTISING SALES AND PROGRAMS
Advertising plays an important role in the business models for NET@DDRESS,
Netscape WebMail Powered by USA.NET and AmExMail Powered by USA.NET. We gather
demographic data on each user who registers for these services. Advertisers can
take advantage of our sophisticated targeted advertising and direct marketing
capabilities on each of these services. We work closely with our advertising and
sponsorship partners to monitor the effectiveness of their advertisements on our
sites and to develop customized solutions to best meet our advertisers' and
sponsorship partners' needs. We believe that our use of sophisticated targeted
marketing tools is critical to our ability to sell our advertising space on the
Internet.
We sell a variety of advertising and sponsorship options to our clients. In
addition to providing banner and button advertising, we specialize in selling
innovative advertising packages to our advertisers at higher rates. Such
programs include:
- Direct Delivery Programs. We promote content from our direct delivery
providers on our services. Users choose to receive content from categories
such as news, sports, entertainment and special offers that meet their
specific interests. Our direct delivery providers in March 1999 included
iVillage, Launch, Sports Illustrated and US News and World Report.
- Logout Page Redirects. When a user logs out of an email session, we
automatically link that user to the advertiser's Web site where the user
can further explore the advertiser's product and service offerings.
- E-direct Programs. We target promotional offers to users that have
"opted-in" and indicated an interest in receiving promotions and special
offers.
Generally, banner advertising is purchased on a price-per-impression basis.
We also receive advertising revenue through fixed fees from content providers,
fees charged in connection with bundling a sponsorship package and bounty fees
we receive when a user signs up for an advertiser's or sponsor's service.
We sell advertisements to companies and organizations from a broad range of
markets, including online services, telecommunications, publishing, online
retailing and consumer goods and services. Following is a list of our top
advertisers during the twelve months ended March 31, 1999:
<TABLE>
<S> <C>
Ameritech Macy's
Audio Books Matchlogic
Brainplay MiningCo.com
Cendant Corporation Nextcard
drkoops.com Riverbelle
Egghead.com Rodale Press
E-Pub Simple Networks Communications
Fox Online Spree
Getsmart US News and World Report
iVillage Women.com
Launch Ziff-Davis
</TABLE>
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<PAGE> 46
Egghead.com accounted for 27.0% of total revenue in 1998 and 18.1% of total
revenue in 1997. 24/7 Media accounted for 14.9% of revenue and Webstakes
accounted for 11.4% of revenue in 1997. We have an internal advertising sales
staff of five professionals. We compensate our sales staff primarily through
sales commissions. We currently sell our entire advertising inventory through
our internal sales staff, allowing us to better control pricing and inventory,
maintain brand consistency and capture maximum revenue.
MARKETING STRATEGY AND EXECUTION
Our marketing objective is to establish ourselves as the leading provider
of advanced messaging services by building brand awareness and developing a
strong core of strategic relationships and partners and a large, loyal user
base. We base our strategy for achieving these objectives on an integrated set
of marketing initiatives, including public relations programs and generating
targeted sales leads.
CONSUMER MESSAGING
Our marketing strategy for NET@DDRESS includes:
- Building awareness of NET@DDRESS through public relations activities and
banners;
- Acquiring users through word of mouth, banner ads and co-marketing
programs;
- Driving use of our services through welcome page communications, new
features, direct delivery of content and value-added services; and
- Building loyalty through retention programs, newsletters and superior
customer service.
To execute this strategy, we buy advertising on leading Internet sites and
in other media. In addition, we offer bounty programs to leading Web sites, in
which we pay the Web sites for each new NET@DDRESS mailbox that the Web site
obtains for us. We also have an ongoing public relations campaign that we target
to consumers, potential advertisers and the financial and business community. We
also have co-marketing programs with strategic partners. Our marketing strategy
includes using the NET@DDRESS Web site welcome page to deliver sponsorships for
advertisers, while offering users content and special offers on products and
services. We intend to increase our marketing efforts for NET@DDRESS at targeted
audiences, such as students, business executives and travelers. In addition, we
plan to expand use of NET@DDRESS and build brand loyalty through the marketing
and distribution of enhanced email service features.
WEB PORTAL AND BUSINESS MESSAGING
Our marketing strategy for Netscape WebMail Powered by USA.NET is to build
awareness of our service primarily by gaining exposure to visitors to the
Netcenter site and by leveraging Netscape's public relations campaigns. We
intend to continue working with Netscape to optimize the use of Netscape WebMail
as a customer distribution channel for Netscape. We also plan to explore
opportunities to expand our relationship with Netscape to target other potential
commercial messaging service users.
We plan to continue to build awareness of the AmExMail services through
advertising online, including through Web site links, and on other media, such
as newsletters, flyers and mailers. We are also working with American Express to
identify additional opportunities to provide other exclusive services on
AmExMail and to develop special services and specific marketing programs, such
as Membership Rewards.
Our marketing strategy for our other Web portal and business messaging
services is to:
- Develop sales leads through direct contacts, channel partner
opportunities, direct mail, print advertising and online advertising;
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<PAGE> 47
- Leverage co-marketing opportunities for our advanced messaging services
with selected Web portals, such as register.com;
- Advertise in publications directed at specific industries, professional
and trade associations, and targeted partner channels;
- Seek strategic partnerships with selected telecommunications, Internet
and other service providers to bundle our advanced messaging services
with their services; and
- Leverage our existing brand awareness developed from managing over 9.6
million mailboxes across all of our service offerings.
We also intend to identify unique messaging needs of businesses and to
develop and market specialized applications to address them. We believe that we
can leverage our advanced messaging technology by developing and marketing
value-added solutions to specific business needs such as targeted direct
marketing, customer care, business-to-business communications and affinity
programs.
In order to maximize our penetration of these potential markets, we plan to
market our solutions through our direct sales force as well as through third
party resellers and distributors who can offer bundled service offerings or can
co-market our services in connection with their core business.
CUSTOMER SERVICE
Offering our customers a high level of customer service and technical
support is a top priority of ours and we believe that it is critical to our
success. We believe that the quality of our customer service distinguishes us
from our competitors. Our customer service staff consists of customer service
representatives, technical support specialists, account coordinators, quality
assurance analysts, order processors and our management. As of March 31, 1999,
we employed 41 people in this group.
Our customer service representatives, account coordinators and technical
support specialists are trained, experienced service professionals. Our customer
service representatives provide multifunctional end-user support across all of
our consumer and commercial messaging services. Our account coordinators and
dedicated customer support representatives provide support, training, account
set-up and provisioning for our business accounts. Our technical support
specialists use e-service tools to categorize, trouble-shoot, and resolve
escalated end-user inquiries or "trouble tickets." We staff our call center
seven days per week, twelve hours per day. We provide additional customer
support seven days per week, twenty-four hours per day, by contractual
arrangement.
We provide full-service customer support through voice, e-service and
interactive online end user support. We use third party, interactive e-service
technology to resolve most of our end-user inquiries within our Web site. We
also provide a "frequently asked questions" section, online knowledge-based
self-help and interactive e-service inquiry tools on our Web site. We make
available traditional toll or toll-free live agent telephone support to some
businesses by contract. We also contract with a third party to provide
multi-lingual interactive on-line support.
In an effort to further improve customer satisfaction, we regularly
evaluate the latest customer support technology and tools. We also track
recurring customer issues to identify opportunities for us to improve our
services.
NETWORK AND TECHNOLOGY
We base all of our services on highly reliable and scalable technology that
includes advanced features, universal accessibility and a high level of
security.
Our messaging network is designed to take advantage of the approaching
convergence of email, voice mail and fax communications. Since we base our
infrastructure on standard Internet protocols, our services can be readily
expanded to enable multiple kinds of messaging with many types of devices and
software.
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<PAGE> 48
We plan to combine the best available third party hardware and software with our
proprietary applications and technology to provide reliable, easy-to-use and
versatile email and other advanced messaging services.
We use leading hardware and software solutions, such as Cisco Systems
routers, EMC storage devices, Oracle database software and Sun Microsystems
servers. We plan to continue to leverage high quality services and technologies
to enhance the design and performance of our messaging networks.
Our experience in handling massive volumes of messages and Internet
requests through our email engine technology has allowed us to refine our
scalable email messaging solutions. We designed our email engine components to
be independently scalable, allowing the addition of hardware and software units
as we approach capacity thresholds. We provide a true, distributed and scalable
Internet email messaging architecture. Each hardware and software process within
our network has "fail-over" protections to provide complete service redundancy.
We designed our network for maximum service availability, including load-
balanced message routing and queuing, peering (or multiple public and private
Internet network connections) and redundant interconnection.
We have a robust, tiered, stand-alone testing environment that has the same
hardware and layered products as our production environment. We have separate
integration and production test environments to isolate our system so that we
can do the functional and performance testing that is essential for us to
deliver "carrier grade" messaging services. We partition our testing environment
so that we can simultaneously test multiple scenarios across our services and
protocols. As a result of this increased efficiency we can provide our users
with robust services that have fewer defects and we can achieve internal cost
savings.
Our proprietary messaging technology streamlines incoming and outgoing
message traffic, message filtering and Web-based email client requests. We
receive each request type through our proprietary queuing and look-up process,
which examines a local cache of recent requests and then gathers the results
from the appropriate cache or appropriate database. We deliver the request
through a corresponding Internet protocol, such as SMTP, POP or IMAP.
Our robust network infrastructure provides our customers with diverse, high
bandwidth connectivity between the Internet and our facilities. We currently
have agreements in place with Qwest, AT&T, MCI WorldCom (via UUNET) and e.spire
for high capacity OC-3 and DS3 level service. We are not dependent on any
co-location facilities. Through these agreements we have direct, private
connections to most major Internet backbone providers. These connections,
together with the number of bandwidth providers with which we have primary
agreements, provides our users with a significant level of both diversity and
redundancy in their email services Internet connection.
We manage this Internet backbone connectivity at our facilities through
redundant Cisco Systems routers using Hot Standby Routing Protocol (HSRP).
Failure of any given network component, circuit or provider should have minimal
impact on the performance of our services for our users. All nodes within our
facilities operate on full 100 megabytes switched Ethernet in a collapsed
backbone configuration for optimal switching efficiency. We trunk our switches
at 1 gigabyte to provide high performance interconnectivity between our Virtual
Local Area Network (VLAN) environments. Finally, our computing facilities are
separated from the public networks through multiple firewalls provided through
Cisco Systems and Sun Microsystems technologies.
Our messaging data center, located in Colorado Springs, is connected
through these diverse network providers to multiple high-performance, high
bandwidth providers that carry all email messaging and Internet traffic. One of
the advantages of our Colorado Springs data center site is its location halfway
between London and Tokyo and its relative lack of susceptibility to major
natural disasters. Our data center is supported by redundant server and network
hardware to achieve carrier-grade uptime and performance. We protect our
physical assets within the data center with video surveillance, twenty-four
hours a day, seven days a week staffing and monitoring, automated fire
suppression and secure badges. We protect our intellectual property and our user
data with two layers of firewall technology combined with an encrypted access
system and individual component access tracking.
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<PAGE> 49
We currently manage more than 19 terabytes of customer data in our data
center. We expect to deploy an additional 15 terabytes of storage capacity in
late 1999. All of our databases are stored on high-speed EMC disk arrays, are
three-way, RAID 1 mirrored and have business continuance volumes configured to
maximize reliability and performance. Our databases are automatically backed up
on a nightly basis to a tape library. We rotate tapes offsite on a regular basis
and store them in a fireproof safe.
We are expanding our existing data center and increasing our available
floor space to better support our growing base of users. We also expect to open
an additional data center in 1999. This center will increase our available space
by a factor of five and further increase our level of redundancy and our ability
to serve our customer base. As we expand our services internationally, we intend
to open data centers in Europe and Asia. These data centers would add further
redundancy and improve local connectivity in those markets.
Unsolicited bulk mail, or spam, is a significant problem for email service
providers. All of our email services include integrated spam blocking features.
We have developed proprietary technology and implemented procedures for
detecting and blocking spam twenty-four hours a day, seven days a week. We have
also designed systems to detect and terminate mailbox accounts that engage in
spam activity.
COMPETITION
Competition in the advanced messaging services industry is intense and we
expect competition to persist, intensify and increase in the future. The market
for selling advertising space on the Internet is also very competitive.
Our consumer email service primarily competes against Hotmail (a service of
Microsoft). In addition, we compete against Web portal sites that have email
services, such as Yahoo!, Excite, Lycos and AltaVista. We also compete against
independent email providers, such as Juno Online Services and Mail.com.
Our NET@DDRESS service also competes against Internet service providers,
such as America Online, who include portable email address solutions within
their basic service offerings. A number of companies offering Internet products
and services recently have begun to integrate Web-based email within the
products and services they offer to consumers and businesses. Other vertical
market portal sites and affinity groups also offer or may in the future offer
email services to their users.
There are a growing number of companies offering various consumer and
commercial email outsourcing services. In the consumer outsourcing market,
companies such as Mail.com, CommTouch and Lycos provide outsourcing for consumer
applications. In addition, entities that provide an initial point of entry for
Internet users, such as the Regional Bell Operating Companies, AT&T and IBM, can
be expected to consider further development, acquisition or licensing of
Web-based email functions and services competitive with our services.
Commercial outsourcing competition consists of companies offering services
to businesses and service providers. Competitors in this market include, or are
expected to include, Critical Path, CompuServe and PSINet. In addition, we
expect that other companies, particularly large service providers,
telecommunications companies and data outsourcing companies, such as EDS and
Computer Sciences, will begin to offer solutions in commercial outsourcing in
the relatively near term.
Our ability to compete depends on many factors, many of which are outside
of our control. We believe the primary competitive factors determining success
in our markets are the following:
- Service quality and reliability;
- Price;
- Feature sets;
- Customer support;
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<PAGE> 50
- Ease-of-use of products and services;
- Our ability to anticipate and adapt to a developing market and rapidly
changing technologies;
- The sales and marketing efforts of us and our competitors;
- The timing and introduction of new products and services; and
- General industry and economic conditions.
In selling advertising space, we compete with many of the market
participants listed above, as well as with various advertising-supported Web
sites, including portal sites such as Yahoo! and Excite, content sites such as
CNET and CNN.com and interactive advertising networks and agencies such as
DoubleClick and 24/7 Media. We also compete with traditional media such as print
and television for a share of our advertisers' total advertising budgets. If
advertisers perceive the Internet to be a limited or ineffective advertising
medium or perceive us to be less effective or less desirable than other Internet
advertising vehicles, advertisers may be reluctant to advertise on our services.
To compete for Internet advertisers, we must offer effective methods of
targeting subscribers with demographic characteristics attractive to these
advertisers.
STRATEGIC RELATIONSHIPS
We enter into strategic relationships to build our reputation as a premier
provider of advanced messaging services, to build our brand awareness and to
sell application-specific messaging solutions that address specialized industry
messaging needs. We have entered into the following alliances:
AMERICAN EXPRESS
In April 1997, we entered into a two-year renewable co-marketing and
program agreement with American Express, a global travel, financial and network
services provider, to build and operate AmExMail Powered by USA.NET. In December
1998, we extended the agreement by four months and it now expires July 8, 1999.
If the agreement expires or terminates, American Express would need to find an
alternate email service and we would forward the AmExMail users' email to the
new service. American Express would pay us a fee for forwarding the mail.
Under our agreement with American Express we have agreed not to administer
or directly offer email or similar services on behalf of or in conjunction with
any competitor of American Express without their consent. A competitor of
American Express includes any charge, credit or debit card business, financial
services business or travel agency business.
In April 1997 and March 1998, American Express purchased an aggregate of
883,652 shares of preferred stock (which will convert into 883,652 shares of
common stock on the closing of this offering).
NETSCAPE
In April 1998, we entered into a two-year, renewable services agreement
with Netscape, a leading provider of open software for linking people and
information over enterprise networks and the Internet, to build and operate
Netscape WebMail Powered by USA.NET. In October 1998, we extended the agreement
to include a two-year renewable services agreement for certain of Netscape's
international Netcenter Web portals, for which we are developing foreign
language-based email services. On expiration or termination of the agreement, we
can market replacement email services to the Netscape WebMail users if we
contact them other than through the information we obtain from their
registration with Netscape WebMail.
We have agreed not to display on WebMail any advertisements or other
promotional text or graphics for third party products or services that are
directly competitive with Netscape's software products and online services.
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<PAGE> 51
Netscape purchased 67,797 shares of preferred stock (which will convert
into 67,797 shares of common stock on the closing of this offering) in August
1998.
REGISTER.COM
In March 1999, we entered into a one-year, renewable reseller agreement
with register.com, a business portal site which is the largest single domain
name registration service on the Internet. register.com will offer its customers
the opportunity to receive a Web-based email account for each employee that
contains the business' domain name, such as [email protected]. This
service allows businesses to have a company-branded domain name for all of its
employees and to outsource its business messaging needs through our commercial
messaging services. register.com is responsible for all billing and collection
from its customers. If our agreement with register.com expires or terminates, we
can acquire all of the mailbox customers by paying register.com a one-time fee.
We have agreed to promote register.com as the exclusive domain name
registration service for our email messaging services, subject to certain
exceptions. Similarly, register.com has agreed not to promote or sell
competitive email messaging services.
PREMIERE TECHNOLOGIES
In October 1997, we entered into a two-year, renewable co-marketing and
integration agreement with Premiere Technologies, a public company that provides
enhanced communications management services, including unified messaging
(integrated email, fax and voice messaging and conference calling managed from
either a Web or telephone interface), networked voice messaging, electronic
document distribution (email and fax) and conference calling and enhanced
calling card services. We are working with Premiere to develop enhanced features
for our email services. We are also working on a co-marketing plan to market
each other's services. We intend to generate revenue from the sale of
co-developed premium services on our email services. We will share revenue from
our co-developed premium services with Premiere.
In October 1997 and March 1998, Premiere purchased an aggregate of 883,652
shares of preferred stock (which will convert into 883,652 shares of common
stock on the closing of this offering).
Under our agreement with Premiere, we have agreed to use Premiere as our
exclusive provider of mobile telecommunications services, including calling
card, text-to-speech email, conference calling and Web-based conference calling,
as well as fax services, including email-to-fax, pager or voice notification of
messages and services.
INTELLECTUAL PROPERTY
Trademarks, service marks, trade secrets, copyrights and other proprietary
rights are important to our success and competitive position. We have registered
and applied for registration of certain service marks and trademarks with the
appropriate state and federal agencies, and will continue to evaluate the
registration of additional service marks and trademarks, as appropriate. We have
one allowed United States patent. We may not gain any competitive advantages
from any patents or be able to exploit them profitably. Further, any patents may
not be able to withstand challenges from third parties.
We seek to protect our proprietary rights, but our efforts may be
inadequate. Existing trade secret, copyright, patent and trademark laws offer
only limited protection. Further, effective trade secret, copyright, patent and
trademark protection may not be available in every country in which we make our
services available through the Internet, and policing unauthorized use of our
proprietary information is difficult. The unauthorized misappropriation of our
proprietary technology could have a material adverse effect on our business,
financial condition and operating results. If we resort to legal proceedings to
enforce our proprietary rights, the proceedings could be burdensome and
expensive and could involve a high degree of risk.
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<PAGE> 52
We may also be subject to claims alleging that we have infringed third
party proprietary rights. If we were to discover that any of our services
infringed third party rights, we may not be able to obtain permission to use
those rights on commercially reasonable terms. This may require us to expend
significant resources to make our services non-infringing or to discontinue the
use of our services. We might incur substantial costs defending against an
infringement claim, even if the claim is invalid. If we have to defend against
an infringement claim it could distract our management from our business.
Further, a party making a claim could secure a judgment that requires us to pay
substantial damages or that prevents us from using or selling our products and
services. Any of these events could have a material adverse effect on our
business, financial condition and operating results. Our success depends
significantly upon our proprietary technology, including our advanced email
technology.
GOVERNMENTAL REGULATION
We are subject to laws and regulations that are applied to various Internet
activities. There are many legislative and regulatory proposals under
consideration by federal, state, local and foreign governments and agencies,
including matters related to:
- Online content;
- User privacy;
- Access charges;
- Jurisdiction;
- International, federal, state and local taxation;
- Liability for third party actions;
- Intellectual property; and
- Characteristics and quality of products and services.
Legislation in these areas could impair the growth of the Internet and
decrease the acceptance of the Internet as a communications and commercial
medium. This could decrease the demand for our services, increase our cost of
doing business or otherwise have a material adverse affect on our business,
financial condition and operating results.
Further, the growth and development of the market for Internet email may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on companies conducting business online. For example, any
laws or regulations that restrict our ability to collect or use personal data
from our users to target advertisements may adversely affect us. There have also
been numerous legislative initiatives proposed to address the prevalence of spam
email on the Internet. These laws may impose additional burdens on our business.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Any new legislation or regulation regarding the Internet, or the
application of existing laws and regulations to the Internet, could harm our
business. Additionally, because we expect to expand our operations outside of
the United States, the international regulatory environment relating to the
Internet could have a material adverse effect on our business.
EMPLOYEES
As of March 31, 1999, we employed 180 people, all of whom are full-time.
The 180 employees include 24 in general and administrative functions, 64 in
operations functions, 48 in sales and marketing and 44 in product development.
We outsource our human resources operations to The Personnel
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Department, a privately-held company. Our employees are not represented by a
labor union or covered by any collective bargaining agreements. We consider our
employee relations to be good.
FACILITIES
Our principal offices are located in over 21,000 square feet of space in
Colorado Springs, Colorado, under a lease expiring on October 31, 2002. We lease
two other facilities in Colorado Springs, one with over 4,000 square feet that
houses our data center and one with over 19,000 square feet that is primarily
used by our information technology staff. We lease additional office space in
Denver, Colorado, San Francisco, California and New York, New York. We believe
that our current facilities and the data center we plan to open in 1999 will be
adequate for our needs for at least the next twelve months.
LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings arising out of our
operations. We are not currently a party to any material legal proceedings.
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MANAGEMENT
Our directors, executive officers and key employees and their ages as of
February 28, 1999 are as follows:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John W. Street (1)................... 42 Chairman of the Board, Chief Executive Officer and
President
Geoffrey E. Lind..................... 50 Executive Vice President, Chief Operating Officer and
Treasurer
Mary M. Beazley (2).................. 43 Senior Vice President, Chief Financial Officer,
Secretary and Director
C. Scott Chasin...................... 28 Senior Vice President of Technology and Chief Technical
Officer
S. Brian Stout....................... 42 Senior Vice President of Marketing and Product
Development
Jeffrey A. Allred (1)................ 45 Director
Karen Griffith Gryga (1)(2).......... 33 Director
Lawrence S. Sharnak (2).............. 45 Director
</TABLE>
- ---------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rodel C. Alejo....................... 28 Vice President of Product Development
Annette C. Hicks..................... 38 Vice President of Customer Service
Michael Lipfield..................... 45 Vice President of Finance
Brian P. Schade...................... 36 Vice President of Information Technology
Steven A. Suslow..................... 29 Vice President of Media Sales
Daniel M. Winokur.................... 28 Vice President of Strategic Relationships
</TABLE>
JOHN W. STREET has served as a member of our Board of Directors since
October 1992 and has served as our President since January 1996 and our Chief
Executive Officer and Chairman of the Board since March 1997. Mr. Street also
served as our Treasurer from October 1992 to January 1996. From September 1987
to December 1995, Mr. Street was President and Chairman of the Board of
Telephone Express, a regional telecommunications provider. Prior to that, Mr.
Street held various accounting and finance positions in several companies,
including Senior Tax Accountant at Arthur Andersen. Mr. Street is a certified
public accountant and earned a B.S. in Business Administration from the
University of Notre Dame. Mr. Street is married to Ms. Beazley.
GEOFFREY E. LIND has served as our Executive Vice President, Chief
Operating Officer and Treasurer since February 1997. Prior to joining us, Mr.
Lind served as Vice Chairman of UMB Financial Corporation, a banking company,
from May 1993 to September 1996. From January 1985 to September 1996 he held
various positions at UMB Bank Colorado and UMB Bank, Kansas City, most recently
serving as Chairman of the Board of Directors and Chief Executive Officer of UMB
Bank Colorado, from May 1991 to September 1996. Between 1974 and 1985, Mr. Lind
was a practicing attorney. Mr. Lind earned a J.D. and a B.S. in Business
Administration, both from the University of Kansas.
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<PAGE> 55
MARY M. BEAZLEY has served as our Secretary and a member of our Board of
Directors since October 1992, and has served as our Senior Vice President and
Chief Financial Officer since March 1997. Ms. Beazley also served as our
Treasurer from January 1996 to February 1997. From January 1996 to February
1997, she served as President and Chairman of the Board of Directors of
Telephone Express, a regional telecommunications provider, and served as its
Executive Vice President from September 1987 to December 1995. Ms. Beazley was
Finance and Operations Manager of Northwest Telecom, a long distance provider,
from January to September 1987. Ms. Beazley is a certified public accountant and
served as a Senior Tax Manager at Arthur Andersen from August 1980 to December
1986. Ms. Beazley earned a B.S. in Communication Disorders from Colorado State
University and attended its graduate school of accounting. Ms. Beazley is
married to Mr. Street.
C. SCOTT CHASIN joined us in December 1994 and has served as our Senior
Vice President of Technology and Chief Technical Officer since September 1997.
From October 1995 to September 1997, Mr. Chasin served as our Director of
Software Development and Research, and from December 1994 to October 1995, he
served as our Director of Operations. From January 1992 to October 1994, Mr.
Chasin served as an Information Security Officer and Senior Unix Administrator
for Amoco Production Company. Mr. Chasin attended Houston Community College
where he studied Computer Science.
S. BRIAN STOUT has served as our Vice President of Market Development since
May 1998 and was promoted to Senior Vice President of Marketing and Product
Development in March 1999. Prior to joining us, he served as President of SBS
Telecommunications, LLC, a consulting firm he founded in September 1996 that
provides consulting services to telecommunications start-up companies. From
August 1994 to September 1996, Mr. Stout served as Director, Product Management
of Omnipoint Corporation, a New York City and East Coast cellular/PCS operator.
Prior to that, he served as Director, Market Development at Omnipoint from June
1991 to August 1994, during the company's early stages. Mr. Stout has an M.S.E.
and a B.S.E. in Engineering, both from the University of Michigan.
JEFFREY A. ALLRED has been a member of our Board of Directors since
November 1998. Mr. Allred has served as President and Chief Operating Officer of
Premiere Technologies, Inc. since February 1999 and as a member of its Board of
Directors since May 1998. From August 1998 to February 1999, Mr. Allred served
as an Executive Vice President of Strategic Development of Premiere
Technologies, Inc. From June 1996 to July 1997, Mr. Allred was a partner in the
Atlanta, Georgia office of the law firm of Alston & Bird LLP. From February 1992
to June 1996, Mr. Allred was a partner in the Atlanta, Georgia office of the law
firm of Nelson, Mullins, Riley & Scarborough, L.L.P. Mr. Allred has a B.A. in
Political Science and J.D. and M.B.A. degrees from The University of North
Carolina at Chapel Hill.
KAREN GRIFFITH GRYGA has been a member of our Board of Directors since
October 1997. Ms. Griffith Gryga is a founder and Vice President of Liberty
Ventures, Inc., a venture capital firm, and has been with the firm since May
1996. Ms. Griffith Gryga was previously a Managing Director at Philadelphia
Ventures, Inc. She received an M.B.A. and an M.S. in Computer Science from the
University of Pennsylvania and a B.S. in Computer Science from the College of
William and Mary.
LAWRENCE S. SHARNAK has been a member of our Board of Directors since
November 1998. Mr. Sharnak has been the Senior Vice President of Fee and
Merchandise Services at American Express since November 1995. From January 1993
to October 1995, Mr. Sharnak served as the Vice President of Cardmember
Marketing Services for the Consumer Card Group of American Express. Mr. Sharnak
has been with American Express since 1980. Mr. Sharnak holds a B.B.A. from the
University of Massachusetts and an M.B.A. from Babson College.
RODEL C. ALEJO joined us in October 1998 as Director of Program Management
and has served as our Vice President of Product Development since March 1999.
Prior to joining us, Mr. Alejo held several positions with MCI
Telecommunications, Inc., including Product Development Manager, Product Manager
and Operations Manager, from March 1992 to October 1998. Prior to that, he
served as a Systems Engineer at Hughes Aircraft from August 1990 to December
1991. Mr. Alejo holds a B.S.B.A. in Marketing, and is currently pursuing an
M.B.A. in International Business, both from Colorado University.
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<PAGE> 56
ANNETTE C. HICKS has served as our Vice President of Customer Service since
November 1997. Prior to joining us, Ms. Hicks was Director of Customer Service
of Telephone Express, a regional telecommunications provider, from December 1987
to February 1997, and served as its General Manager from March to June 1997. Ms.
Hicks received her B.A. in Communications from the University of Colorado at
Colorado Springs.
MICHAEL LIPFIELD joined us in May 1997 as Director of Finance and has
served as our Vice President of Finance since June 1998. Prior to joining us, he
served as Director of Finance and Administration for MCI Direct, a division of
MCI Telecommunications Corporation, from May 1996 to May 1997. From November
1988 to May 1996, Mr. Lipfield was Director of Finance at PST Incorporated, an
outsource marketing company in the telecommunications industry. Mr. Lipfield is
a certified public accountant and received his M.S. degree in Accounting/Finance
and his B.S. degree in Psychology, both from the University of Colorado.
BRIAN P. SCHADE has served as our Vice President of Information Technology
since October 1998. Prior to joining us, Mr. Schade served as Chief Architect of
MCI Telecommunications, Inc. from August 1991 to September 1998, and was
responsible for all aspects of Internet, intranet and messaging architecture,
and managed the development and delivery of messaging, multimedia and unified
messaging services for the Internet. Mr. Schade holds degrees in Applied
Mathematics and Engineering Mechanics from Virginia Polytechnic and State
University, and is currently pursuing a Ph.D. in Applied Mathematics.
STEVEN A. SUSLOW joined us in 1996 as Director of Sales and has served as
our Vice President of Media Sales since March 1999. Prior to joining us, he
served as a founding partner and President of Infinity Promotions, a media
consulting firm focusing on interactive strategies for Fortune 500 companies,
from April 1993 to January 1996. From May 1990 to April 1993, Mr. Suslow was a
founding partner and Vice President of Sales for Collegiate Marketing, a direct
marketing firm targeting college students throughout the Southwestern United
States. Mr. Suslow received his B.A. degree from The Colorado College.
DANIEL M. WINOKUR has served as our Vice President of Business Development
since June 1998 and our Vice President of Strategic Relationships since March
1999. From January to May 1998, Mr. Winokur served as Vice President of Internet
Services at Executive TeleCard, Ltd., a company that provides Internet services
for global telecommunications companies. Prior to that, he served as President
of eGlobe, Ltd., a wholly-owned subsidiary of Executive TeleCard, Ltd., from May
1997 to January 1998, and served as its Senior Vice President from January 1996
to May 1997. From June 1994 to January 1996, Mr. Winokur held various positions
with us, including Director of Marketing from June 1995 to January 1996. From
December 1993 to June 1994, Mr. Winokur was President of Euclid Consulting,
Inc., an Internet access company he founded in 1993. Mr. Winokur received his
B.A. in history from Brown University.
DIRECTORS' TERMS
We currently have five authorized directors. In March 1999, the board of
directors approved, subject to stockholder approval, the amendment of our
certificate of incorporation to provide for the division of the board of
directors into three classes, with only one class standing for election each
year. At each annual meeting, directors are chosen to succeed those in the class
whose term expires at that meeting and to serve for a term of three years. Under
this provision, Mr. Street serves as a class I director, Mr. Allred and Ms.
Griffith Gryga serve as class II directors, and Ms. Beazley and Mr. Sharnak
serve as class III directors, with terms of office scheduled to expire at our
2000, 2001 and 2002 annual meetings of stockholders.
Our current certificate of incorporation provides for the designation of
one member of the board of directors by the holders of the company's preferred
stock (currently, Ms. Griffith Gryga), the designation of one member of the
board of directors by the holders of the company's Series A Preferred Stock
(currently, Ms. Beazley), the designation of one member of the board of
directors by the holders of the company's Series B Preferred Stock (currently,
Mr. Sharnak), and the designation of one member of the
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<PAGE> 57
board of directors by the holders of the company's Series C Preferred Stock
(currently, Mr. Allred). In addition, the current certificate of incorporation
provides that the company's chief executive officer will serve as one of the
remaining directors (currently, Mr. Street). These provisions of the certificate
of incorporation will terminate upon the closing of this offering. Thereafter,
the current directors will continue to serve as directors but will be elected by
plurality vote of all stockholders voting together as one class.
BOARD COMMITTEES
Our audit committee consists of Mr. Allred, Ms. Griffith Gryga and Mr.
Street. The audit committee makes recommendations to the board of directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors, and
evaluates our internal accounting procedures.
Our compensation committee consists of Ms. Beazley, Ms. Griffith Gryga and
Mr. Sharnak. The compensation committee reviews and approves compensation and
benefits for our executive officers. The compensation committee also administers
our compensation and stock plans and makes recommendations to the board of
directors regarding such matters.
DIRECTOR COMPENSATION
Other than reimbursing directors for customary and reasonable expenses of
attending board of directors and committee meetings, we do not currently
compensate our directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Ms. Beazley, Ms. Griffith
Gryga and Mr. Sharnak. Ms. Beazley and Ms. Griffith Gryga have served on the
compensation committee since April 1998, the date of its formation. Mr. Sharnak
became a member of the committee in November 1998, replacing Gregg Freishtat, a
former director of the company who had served on the committee since April 1998.
Other than Ms. Beazley, our Senior Vice President, Chief Financial Officer, and
Secretary, none of the persons serving as members of the Compensation Committee
during 1998 is or has been an officer or employee of ours. Ms. Beazley also
serves as a director of a small privately held S corporation in which Mr. Street
serves as a director and executive officer. This entity is not affiliated with
us and does not transact any business with us.
Ms. Beazley has participated in several of our past financings and engaged
in certain additional business transactions with the company. In addition, Ms.
Griffith Gryga and Mr. Sharnak are affiliated with Liberty Ventures I, L.P. and
American Express, respectively, and Mr. Freishtat was formerly affiliated with
Premiere Technologies, Inc., each of which is a principal stockholder of ours
that participated in previous financings and related commercial transactions.
Please see our discussion in "Certain Transactions" for further discussion of
these transactions.
EMPLOYMENT AGREEMENTS
To reduce our liability and personnel administrative costs, we have entered
into an agreement with The Personnel Department. Under this agreement, The
Personnel Department hires all of our employees and then leases our employees
back to us. The Personnel Department withholds and deposits applicable federal,
state and local income and employment taxes from the wages of our employees, and
provides workers compensation and employment coverage. The Personnel Department
also provides a health plan and 401(k) retirement plan for our employees. We
reimburse The Personnel Department for all wages, taxes and benefit payments
made on our behalf in addition to paying a yearly administrative fee per
employee.
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<PAGE> 58
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our three other most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 for services
rendered in all capacities to us during 1998 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------- -------- -------- --------------------- ---------------
<S> <C> <C> <C> <C>
John W. Street.......................... $157,669 $ -- -- $ 58
President and Chief Executive Officer
Geoffrey E. Lind........................ 151,473 -- 10,000 --
Executive Vice President, Chief
Operating Officer and Treasurer
Mary M. Beazley......................... 104,286 -- -- 600
Senior Vice President, Chief Financial
Officer and Secretary
C. Scott Chasin......................... 104,075 -- 10,000 --
Senior Vice President of Technology
and Chief Technical Officer
</TABLE>
- ------------------------
(1) Represents contributions we made on behalf of the individuals to a 401(k)
plan which is currently managed by The Personnel Department.
OPTION GRANTS IN 1998
The following table sets forth information regarding options granted to the
Named Executive Officers during 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED 1998(1) ($/SHARE)(2) DATE 5% 10%
- ---- --------- ---------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John W. Street............ -- -- -- -- -- --
Geoffrey E. Lind.......... 10,000(4) 2.8% $ 7.00 5/17/08 44,023 111,562
Mary M. Beazley........... -- -- -- -- -- --
C. Scott Chasin........... 10,000(4) 2.8 7.00 5/17/08 44,023 111,562
</TABLE>
- ------------------------
(1) Based on 354,000 total options granted in 1998.
(2) Our board of directors may reprice options under the terms of our stock
option plans.
(3) The potential realizable value is calculated assuming that the fair market
value of the common stock on the date of the grant as determined by the
board of directors appreciates at the indicated annual rate compounded
annually for the entire term of the option, and that the option is exercised
and the common stock received therefor is sold on the last day of the term
of the option for the appreciated price. The 5% and 10% rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future
increases in the price of the common stock.
(4) The option vests in five equal annual installments beginning June 30, 1999.
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<PAGE> 59
1998 OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1998 and the number and value of unexercised
options held by each of the Named Executive Officers at December 31, 1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT DECEMBER 31, 1998 DECEMBER 31, 1998(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Street....... -- -- 95,000 45,000 $894,200 $424,350
Geoffrey E. Lind..... -- -- 24,000 46,000 226,320 369,480
Mary M. Beazley...... -- -- 25,000 -- 235,750 --
C. Scott Chasin...... -- -- 30,000 55,000 282,900 454,350
</TABLE>
- -------------------------
(1) Based on the fair market value of our common stock as of December 31, 1998
($10.00 per share), minus the per share exercise price, multiplied by the
number of shares underlying the option.
401(K) PLAN
Our employees are eligible to participate in The Personnel Department
401(k) Retirement Plan (the "401(k) Plan"). Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the lesser of
24% of eligible compensation or the statutorily prescribed annual limit ($10,000
in 1998). Employees may contribute this amount to the 401(k) Plan. The trustee
under the 401(k) Plan, at the direction of each participant, invests the assets
of the 401(k) Plan in up to 10 different investment funds. The 401(k) Plan is
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended (the "Code") so that contributions by employees to the 401(k) Plan, and
income earned on plan contributions, are not taxable to employees until
withdrawn, and so that the contributions by employees will be deductible by The
Personnel Department, Inc. when made. The Personnel Department, Inc. will make
matching contributions to the 401(k) Plan in an amount equal to 50% of the first
2% of an employee's pretax contributions. An employee becomes eligible for the
matching contribution only if he or she makes a pretax contribution.
Additionally, The Personnel Department may make annual discretionary profit
sharing contributions in amounts to be determined annually by the board of
directors of The Personnel Department. We reimburse The Personnel Department for
any matching or profit sharing contributions on behalf of our employees.
STOCK PLANS
1997 STOCK OPTION PLAN
Our 1997 Stock Option Plan (the "Option Plan") was adopted and approved by
our board of directors and stockholders on March 12, 1997. The Option Plan was
amended on October 9, 1997 and on June 15, 1998. The board of directors
terminated the Option Plan on March 19, 1999, and we will make no further
options grants under the Option Plan. Options currently outstanding under the
Option Plan will continue in full force and effect under the terms of the Option
Plan until such outstanding options are exercised or terminated in accordance
with their terms.
As of March 19, 1999, we granted options under the Option Plan to purchase
an aggregate of approximately 983,150 shares of common stock, of which options
to purchase approximately 17,400 shares had been exercised, options to purchase
approximately 164,400 shares had been cancelled (due to expiration or otherwise)
and options to purchase approximately 801,350 shares at a weighted average
exercise price of approximately $3.55 per share remained outstanding. We will
make no future grants under the Option Plan.
The Option Plan provides for the grant of incentive stock options under the
Code to employees and nonstatutory stock options to employees, directors and
consultants. The Option Plan is administered by the
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<PAGE> 60
board or a committee appointed by the board which determines recipients and
types of awards to be granted, including the exercise price, number of shares
subject to the award and the exercisability thereof.
The terms of stock options granted under the Option Plan generally may not
exceed 10 years. The board determines the exercise price of options granted
under the Option Plan, provided that the exercise price of an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the option grant and the exercise price of a nonstatutory stock
option cannot be less than 50% of the fair market value of the common stock on
the date of the option grant. Options granted under the Option Plan vest at the
rate specified in the applicable option agreement. Notwithstanding any other
provisions of the Option Plan to the contrary, options granted under the Option
Plan will be fully vested in the event of the optionee's death or total and
permanent disability. An optionee may not transfer an incentive stock option
other than by will or the laws of descent or distribution and a nonstatutory
stock option is only be transferable to the spouse, children and lineal
descendents of the optionee or to an organization exempt from taxation pursuant
to Section 501(c)(3) of the Code or to which tax deductible contributions may be
made under Section 170 of the Code, or upon such terms as stated in an option
agreement as the board in its discretion determines; provided that, an optionee
whose relationship with us or any related corporation ceases for any reason
(other than by death or permanent and total disability) may exercise vested
options in the three-month period following such cessation (unless such options
terminate or expire sooner by their terms) or in such longer or shorter period
specified in the option agreement. Vested options may be exercised for up to 12
months after an optionee's relationship with us or related corporations ceases
due to death or disability (unless such options terminate or expire sooner by
their terms).
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of us or any affiliate, unless the option exercise
price is at least 110% of the fair market value of the stock subject to the
option on the date of grant, and the term of the option does not exceed five
years from the date of grant. The aggregate fair market value, determined at the
time of grant, of the shares of common stock with respect to which incentive
stock options are exercisable for the first time by an optionee during any
calendar year (under all such plans of us and our affiliates) may not exceed
$100,000. Options may be immediately exercisable (whether such options are
vested or not) at the discretion of the board and if specified in the option
agreement, subject to our right to repurchase any unvested shares.
The options may provide that, prior to our first registration of an equity
security under Section 12 of the Exchange Act of 1934, as amended (the "Exchange
Act"), we may repurchase all or any part of the vested shares exercised, or may
exercise a right of first refusal on any proposed transfer of shares exercised.
Upon certain changes in control, each outstanding option will be assumed or
an equivalent option substituted by the successor corporation or, if the
successor corporation refuses to assume or substitute for outstanding options,
such options will become fully vested and exercisable prior to such change in
control or thereafter terminate.
1999 EQUITY INCENTIVE PLAN
In March 1999, the board adopted and the stockholders approved the 1999
Equity Incentive Plan (the "Incentive Plan"), which replaces the Option Plan
effective as of March 19, 1999. There is currently an aggregate of 425,763
shares of common stock authorized for issuance under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options, as
defined under the Code, to employees (including officers and employee-directors)
and nonstatutory stock options, restricted stock purchase awards, stock bonuses
and stock appreciation rights to our and our affiliates' employees (including
officers and employee-directors), directors and consultants. The Incentive Plan
is administered by the board (or a committee appointed by the board) which
determines recipients and types of awards to be granted, including the exercise
price, number of shares subject to the award and the exercisability thereof.
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<PAGE> 61
The terms of options granted under the Incentive Plan may not exceed 10
years. The board (or committee) determines the exercise price of options granted
under the Incentive Plan. However, the exercise price for an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the option grant, and the exercise price for a nonstatutory stock
option cannot be less than 85% of the fair market value of the common stock on
the date of the option grant. Options granted under the Incentive Plan vest at
the rate specified in the option agreement. Generally, the optionee may not
transfer a stock option other than by will or the laws of descent or
distribution unless the optionee holds a nonstatutory stock option that provides
for transfer in the stock option agreement. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death. An
optionee whose service relationship with us or any affiliate ceases for any
reason may exercise vested options for the term provided in the option
agreement.
No incentive stock option (and prior to our stock being publicly traded, no
nonstatutory stock option) may be granted to any person who, at the time of the
grant, owns (or is deemed to own) stock possessing more than 10% of the total
combined voting power of us or any affiliate, unless the option exercise price
is at least 110% of the fair market value of the stock subject to the option on
the date of grant and the term of the option does not exceed five years from the
date of grant. In addition, the aggregate fair market value, determined at the
time of grant, of the shares of common stock with respect to which incentive
stock options are exercisable for the first time by an optionee during any
calendar year (under the Incentive Plan and all other stock plans of us and our
affiliates) may not exceed $100,000.
When we become subject to Section 162(m) of the Code (which denies a
deduction to publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options under the Incentive Plan
covering more than 100,000 shares of common stock in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the Incentive Plan. Under its general authority to grant and to
amend options, the board (or committee) has the implicit authority to reprice
outstanding options or to offer optionees the opportunity to replace outstanding
options with new options for the same or a different number of shares. Both the
original and new options will count toward the Code Section 162(m) limitation
set forth above.
Restricted stock purchase awards granted under the Incentive Plan may be
granted subject to a repurchase option in our favor in accordance with a vesting
schedule determined by the board (or committee). The price of a restricted stock
purchase award under the Incentive Plan can not be less than 85% of the fair
market value of the stock subject to the award on the date of grant. Stock
bonuses may be awarded in consideration of past services without a purchase
payment. Unless otherwise specified, rights under a stock bonus or restricted
stock bonus agreement generally may not be transferred other than by will or the
laws of descent and distribution during such period as the stock awarded
pursuant to such an agreement remains subject to the agreement.
If there is any sale of substantially all of our assets, any merger,
reverse merger or any consolidation in which we are not the surviving
corporation, or any acquisition by certain persons, entities or groups of 50% or
more of our stock, all outstanding awards under the Incentive Plan either will
be assumed or substituted for by any surviving entity. If the surviving entity
determines not to assume or substitute for such awards, the vesting provisions
of such stock awards will be accelerated and the awards terminated if not
exercised prior to such transaction. In addition, if after the initial public
offering of our common stock, certain specified changes in control of more than
50% of the board occur, then the vesting provisions of all stock awards will be
accelerated.
As of , 1999, shares of common stock had been issued
upon the exercise of options granted under the Incentive Plan, options to
purchase shares of common stock were outstanding and shares
remained available for future grant. The Incentive Plan will terminate on March
18, 2009 unless sooner terminated by the board (or committee). As of
, 1999, no stock bonuses or restricted stock have been granted under
the Incentive Plan.
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1999 EMPLOYEE STOCK PURCHASE PLAN
In April 1999 the board adopted the 1999 Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of shares of common stock. The
Purchase Plan will become effective on the effective date of our initial public
offering. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code. Under the Purchase
Plan, the board may authorize participation by eligible employees, including
officers, in periodic offerings following the adoption of the Purchase Plan. The
offering period for any offering will be no longer than 27 months.
The Purchase Plan provides a means by which our and our designated
affiliates' employees may purchase our common stock through payroll deductions.
The Purchase Plan is implemented by offerings of rights to eligible employees.
Under the Plan, we may specify offerings with a duration of not more than 27
months, and may specify shorter purchase periods within each offering. The first
offering will begin on the effective date of our initial public offering and
will end on June 30, 2000. Purchases will occur on December 31, 1999 and June
30, 2000. Unless otherwise determined by the board, common stock is purchased
for accounts of employees participating in the Purchase Plan at a price per
share equal to the lower of (i) 85% of the fair market value of a share of
common stock on the date of commencement of participation in the offering or
(ii) 85% of the fair market value of a share of common stock on the date of
purchase. Generally, all regular employees, including executive officers, who
work at least 20 hours per week and who are customarily employed by us or an
affiliate for at least five months per calendar year may participate in the
Purchase Plan and may authorize payroll deductions of up to 15% of their base
compensation for the purchase of stock under the Purchase Plan.
Eligible employees may be granted rights only if the rights together with
any other rights granted under employee stock purchase plans do not permit such
employee's rights to purchase our stock to accrue at a rate which exceeds
$25,000 of fair market value of such stock for each calendar year in which such
rights are outstanding. No employee is eligible for the grant of any rights
under the Purchase Plan if immediately after such rights are granted, such
employee has voting power over 5% or more of our outstanding capital stock.
As of , 1999, no shares of common stock had been purchased
under the Purchase Plan.
In the event of certain changes of control, the board has discretion to
provide that each right to purchase common stock will be assumed or an
equivalent right substituted by the successor corporation, or the board may
shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Purchase Plan will terminate at the board's direction or when all
of the shares reserved for issuance have been purchased.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of February 28, 1999 for:
- Each person (or group of affiliated persons) known to us to own
beneficially more than 5% of the common stock,
- Each of our directors and Named Executive Officers, and
- All of our directors and executive officers as a group.
The information has been adjusted to reflect the sale of the common stock
in this offering (assuming no exercise of the underwriters' over-allotment
option) and the conversion of all outstanding shares of preferred stock into
common stock.
In accordance with the rules of the Securities and Exchange Commission, the
following table gives effect to the shares of common stock that could be issued
upon the exercise of outstanding options within 60 days of February 28, 1999.
Unless otherwise noted in the footnotes to the table and subject to community
property laws where applicable, the following individuals have sole voting and
investment control with respect to the shares beneficially owned by them.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED(1)
NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---------------- ------------------ --------------- --------------
<S> <C> <C> <C>
John W. Street (2)................................. 1,291,300 20.8%
Mary M. Beazley (3)................................ 1,291,300 20.8
American Express Travel Related Services
Company, Inc. (4)................................ 883,652 14.5
Premiere Technologies, Inc. (5).................... 883,652 14.5
Walter J. Frank (6)................................ 569,624 9.4
Liberty Ventures I, L.P. (7)....................... 368,188 6.1
ABS Ventures IV, L.P. / ABX Fund, L.P. (8)......... 358,134 5.9
Geoffrey E. Lind (9)............................... 30,000 *
C. Scott Chasin (10)............................... 30,000 *
Jeffrey A. Allred (11)............................. 891,152 14.6
Karen Griffith Gryga (12).......................... 368,188 6.1
Lawrence S. Sharnak................................ -- --
All executive officers and directors as a group (8
persons) (13).................................... 2,610,640 41.7
</TABLE>
- ---------------------------------
* Less than 1% of total.
(1) We have calculated percent of shares beneficially owned based on 6,084,481
shares of common stock outstanding before this offering and
shares of common stock outstanding after this offering.
(2) Includes 688,955 shares of common stock, including 95,000 shares of common
stock subject to stock options exercisable within 60 days of February 28,
1999, held by Mr. Street. Also includes an aggregate of 602,345 shares of
common stock held by Mary M. Beazley, Mr. Street's spouse (see note 3
below), as to which Mr. Street disclaims beneficial ownership. Mr. Street's
address is c/o USA.NET, Inc., 1155 Kelly Johnson Boulevard, Suite 400,
Colorado Springs, Colorado 80920.
(3) Includes 602,345 shares of common stock, including 25,000 shares of common
stock subject to stock options exercisable within 60 days of February 28,
1999, held by Ms. Beazley. Also includes an aggregate of 688,955 shares of
common stock held by John W. Street, Ms. Beazley's spouse (see note 2
above), as to which Ms. Beazley disclaims beneficial ownership. Ms.
Beazley's address is c/o USA.NET, Inc., 1155 Kelly Johnson Boulevard, Suite
400, Colorado Springs, Colorado 80920.
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<PAGE> 64
(4) The address of American Express Travel Related Services Company, Inc. is
American Express Tower, World Financial Center, New York, New York 10285.
(5) The address of Premiere Technologies, Inc. is 3399 Peachtree Road, N.E.,
Suite 600, Atlanta, Georgia 30326.
(6) Mr. Frank's address is c/o USA.NET, Inc., 1155 Kelly Johnson Boulevard,
Suite 400, Colorado Springs, Colorado 80920.
(7) The address of Liberty Ventures I, L.P. is 200 South Broad Street, 8th
Floor, Philadelphia, Pennsylvania 19102.
(8) Includes 286,507 shares of common stock owned by ABS Ventures IV, L.P. and
71,627 shares of common stock owned by ABX Fund, L.P. The address of ABS
Ventures IV, L.P. and ABX Fund, L.P. is One South Street, Suite 2150,
Baltimore, Maryland 21202.
(9) Includes 24,000 shares of common stock subject to stock options exercisable
within 60 days of February 28, 1999.
(10) Consists solely of shares of common stock subject to stock options
exercisable within 60 days of February 28, 1999.
(11) Includes 883,652 shares held by Premiere Technologies, Inc., of which Mr.
Allred is the President and Chief Operating Officer.
(12) Consists solely of shares held by Liberty Ventures I, L.P., of which Ms.
Griffith Gryga is a limited partner. Ms. Griffith Gryga disclaims
beneficial ownership of such shares except to the extent of her pecuniary
interest therein.
(13) Includes shares of common stock discussed in notes 2, 3, 9, 10, 11 and 12
above.
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<PAGE> 65
CERTAIN TRANSACTIONS
TRANSACTIONS WITH TELECONCEPTS
During 1996 and 1997, we purchased certain administrative and operating
services from TeleConcepts. The aggregate amount of services purchased by us
from TeleConcepts during 1996 and 1997 was approximately $1.2 million and
approximately $113,000, respectively. During 1996, TeleConcepts (whose sole
shareholders were Ms. Beazley, Mr. Street and Mr. Frank) periodically made
advances to fund our operations. TeleConcepts distributed such receivables to
Ms. Beazley, Mr. Street and Mr. Frank, who converted them into shares of common
stock. Please see our discussion in "-- Common Stock Financing of Colorado
Predecessor" below.
COMMON STOCK FINANCING OF COLORADO PREDECESSOR
From March 1, 1996 through December 30, 1996, prior to our reincorporation
in Delaware, our Colorado predecessor corporation sold an aggregate of 857,350
shares of its common stock to certain existing stockholders at a purchase price
of $4.76 per share. 850,000 of the shares (which, in connection with the
reincorporation, were converted into an aggregate of 424,996 shares of our
common stock and 850,000 shares of our Series A Preferred Stock) were sold to
the following directors, executive officers and principal stockholders for an
aggregate purchase price of $4,046,000:
<TABLE>
<CAPTION>
NUMBER OF SHARES
PRIOR TO AGGREGATE PURCHASE
PURCHASER REINCORPORATION PRICE
--------- ---------------- ------------------
<S> <C> <C>
John W. Street...................................... 269,166 $1,281,230
Mary M. Beazley..................................... 269,166 1,281,230
Walter J. Frank..................................... 311,668 1,483,540
</TABLE>
All of these shares were issued upon the conversion of the advances
discussed above in "--Transactions with TeleConcepts."
TRANSACTIONS WITH INTERNET EXPRESS, LLC
On March 1, 1997, we sold to Internet Express, LLC ("IEX") certain assets
related to our Internet access business in exchange for $925,000 and the
assumption of related liabilities. The price was based, in part, on the purchase
price for these assets negotiated with an independent third-party (which
transaction was not consummated). The board of directors subsequently increased
the purchase price to reflect the current market value of the assets. This
transaction was approved by the independent director and our stockholders. We
also entered into a Co-Location Agreement with IEX pursuant to which IEX leases
space at our offices on a month-to-month basis at the rate of $500 per month. In
addition, we purchased Internet access and subleased office space from IEX
during 1997 and 1998. The aggregate amount of the payments made to IEX during
1997 and 1998 was $44,900 and $22,789, respectively. Mr. Street and Ms. Beazley
each own approximately 20% of the membership interests in IEX.
SERIES B FINANCING
On April 8, 1997, we issued 527,579 shares of Series B Preferred Stock to
American Express, a principal stockholder, at a purchase price of $5.69 per
share. We also granted to American Express a one-year option to purchase up to
527,579 additional shares of Series B Preferred Stock. On March 23, 1998,
American Express exercised a portion of such option and acquired an additional
356,073 shares of Series B Preferred Stock at $5.69 per share. The unexercised
portion of the option terminated. In connection with its investment, American
Express received the right, subject to certain restrictions, to designate a
member of our board of directors. Mr. Sharnak currently serves as that designee.
In connection with its initial investment, American Express also entered
into a Co-Marketing Program Agreement with us pursuant to which we provide
Web-based email services to American Express
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<PAGE> 66
Cardmembers and other consumers. Please refer to our discussion in
"Business -- Strategic Relationships" for our discussion of this agreement.
In connection with the initial American Express investment, we entered into
Stock Restriction Agreements with each of Mr. Street, Ms. Beazley and Mr. Frank.
The agreements granted to us an option to repurchase shares of common stock and
Series A Preferred Stock held by Mr. Street, Ms. Beazley and Mr. Frank, at a
price of $.57 per share of common stock and a price of $4.76 per share of Series
A Preferred Stock, in the event that Mr. Street is terminated for cause or
voluntarily ceases to be an employee, director or consultant prior to October 8,
1998 (in the case of the agreements with Ms. Beazley and Mr. Frank) or April 8,
2000 (in the case of the agreement with Mr. Street).
SERIES C FINANCING
On October 17, 1997, we issued an aggregate of 736,376 shares of Series C
Preferred Stock to Premiere Technologies, a principal stockholder, and certain
other investors at a purchase price of $6.79 per share. We also granted options
exercisable on or prior to May 1, 1998 to purchase up to 736,376 additional
shares of Series C Preferred Stock. On March 23, 1998, such options were
exercised in full, at which time we also issued an additional 486,918 shares of
Series C Preferred Stock, all at $6.79 per share. On May 13, 1998, we issued an
additional 74,000 shares of Series C Preferred Stock at $6.79 per share. Of the
2,033,670 shares of Series C Preferred Stock sold by us, an aggregate of
1,958,170 shares were sold to the following directors, officers and principal
stockholders for an aggregate purchase price of $13,295,974:
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
Premiere Technologies, Inc. ........................... 883,652 $5,999,997
ABS Ventures IV, L.P. / ABX Fund, L.P. ................ 389,096/97,274 3,302,452
Liberty Ventures I, L.P. .............................. 368,188 2,499,996
John W. Street......................................... 90,645 615,480
Mary M. Beazley........................................ 90,645 615,480
Annette C. Hicks....................................... 16,170 109,794
Walter J. Frank, Jr. .................................. 10,000 67,900
Michael Lipfield....................................... 7,500 50,925
Geoffrey E. Lind....................................... 5,000 33,950
</TABLE>
In connection their initial investments, Premiere and Liberty Ventures each
received the right, subject to certain restrictions, to designate a member of
our board of directors. Mr. Allred currently serves as the Premiere designee and
Ms. Griffith Gryga currently serves as the Liberty Ventures designee. Premiere
also entered into a Co-Marketing and Integration Agreement with us pursuant to
which we and Premiere expect to jointly offer certain telecommunications
services. Please refer to our discussion in "Business -- Strategic
Relationships" for our discussion of this agreement.
SERIES D FINANCING
In August 1998, we issued an aggregate of 1,557,318 shares of Series D
Preferred Stock at a purchase price of $14.75 per share. An aggregate of 25,790
of such shares were sold to the following directors and officers for an
aggregate purchase price of $380,403:
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
John W. Street.......................................... 20,000 $295,000
Mary M. Beazley......................................... 3,390 50,003
Michael Lipfield........................................ 1,400 20,650
Geoffrey E. Lind........................................ 1,000 14,750
</TABLE>
62
<PAGE> 67
GUARANTEE OF BANK LOAN
Mr. Street is the co-signer of our Business Loan Agreement with State Bank
and Trust of Colorado Springs. As of March 31, 1999, the outstanding principal
amount under such agreement was approximately $1.7 million. In consideration for
his personal guarantee of the loan, during 1997 we granted to Mr. Street options
to purchase an aggregate of 65,000 shares of common stock under the Option Plan
at a weighted average exercise price of $.60 per share.
We believe that each of the transactions described above was carried out on
terms that were no less favorable to us than those that would have been obtained
from unaffiliated third parties. Any future transactions between us and any of
our directors, officers or principal stockholders will be on terms no less
favorable to us than could be obtained from unaffiliated third parties and will
be approved by a majority of the independent and disinterested members of the
board of directors.
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<PAGE> 68
DESCRIPTION OF SECURITIES
The following description of our securities reflects changes that will be
made to our certificate of incorporation and bylaws upon the closing of this
offering. We have filed our restated certificate of incorporation and amended
and restated bylaws as exhibits to the registration statement of which this
prospectus is a part.
Our authorized capital stock consists of shares of common stock,
par value $.001 per share, and shares of preferred stock, par value
$.001 per share.
COMMON STOCK
As of the date of this prospectus, there are 6,085,581 shares of common
stock outstanding and held of record by 162 stockholders. Upon the closing of
this offering, there will be shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option).
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of common stock are not
entitled to cumulative voting rights in the election of directors. Accordingly,
minority stockholders will not be able to elect directors on the basis of their
votes alone. Subject to preferences that may be applicable to any
then-outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably such dividends as may be declared by our board of directors.
In the event we liquidate, dissolve or wind up our affairs, holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of shares of preferred stock in one or
more series. The board of directors may fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series, and the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption price or prices and
liquidation preferences. The issuance of preferred stock could:
- Adversely affect the voting power of holders of common stock;
- Adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation; and
- Delay, defer or prevent a change in control.
We have no present plans to issue any shares of preferred stock.
WARRANT
As of the date of this prospectus, we have one outstanding warrant to
purchase 45,994 shares of common stock at an exercise price of $14.75 per share.
We issued the warrant to an investment banking firm in connection with its
services as placement agent for our August 1998 private placement of shares of
Series D Preferred Stock. The warrant expires on August 12, 2003. The warrant
contains anti-dilution provisions providing for adjustments of the exercise
price and the number of shares of common stock underlying the warrant upon the
occurrence of any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction. The shares of common stock
issuable upon exercise of the warrant carry registration rights, as discussed
below.
REGISTRATION RIGHTS
Pursuant to the Second Amended and Restated Investor Rights Agreement,
holders of 6,098,975 shares of common stock, including the common stock issuable
under the warrant described in
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<PAGE> 69
the preceding paragraph, have certain rights to require us to register their
shares for resale under the Securities Act of 1933, as amended (the "Securities
Act"), during the five-year period following this offering.
With certain limitations, the holders of more than 50% of such shares may
demand that we register shares having an aggregate offering price to the public
of more than $10,000,000. We are not required to effect more than two demand
registrations, provided at least 70% of the shares requested to be included in
the demand registrations are, in fact, included therein. In addition, these
stockholders are entitled to piggyback registration rights with respect to any
public offering registration statement we file under the Securities Act
following this offering, with certain limitations. Further, at any time after we
become eligible to file a registration statement on Form S-3 or any similar
short-form registration statement, such stockholders may require us to file such
registration statements from time to time, again with certain limitations. We
are generally required to bear all of the expenses of these registrations,
except underwriting discounts and commissions. Registration of any of the shares
of common stock entitled to these registration rights would result in such
shares becoming freely tradable without restriction under the Securities Act.
Upon completion of this offering, the registration rights with respect to
the shares held by a stockholder will terminate if the stockholder holds less
than 1% of the then-outstanding shares of common stock and the stockholder's
shares are entitled to be resold in a 90-day period under Rule 144 promulgated
under the Securities Act.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE
OF INCORPORATION
AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
that status with the approval of the corporation's board of directors or unless
the business combination is approved in a prescribed manner. "Business
combinations" include mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. With certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
The following provisions of our restated certificate of incorporation and
amended and restated bylaws that will become effective upon the closing of this
offering may have an anti-takeover effect and may delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best
interest, including attempts that might result in a premium over the market
price for the common stock:
CLASSIFIED BOARD OF DIRECTORS. Our board of directors will be divided into
three classes. The directors in class I will hold office until the first annual
meeting of stockholders following this offering, the directors in class II will
hold office until the second annual meeting of stockholders following this
offering, and the directors in class III will hold office until the third annual
meeting of stockholders following this offering. After each such election, the
directors in that class will serve for terms of three years. The classification
system of electing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us and may maintain
the incumbency of the board of directors, since such classification generally
increases the difficulty of replacing a majority of the directors.
BOARD OF DIRECTOR VACANCIES. The board of directors will be authorized to
fill vacant directorships and to increase the size of the board of directors.
This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
resulting vacancies with its own nominees.
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<PAGE> 70
STOCKHOLDER ACTION; SPECIAL MEETINGS OF STOCKHOLDERS. Our stockholders will
not be permitted to take action by written consent, but only at duly called
annual or special meetings of stockholders. In addition, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
meeting of stockholders, must deliver a written notice to our principal
executive offices within a prescribed time period. Our amended and restated
bylaws also set forth specific requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
the election of directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. We may use these additional shares for a variety of corporate purposes,
including future public offerings to raise additional capital, acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated bylaws that will become effective upon the closing
of this offering provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law and may indemnify our
other officers, employees and other agents to the fullest extent permitted by
Delaware law.
In addition, our restated certificate of incorporation that will become
effective upon the closing of this offering provides that, to the fullest extent
permitted by Delaware law, our directors will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as
directors. This provision of the restated certificate of incorporation does not
eliminate the directors' duty of care. In appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief are
available under Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws and
state and federal environmental laws.
Each director will continue to be subject to liability for:
- Breach of a director's duty of loyalty to us and our stockholders;
- Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- Unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- Any transaction from which a director derived an improper personal
benefit.
We also intend to enter into indemnity agreements with our directors and
executive officers. We have purchased liability insurance for our directors and
executive officers.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in a claim for indemnification.
LISTING
We have applied for listing of the common stock on the Nasdaq National
Market under the trading symbol MBOX.
TRANSFER AGENT AND REGISTRAR
We have appointed Norwest Bank Minnesota, National Association, to serve as
the transfer agent and registrar for the common stock.
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<PAGE> 71
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of options or warrants. Of the outstanding
shares, the shares being sold in this offering will be freely
tradable, except that any shares held by our "affiliates" may only be sold in
compliance with the limitations described below. The remaining 6,085,581 shares
of common stock will be "restricted securities" that may be sold in the public
market only if they are registered under the Securities Act or if they qualify
for an exemption from registration under Rule 144, 144(k) or 701 promulgated
under the Securities Act.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ------------------- ------------------------------------------------------------
<C> <S>
Upon the date of this prospectus (shares eligible for resale
under Rule 144(k) and not subject to lock-up agreements)
90 days following the date of this prospectus (shares
eligible for resale under Rules 144 and 701 and not subject
to lock-up agreements)
180 days following the date of this prospectus (lock-up
agreements released)
</TABLE>
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated), including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of (i) 1% of the then-outstanding shares of common stock
(approximately shares immediately after this offering) or (ii) the
average weekly trading volume of the common stock during the four calendar weeks
preceding the date on which notice of that sale is filed. In addition, a person
who is not considered an affiliate at any time during the 90 days preceding a
sale and who has beneficially owned the shares proposed to be sold for at least
two years is entitled to sell such shares under Rule 144(k) without regard to
the volume limitations described above.
In addition, following the closing of this offering, we intend to file a
registration statement to register for resale the shares of common
stock available for issuance under our stock plans. Accordingly, shares issued
under those plans will become eligible for resale in the public market from time
to time, subject to the lock-up agreements described below and, in the case of
affiliates, the volume limitations of Rule 144 described above. As of the date
of this prospectus, options and purchase rights to acquire a total of
shares of common stock are outstanding under our stock plans, of which
are currently exercisable.
Directors, officers and stockholders holding an aggregate of
shares of common stock have agreed that they will not sell any shares of common
stock without the prior written consent of Bear, Stearns & Co. Inc for a period
of 180 days from the date of this prospectus. Please refer to our discussion in
"Underwriting" for further discussion of these agreements.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, other
than the grant of options and purchase rights under our stock plans and the
issuance of common stock pursuant thereto, provided the holders of such shares,
options or rights agree to the 180-day lock-up agreement.
Following this offering, certain of our stockholders will have rights to
have their shares of common stock registered for resale under the Securities
Act. Please refer to our discussion in "Description of
Securities -- Registration Rights" for further discussion of these registration
rights.
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<PAGE> 72
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the underwriters and us, each of the underwriters named below, for whom
Bear, Stearns & Co. Inc., Volpe Brown Whelan & Company, LLC and CIBC Oppenheimer
Corp. are acting as representatives, has severally agreed to purchase from us
the aggregate number of shares of common stock set forth opposite its name
below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ------------------------ ----------------
<S> <C>
Bear, Stearns & Co. Inc. ...................................
Volpe Brown Whelan & Company, LLC...........................
CIBC Oppenheimer Corp. .....................................
---------
Total.............................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to approval of certain legal matters by counsel and to
various other conditions. The nature of the underwriters' obligations is that
they are committed to purchase and pay for all of the above shares of common
stock if any are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the "initial public offering price" set forth on the cover page of
this prospectus and at that price less a concession not in excess of $ per
share of common stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The underwriters may allow, and those
dealers may reallow, concessions not in excess of $ per share of common
stock to certain other dealers. After this offering, the offering price,
concessions and other selling terms may be changed by the underwriters.
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of common stock at
the "initial public offering price" less the "underwriting discounts," each as
set forth on the cover page of this prospectus. If the underwriters exercise
this option in whole or in part, then each of the underwriters will be severally
committed, subject to certain conditions, including the approval of certain
matters by counsel, to purchase the additional shares of common stock in
proportion to their respective purchase commitments as indicated in the
preceding table.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to percent ( %) of the shares of common stock
to be sold in this offering for sale to our employees and directors and to other
persons designated by us. Any purchase of these reserved shares will reduce the
number of shares available for sale to the general public. The underwriters will
offer any reserved shares not so purchased on the same basis as the other shares
offered hereby.
The underwriters do not intend to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
The underwriting agreement provides that we will indemnify the underwriters
against certain liabilities under the Securities Act or will contribute to
payments that the underwriters may be required to make in respect thereof.
Directors, officers and stockholders who hold in the aggregate
shares of common stock have agreed that they will not sell any shares of common
stock without the prior written consent of Bear, Stearns & Co. Inc for a period
of 180 days from the date of this prospectus. However, Bear, Stearns & Co. Inc.
may, in its sole discretion and at any time or from time to time, without notice
to our stockholders or Nasdaq, release all or any portion of the shares subject
to lock-up agreements.
We have agreed that for a period of 180 days after the date of this
prospectus we will not, without the prior written consent of Bear, Stearns & Co.
Inc., sell or otherwise dispose of any shares of common stock, except for the
shares of common stock offered by this prospectus, the shares of common stock
issuable upon exercise of outstanding options and warrants, and the grant of
additional options and purchase rights
68
<PAGE> 73
under our stock plans and the issuance of common stock pursuant thereto,
provided the holders of such shares, options or rights agree to the 180 day
lock-up agreement.
Prior to this offering, there has been no public market for our common
stock. Accordingly, negotiations between us and the representatives of the
underwriters will determine the initial public offering price for the common
stock. Among the factors to be considered in those negotiations will be:
- Our recent results of operations;
- Estimates of our prospects as well as the industry in which we compete;
- An assessment of our management;
- The general state of the securities markets at the time of this offering;
and
- The prices of similar securities of generally comparable companies.
We have applied for listing of the common stock on the Nasdaq National
Market under the trading symbol MBOX. We cannot assure you that an active or
orderly trading market will develop or that the common stock will trade in the
public markets subsequent to this offering at or above the initial public
offering price.
The following table shows the underwriting discounts and commissions to be
paid by us to the underwriters in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share........................................ $ $
Total............................................ $ $
</TABLE>
In order to facilitate this offering, persons participating in the offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock during and after the offering, including
over-allotment, stabilizing and short-covering transactions and the impositions
of penalty bids. Persons participating in this offering also may engage in
passive market-making transactions in the common stock on the Nasdaq National
Market. Specifically, the underwriters may over-allot or otherwise create a
short position in the common stock for their own account by selling more shares
of common stock than have been sold to them by us. The underwriters may elect to
cover this short position by purchasing shares of common stock in the open
market or by exercising the over-allotment option granted to the underwriters.
In addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market and
may impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in this offering are reclaimed if
shares of common stock previously distributed in the offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid also may affect the price of the common stock to the extent that it
discourages resales. No representation is made as to the magnitude or effect of
this stabilization or other transactions. These transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
69
<PAGE> 74
LEGAL MATTERS
Cooley Godward LLP, Boulder, Colorado will pass upon the validity of the
shares of common stock offered hereby. Cooley Godward LLP owns 7,500 shares of
Series C Preferred Stock (which, upon the closing of this offering, will convert
into 7,500 shares of common stock) that the firm purchased in our March 1998
private placement of 486,918 of such shares.
Morrison & Foerster LLP, Irvine, California will pass upon certain legal
matters in connection with the offering for the underwriters.
EXPERTS
The audited financial statements included in this prospectus to the extent
and for the periods indicated in their report have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all of the information in the registration
statement. For further information about us and our common stock, please refer
to the registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete. In each instance, please refer to the copy of that contract, agreement
or document filed as an exhibit to the registration statement.
You may read and copy all or any portion of the registration statement or
any other information the company files at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings, including the registration statement, are also
available to you on the SEC's Web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended. In
accordance with those requirements, we will file periodic reports, proxy
statements and other information with the SEC. You may also inspect these
reports, proxy statements and other information at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stockholders with annual reports containing
audited financial statements and with quarterly reports for the first three
quarters of each year containing interim financial information.
70
<PAGE> 75
USA.NET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To USA.NET, Inc.:
We have audited the accompanying balance sheets of USA.NET, Inc. (a
Delaware corporation) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. 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 USA.NET, Inc., as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 4, 1999 (except with respect to the
matters discussed in Note 10, as to which
the date is April 5, 1999).
F-2
<PAGE> 77
USA.NET, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- DECEMBER 31,
1997 1998 1998
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,158,612 $ 6,562,792
Restricted cash (Note 6).................................. 1,884,704 1,486,775
Short-term investments (Note 2)........................... -- 3,458,015
Accounts receivable, net (Note 2)......................... 260,868 1,357,440
Related party accounts receivable (Note 3)................ 61,290 17,285
Prepaid expenses.......................................... 82,737 289,287
Deposits.................................................. 16,522 552,871
----------- ------------
Total current assets................................ 4,464,733 13,724,465
----------- ------------
Property and equipment, net (Note 2)........................ 2,543,739 13,449,516
Other assets................................................ 7,142 5,342
----------- ------------
$ 7,015,614 $ 27,179,323
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,536,122 $ 2,643,070
Accrued liabilities....................................... 113,518 274,327
Accrued payroll and benefits.............................. 237,631 441,672
Related party accounts payable (Note 3)................... 94,900 268,026
Deferred revenue.......................................... -- 11,199
Current maturities of note payable (Note 4)............... 264,842 1,767,423
Current capital lease obligations (Note 5)................ -- 1,239,357
----------- ------------
Total current liabilities........................... 2,247,013 6,645,074
----------- ------------
Long-term note payable (Note 4)............................. 1,235,158 --
Long-term capital lease obligations (Note 5)................ -- 3,997,147
Commitments and contingencies (Notes 1, 5, 6 and 10)
Stockholders' equity (Note 6):
Convertible preferred stock, $.001 par value, 6,222,726
shares authorized --
Convertible preferred stock, Series A, 1,100,000 shares
designated; 1,062,231 issued and outstanding, no
shares outstanding pro forma (unaudited), entitled to
$5,056,220 in liquidation............................. 4,874,273 4,874,273 $ --
Convertible preferred stock, Series B, 1,055,158 shares
designated; 527,579 and 883,652 issued and
outstanding, respectively, no shares outstanding pro
forma (unaudited), stated at liquidation value........ 3,001,925 5,027,980 --
Convertible preferred stock, Series C, 2,033,670 shares
designated; 736,376 and 2,033,670 issued and
outstanding, respectively, no shares outstanding pro
forma (unaudited), stated at liquidation value........ 4,999,995 13,808,621 --
Convertible preferred stock, Series D, 2,033,898 shares
designated; 0 and 1,557,318 issued and outstanding,
respectively, no shares outstanding pro forma
(unaudited), entitled to $22,970,441 in liquidation... -- 21,076,389 --
Common stock, $.001 par value, 16,655,988 shares
authorized; 531,110 and 543,610 shares issued and
outstanding, respectively, 6,080,481 shares issued and
outstanding pro forma (unaudited)....................... 531 544 6,080
Additional paid-in capital (Note 1)....................... -- 7,112 44,788,839
Warrant for common stock.................................. -- 313,251 313,251
Accumulated deficit....................................... (9,343,281) (28,571,068) (28,571,068)
----------- ------------ ------------
Total stockholders' equity.......................... 3,533,443 16,537,102 $ 16,537,102
----------- ------------ ============
$ 7,015,614 $ 27,179,323
=========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE> 78
USA.NET, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Advertising revenue................................ $ 33,564 $ 782,517 $ 4,661,644
Other revenue...................................... -- -- 41,069
----------- ----------- ------------
Total revenue.............................. 33,564 782,517 4,702,713
Cost of revenue...................................... 298,863 1,614,247 5,329,235
----------- ----------- ------------
Gross margin............................... (265,299) (831,730) (626,522)
Operating expenses:
Selling and marketing.............................. 875,972 2,269,373 6,903,610
Product development................................ 259,735 1,207,433 3,042,225
General and administrative......................... 674,066 1,490,214 2,446,715
Channel acquisition costs.......................... -- -- 6,500,000
----------- ----------- ------------
Total operating expenses................... 1,809,773 4,967,020 18,892,550
----------- ----------- ------------
Loss from operations................................. (2,075,072) (5,798,750) (19,519,072)
Other income (expense):
Interest expense................................... -- (9,247) (229,893)
Interest income.................................... -- 85,111 501,958
Other.............................................. -- 48,974 19,220
----------- ----------- ------------
Other income, net.......................... -- 124,838 291,285
----------- ----------- ------------
Net loss from continuing operations.................. (2,075,072) (5,673,912) (19,227,787)
Discontinued operation (Note 9):
Net income (loss) from operation of discontinued
operation....................................... (1,602,778) 27,150 --
Gain on sale of discontinued operation............. -- 672,827 --
----------- ----------- ------------
(1,602,778) 699,977 --
----------- ----------- ------------
Net loss............................................. $(3,677,850) $(4,973,935) $(19,227,787)
=========== =========== ============
Basic and diluted net loss per share
from continuing operations......................... $ (6.90) $ (10.68) $ (35.75)
=========== =========== ============
Basic and diluted net loss per share................. $ (12.23) $ (9.37) $ (35.75)
=========== =========== ============
Weighted average common shares
outstanding -- basic and diluted................... 300,628 531,110 537,912
=========== =========== ============
Pro forma net loss per share from
continuing operations (unaudited):
Basic and diluted net loss per share............ $ (4.04)
============
Weighted average common shares
outstanding -- basic and diluted.............. 4,755,231
============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE> 79
USA.NET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
CONVERTIBLE WARRANT
PREFERRED STOCK COMMON STOCK ADDITIONAL FOR TOTAL
----------------------- ---------------- PAID-IN COMMON ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT EQUITY
--------- ----------- ------- ------ ----------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995....................... -- $ -- 105,735 $106 $ 816,548 $ -- $ (691,496) $ 125,158
Issuance of common stock... -- -- 425,375 425 4,057,725 -- -- 4,058,150
Net loss................... -- -- -- -- -- -- (3,677,850) (3,677,850)
--------- ----------- ------- ---- ----------- -------- ------------ ------------
Balances, December 31,
1996....................... -- -- 531,110 531 4,874,273 -- (4,369,346) 505,458
Issuance of Series A
preferred stock in
connection with
recapitalization (Note
6)....................... 1,062,231 4,874,273 -- -- (4,874,273) -- -- --
Issuance of Series B
preferred stock (Note
6)....................... 527,579 3,001,925 -- -- -- -- -- 3,001,925
Issuance of Series C
preferred stock (Note
6)....................... 736,376 4,999,995 -- -- -- -- -- 4,999,995
Net loss................... -- -- -- -- -- -- (4,973,935) (4,973,935)
--------- ----------- ------- ---- ----------- -------- ------------ ------------
Balances, December 31,
1997....................... 2,326,186 12,876,193 531,110 531 -- -- (9,343,281) 3,533,443
Issuance of Series B
preferred stock (Note
6)....................... 356,073 2,026,055 -- -- -- -- -- 2,026,055
Issuance of Series C
preferred stock (Note
6)....................... 1,297,294 8,808,626 -- -- -- -- -- 8,808,626
Issuance of Series D
preferred stock (Note 6),
net of offering costs.... 1,557,318 21,076,389 -- -- -- 313,251 -- 21,389,640
Exercise of stock options
(Note 6)................. -- -- 12,500 13 7,112 -- -- 7,125
Net loss................... -- -- -- -- -- -- (19,227,787) (19,227,787)
--------- ----------- ------- ---- ----------- -------- ------------ ------------
Balances, December 31,
1998....................... 5,536,871 $44,787,263 543,610 $544 $ 7,112 $313,251 $(28,571,068) $ 16,537,102
========= =========== ======= ==== =========== ======== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 80
USA.NET, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,677,850) $(4,973,935) $(19,227,787)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization........................... 165,490 337,307 1,387,868
Provision for bad debt.................................. 64,484 34,290 253,405
Gain on sale of property and equipment.................. (2,472) -- --
Gain on sale of Internet service provider segment....... -- (672,827) --
Changes in operating assets and liabilities --
Accounts receivable, net.............................. 19,818 (292,667) (1,349,977)
Related party accounts receivable..................... (4,283) (57,007) 44,005
Prepaid expenses...................................... 11,812 (2,134) (206,550)
Deposits.............................................. -- (82,737) (536,349)
Inventory............................................. 93,750 -- --
Other assets.......................................... 301 (7,500) 1,800
Accounts payable...................................... (154,829) 1,262,401 1,106,948
Accrued liabilities................................... 478,134 86,212 364,850
Deferred revenue...................................... -- (3,746) 11,199
Related party accounts payable........................ (13,973) 65,314 173,126
----------- ----------- ------------
Net cash used in operating activities............... (3,019,618) (4,307,029) (17,977,462)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of short-term investments........................ -- -- (3,458,015)
Purchase of property and equipment........................ (514,480) (2,445,106) (6,751,794)
Proceeds from sale of property and equipment.............. 14,129 -- --
Proceeds from sale of Internet service provider segment... -- 925,000 --
----------- ----------- ------------
Net cash used in investing activities............... (500,351) (1,520,106) (10,209,809)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from note payable................................ -- 2,570,000 500,000
Repayment of note payable................................. (150,983) (1,094,257) (232,577)
Repayment of capital lease obligations.................... -- -- (305,347)
Decrease (increase) in restricted cash.................... -- (1,884,704) 397,929
Advances from affiliates.................................. 4,046,000 -- --
Proceeds from issuance of common stock.................... 12,150 -- 7,125
Proceeds from issuance of Series B preferred stock........ -- 3,001,925 2,026,055
Proceeds from issuance of Series C preferred stock........ -- 4,999,995 8,808,626
Proceeds from issuance of Series D preferred stock........ -- -- 22,970,441
Offering costs for issuance of Series D preferred stock... -- -- (1,580,801)
----------- ----------- ------------
Net cash provided by financing activities........... 3,907,167 7,592,959 32,591,451
----------- ----------- ------------
Net increase in cash and cash equivalents................... 387,198 1,765,824 4,404,180
Cash and cash equivalents, beginning of period.............. 5,590 392,788 2,158,612
----------- ----------- ------------
Cash and cash equivalents, end of period.................... $ 392,788 $ 2,158,612 $ 6,562,792
=========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 39,901 $ 14,186 $ 229,893
=========== =========== ============
Equipment acquired with capital leases.................... $ -- $ -- $ 5,541,851
=========== =========== ============
Issuance of Series A preferred stock in connection with
recapitalization........................................ $ -- $ 4,874,273 $ --
=========== =========== ============
Conversion of advances into common stock.................. $ 4,046,000 $ -- $ --
=========== =========== ============
Value of warrant issued to purchase common stock to Series
D preferred stock placement agent....................... $ -- $ -- $ 313,251
=========== =========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE> 81
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF BUSINESS
USA.NET, Inc., a Delaware corporation ("USA.NET-Delaware" or, with its
predecessor entity, the "Company") is a leading provider of email and advanced
messaging solutions on the Internet for consumers, Web portals and businesses.
The Company's consumer email service, NET@DDRESS, is offered free of charge and
provides users with a permanent, portable and private email address accessible
from any computer connected to the Internet. During 1998, the Company introduced
its messaging services for Web portals and its specialized and comprehensive
outsourced solutions for businesses.
USA.NET, Inc., a Colorado corporation ("USA.NET-Colorado") was formed as a
S corporation in 1991, as Community News Service Inc., an information services
company providing Internet access and other Internet-related services to
consumer and commercial customers throughout the United States. In 1995, the
Company began the development of its email solutions. Effective March 1, 1997,
the Company sold the Internet service provider ("ISP") business segment (Notes 3
and 9).
On March 12, 1997, a reincorporation of USA.NET-Colorado as a Delaware
corporation was effected by a merger (the "Reincorporation Merger") of
USA.NET-Colorado with and into USA.NET-Delaware, and each share of
USA.NET-Colorado common stock was exchanged for one-half share of USA.NET-
Delaware common stock and one share of USA.NET-Delaware Series A convertible
preferred stock ("Series A"). USA.NET-Delaware was the surviving corporation.
Also as a result of the Reincorporation Merger, the Company increased the total
number of authorized common and preferred shares and established a par value of
$.001 per share for both common and preferred stock.
The Company is subject to various risks and uncertainties frequently
encountered by companies in the early stages of development, particularly
companies in the new and rapidly evolving market for Internet-based products and
services. Such risks and uncertainties include, but are not limited to, its
limited operating history, an evolving and unpredictable business model and the
management of rapid growth. To address these risks, the Company must, among
other things, maintain and increase its customer base, implement and
successfully execute its business and marketing strategy, continue to develop
and upgrade its technology, provide superior customer service and attract,
retain and motivate qualified personnel. There can be no guarantee that the
Company will be successful in addressing such risks. To date, substantially all
of the Company's revenue has been derived from the sale of advertising on its
Web sites. The Internet as an advertising medium has not been available for a
sufficient period of time to gauge its effectiveness as compared to traditional
advertising outlets.
The Company has not yet achieved profitability and expects to incur net
losses for the foreseeable future. The Company incurred net losses from
continuing operations of $2,075,072 in 1996, $5,673,912 in 1997 and $19,227,787
in 1998. As of December 31, 1998, the Company's accumulated deficit was
$28,571,068. The Company expects to continue to lose money for the foreseeable
future. The Company has not generated sufficient revenue to cover the
substantial amounts spent to create, launch and enhance its services. If the
Company's revenue does not increase substantially, the Company may never become
profitable. Even if the Company does achieve profitability in the future, it may
not sustain or increase its profitability. The Company has historically funded
its operations by selling stock and obtaining loans from banks. The Company
expects that its growth may require significant external financing within the
next year. Management believes that the Company has capital available to it from
third parties, and if such capital is not forthcoming, a stockholder has
committed to fund the Company's operations through at least December 31, 1999,
if necessary.
F-7
<PAGE> 82
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions may affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers investments in highly liquid instruments purchased
with an original maturity of 90 days or less to be cash equivalents.
All of the Company's short-term investments, consisting principally of
commercial paper and medium term notes, are classified as available for sale.
Unrealized holding gains and losses, if material, are included as a separate
component of other comprehensive income. At December 31, 1997 and 1998,
unrealized holding gains and losses are not material. Realized gains and losses
are recorded in the statement of operations upon selling the security.
ACCOUNTS RECEIVABLE
The Company maintains an allowance for doubtful accounts based upon the
expected collectibility of accounts receivable. At December 31, 1997 and 1998,
the allowance for doubtful accounts was approximately $29,000 and $151,000,
respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments and accounts receivable. The Company has no significant
off-balance sheet concentrations of credit risk, such as foreign exchange
contracts, option contracts or other foreign currency hedging arrangements. The
Company maintains its cash balances in the form of bank demand deposits and
money market accounts with financial institutions that management believes are
creditworthy. The Company maintains its short-term investments in certificates
of deposit, and high quality commercial paper and corporate debt securities.
Accounts receivable are typically unsecured and are derived from transactions
with and from advertisers primarily located in the United States. The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit losses.
As discussed in Note 7, the Company has three and one customers that
accounted for more than 10% of 1997 and 1998 revenue, respectively, and four and
two customers that accounted for more than 10% of accounts receivable at
December 31, 1997 and 1998, respectively. The loss of significant advertisers
and/or distribution channels to the Company's users could result in a
significant reduction of revenues.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is provided
using the straight-line method, generally over estimated useful lives of five
years. Maintenance and repairs are expensed as incurred and major additions,
replacements and improvements are capitalized.
Leasehold improvements are amortized using the straight-line method over
the shorter of the useful life of five years or the life of the lease.
F-8
<PAGE> 83
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- -----------
<S> <C> <C>
Computer equipment and licensed software............ $2,613,752 $13,763,462
Office equipment.................................... 188,342 1,007,497
Leasehold improvements.............................. 105,550 430,330
---------- -----------
2,907,644 15,201,289
Less -- accumulated depreciation and amortization... (363,905) (1,751,773)
---------- -----------
$2,543,739 $13,449,516
========== ===========
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company evaluates the recoverability of its long-lived
assets based on estimated undiscounted future cash flows and provides for
impairment if such undiscounted cash flows are insufficient to recover the
carrying amount of the long-lived asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash equivalents, short-term
investments, short-term trade receivables and payables, and a note payable. The
carrying values of the cash equivalents, short-term investments and short-term
trade receivables and payables approximate their fair values. Based on borrowing
rates currently used by the Company for financing, the carrying value of the
note payable approximates its estimated fair value.
REVENUE RECOGNITION
The Company currently generates substantially all of its revenue from the
sale of advertising via its Web-based email services. Advertising revenue
consists of sponsorships, banner advertising, the placement of buttons, and the
use of a logout page, all of which provide users with direct links to the
advertiser's Web site, and from advertising for direct delivery content
providers. Advertising revenue is derived from both short-term and long-term
advertising contracts in which the Company delivers impressions (a single
display of an advertisement to a subscriber) for a fee or is compensated for
generating leads or transactions. Revenue generated by these contracts are
generally recognized ratably as earned, which typically coincides with when the
services are performed, provided that the Company does not have any significant
remaining obligations and collection of the resulting receivable is probable.
Company obligations typically include guarantees of a minimum number of
impressions. To the extent minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenue until the remaining
guaranteed impression levels are achieved.
As discussed in Note 5, certain agreements require that a portion of the
revenue recorded under these agreements be shared.
INCOME TAXES
Prior to the Reincorporation Merger, the Company elected to be taxed as an
S corporation under Subchapter S of the Internal Revenue Code, and accordingly,
income or loss attributed to the Company's operations was allocated to its
stockholders to be reported on their personal tax returns. Tax net operating
losses incurred during this period are not available to offset the Company's
future taxable income, if any.
F-9
<PAGE> 84
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to the Reincorporation Merger, the Company elected to be taxed
as a C corporation. The current provision for income taxes represents actual or
estimated amounts payable on tax return filings each year. Deferred tax assets
and liabilities are recorded for the estimated future tax effects of temporary
differences between the tax basis of assets and liabilities and amounts reported
in the accompanying balance sheets, and for operating loss and tax credit
carryforwards. The change in deferred tax assets and liabilities for the period
measures the deferred tax provision or benefit for the period. Effects of
changes in enacted tax laws on deferred tax assets and liabilities are reflected
as adjustments to the tax provision or benefit in the period of enactment. The
Company's deferred tax assets have been completely reduced by a valuation
allowance because management does not believe realization of the deferred tax
assets is sufficiently assured at each balance sheet date (Note 8).
PRODUCT DEVELOPMENT
Costs incurred in the development of new products and enhancements to
existing products and services are charged to expense as incurred.
CHANNEL ACQUISITION COSTS
Channel acquisition costs paid to acquire access to customers are
capitalized if the arrangement contains guarantees of minimum revenue which
support the amount paid.
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included in sales and
marketing expense in the accompanying statements of operations. The Company does
not incur any material direct-response advertising costs. Advertising expense
totaled $251,778, $1,681,738 and $3,988,501 in 1996, 1997 and 1998,
respectively, related to continuing operations.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock option plans and other
stock-based compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25"), and related interpretations. The Company
adopted the disclosure-only provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), which allows entities to continue to
apply the provisions of APB Opinion No. 25 for transactions with employees and
provide pro forma disclosures for employee stock grants made in 1997 and future
years as if the fair-value-based method of accounting in SFAS No. 123 had been
applied to these transactions. The Company accounts for equity instruments
issued to non-employees in accordance with the provisions of SFAS No. 123.
NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
Per Share" ("SFAS No. 128"), and Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No.
128 and SAB 98, basic net loss per share is computed by dividing net loss for
the period by the weighted average number of common shares outstanding for the
period. Diluted net loss per share is computed by dividing the net loss for the
period by the weighted average number of common and potential common shares
outstanding during the period if the effect of the potential common shares is
dilutive. The Company has excluded the weighted average effect (using the
treasury stock method) of common stock issuable upon conversion of all
convertible preferred stock,
F-10
<PAGE> 85
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
warrants and stock options from the computation of diluted earnings per share as
the effect of all such securities is anti-dilutive for all periods presented.
The shares excluded are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C> <C>
1996........................................... --
1997........................................... 1,433,713
1998........................................... 4,697,684
</TABLE>
At December 31, 1998, the Company had issued rights to 6,414,265 shares of
common stock under such agreements.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1998 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, B, C and D convertible preferred stock into shares of the Company's
common stock as if such conversion occurred on January 1, 1998, or at the date
of original issuance, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute basic and diluted net
loss per share of approximately 4,200,000 shares for the year ended December 31,
1998. The pro forma effects of these transactions are unaudited.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the Company's planned initial public
offering, all outstanding shares of Series Preferred (as defined below) will
automatically convert into 5,536,871 shares of common stock. The pro forma
effects of these transactions are unaudited and have been reflected in the
accompanying pro forma balance sheet at December 31, 1998.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. From its inception through
December 31, 1998, the Company has not had any material transactions that are
required to be reported in comprehensive income as compared to its net loss.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"). This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. In accordance with the provisions of SFAS
No. 131, the Company has determined that it has one reportable operating segment
at December 31, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of such software. SOP No. 98-1 is effective
for
F-11
<PAGE> 86
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial statements for fiscal years beginning after December 15, 1998. The
Company does not expect that the adoption of SOP No. 98-1 will have a material
impact on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Company is required to
adopt SFAS No. 133 in the year ended December 31, 2000. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. To
date, the Company has not entered into any derivative financial instruments or
hedging activities.
RECLASSIFICATIONS
Certain prior years' balances were reclassified to conform to the current
year presentation.
(3) RELATED PARTY TRANSACTIONS
Prior to 1997, the Company substantially relied upon an entity affiliated
through common ownership for management, facilities and other administrative and
operating activities. This entity charged the Company for its calculated share
of the related costs incurred and paid by the affiliated entity. Such costs
totaled $816,948 in 1996, of which $528,282 relates to continuing operations.
Because such costs were shared, the Company's management believes that the costs
incurred on a stand-alone basis would have been greater than amounts allocated
to the Company by the affiliated entity. During 1996, the Company ceased its
dependence on the affiliated entity. During 1997, the affiliated entity was sold
to a third party.
This entity also provided long distance telephone services to the Company.
For the periods prior to its sale, the related telephone services totaled
$373,531 and $113,159 for the years ended December 31, 1996 and 1997,
respectively, of which $3,142 and $54,717, respectively, are reflected in
continuing operations. The Company had no payables to this affiliated entity for
telephone services at December 31, 1997.
During 1996, this entity periodically made advances to fund the Company's
operations. This entity distributed such receivables to certain mutual
stockholders, who converted them into shares of the Company's common stock.
During March 1997, the Company entered into a lease agreement for office
space with a related party. The total rent expense related to this lease for the
years ended December 31, 1997 and 1998 was $16,000 and $4,000, respectively. The
Company also recognized $11,912 and $34,592 of expense for Internet access
provided by this related party for the years ended December 31, 1997 and 1998.
Additionally, the Company subleased office space to the related party. At
December 31, 1997 and 1998, the Company had a payable to the related party of
$44,900 and $22,789, respectively, for rent and other miscellaneous expenses. At
December 31, 1997 and 1998, the related party owed the Company $61,290 and
$16,420, respectively, for rent and other miscellaneous reimbursable expenses.
In March 1997, the Company sold its ISP business segment to an entity which
is 40% owned by certain directors, officers and principal stockholders of the
Company for $925,000 plus the assumption of a note payable (Note 9).
Also in March 1997, the Company purchased office furniture and equipment
for $50,000 from a related party. The purchase price was paid in full in 1998.
In consideration for a personal guarantee provided by a stockholder on a
credit facility held with a bank (Note 4), the Company granted stock options to
purchase 65,000 shares of common stock to the stockholder.
F-12
<PAGE> 87
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During August 1998, the Company issued a five-year warrant to a financial
institution for investment banking and underwriting services rendered in the
Series D preferred stock offering. The warrant entitles the related party to
purchase 45,994 shares of the Company's common stock at a price per share of
$14.75. At December 31, 1998, the warrant has not been exercised. The Company
also paid this financial institution $1,416,786 in fees for services performed
related to the Series D preferred stock offering.
At December 31, 1998, the Company has $2,029,355 of cash equivalents on
deposit at this financial institution. For the year ended December 31, 1998,
$19,023 of gains realized on maturity of commercial paper and $23,667 of
interest and dividend income were earned and recognized in the statement of
operations related to the cash equivalents held with this related party.
In August 1998, a party with which the Company has a revenue sharing
agreement purchased shares of Series D preferred stock. For the period from the
date such shares were purchased through December 31, 1998, $287,118 of royalty
fees were due to this investor pursuant to the revenue sharing agreement. At
December 31, 1998, the Company owed the related party $245,237 for unpaid
royalty fees.
(4) NOTE PAYABLE
In August 1997, the Company obtained a credit facility from a bank whereby
the Company may draw on the available principal up to an aggregate amount of
$1,500,000, which was amended to $2,000,000 in January 1998. The interest rate
on notes payable under this credit facility are based on the bank's prime rate
(8.5% and 7.75% at December 31, 1997 and 1998, respectively). Interest expense
related to the line of credit was $9,050 and $151,469 for the years ended
December 31, 1997 and 1998, respectively. The borrowings are collateralized by
accounts receivable and property and equipment. This facility is also personally
guaranteed by a stockholder for its full amount. As consideration for the
personal guarantee, the stockholder was granted options to purchase 65,000
shares of common stock that will become fully exercisable on the earlier of: (1)
the Company reaching a $100 million valuation, (2) the Company undergoing a
public stock offering, or (3) the passing of four years. The options fully
vested in 1998. The value of the options was immaterial as determined using the
Black-Scholes option pricing model.
The note payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Note payable -- interest at the bank's prime rate, monthly,
interest only payments beginning February 1999, with the
principal due upon demand or January 2000, whichever is
earlier................................................... $1,500,000 $1,767,423
Less -- current portion..................................... (264,842) (1,767,423)
---------- ----------
Long-term portion........................................... $1,235,158 $ --
========== ==========
</TABLE>
In December 1995, the Company obtained bank financing of $500,000 for the
purchase of equipment. Interest expense related to this facility was $39,901 and
$4,938 for the years ended December 31, 1996 and 1997, respectively. This note
payable was assumed by the purchaser of the ISP business segment sold in March
1997 (Note 9) and the Company has no further obligations thereunder.
F-13
<PAGE> 88
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES
CAPITAL LEASE OBLIGATIONS
During 1998, the Company entered into several capital leases for computer
equipment. The leases are for terms ranging from 36 to 45 months, expiring at
various times through 2002. Interest on the Company's capital lease obligations
is at rates ranging from 14.7% to 15.1% at December 31, 1998.
Equipment purchased under capital leases is included in the cost of
property and equipment. The following is a summary of property and equipment
purchased under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Computer equipment.......................................... $5,541,851
Less -- accumulated depreciation............................ (590,550)
----------
Net book value.............................................. $4,951,301
==========
</TABLE>
At December 31, 1998, future minimum lease payments under capitalized lease
obligations are as follows:
<TABLE>
<S> <C>
Year ended December 31,
1999...................................................... $ 1,863,512
2000...................................................... 1,815,356
2001...................................................... 1,815,356
2002...................................................... 1,239,339
-----------
6,733,563
Less -- amounts representing interest....................... (1,497,059)
-----------
Total obligation............................................ 5,236,504
Less -- current portion..................................... (1,239,357)
-----------
Long-term capital lease obligation.......................... $ 3,997,147
===========
</TABLE>
Interest expense under such leases was $78,424 for the year ended December
31, 1998.
OPERATING LEASE OBLIGATIONS
The Company leases certain facilities under operating leases that expire at
various times through 2003. Future minimum lease payments for such operating
leases are as follows at December 31, 1998:
<TABLE>
<S> <C>
Year ended December 31,
1999...................................................... $1,141,380
2000...................................................... 1,159,480
2001...................................................... 1,159,480
2002...................................................... 820,016
2003...................................................... 227,256
----------
$4,507,612
==========
</TABLE>
Lease expense related to continuing operations for the years ended December
31, 1996, 1997 and 1998, was $50,346, $93,758 and $570,692, respectively.
F-14
<PAGE> 89
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On July 28, 1998, the Company entered into a new lease for office space,
which required the Company to provide a letter of credit for $160,000.
Subsequent to yearend, the Company entered into a new lease agreement for
additional office space. The lease term is for 38 months and requires monthly
rental payments of approximately $20,500 plus variable operating expenses. This
commitment is included as a future minimum lease payment in the table above.
LITIGATION
In the normal course of business, the Company is subject to, and may become
a party to, litigation arising out of its operations. In management's opinion,
none of the matters currently in actual or threatened litigation will have a
material impact on the Company's financial position or results of operations.
REVENUE SHARING AGREEMENTS
On April 17, 1998, the Company and Netscape Communications Corporation
("Netscape") signed a strategic business agreement and trademark license
agreement (collectively, the "Agreement") to offer a free email service through
Netscape's portal site, Netscape Netcenter. The service is called Netscape
WebMail Powered by USA.NET. The Agreement is a revenue sharing arrangement
between the two companies that includes advertising and premium email service
revenue. Under the terms of the trademark license agreement, the Company made a
one-time non-refundable payment of $5 million. In addition, each party has
obligations with regard to performance and marketing. The Company's rights under
the Agreement may be terminated if the Company does not meet such performance
criteria or under other specified conditions.
On October 31, 1998, the Company and Netscape signed an addendum to the
Agreement to expand the territory in which Netscape WebMail Powered by USA.NET
will be offered. Such service may now be offered in specified foreign countries
and is subject to a revenue sharing arrangement between the two companies. Under
the terms of the addendum, the Company made an additional one-time
non-refundable payment of $1.5 million. The Company may be committed to pay an
additional $625,000 and $375,000 to Netscape in 1999 and 2000, respectively,
subject to the completion of certain tasks by Netscape. Such tasks were not
complete at December 31, 1998.
The Agreements were entered into by the Company primarily to gain access to
Netscape's customers and for general strategic marketing purposes. The Company's
policy with regard to channel acquisition agreements is to capitalize costs to
acquire access to customers if the arrangement contains guarantees of minimum
revenue which support the amount paid. Because the Agreements do not contain
minimum guaranteed revenue, and due to the start-up nature of this service and
other uncertainties around this arrangement, the Company has expensed the
payments to Netscape.
On April 8, 1997, the Company entered into an agreement with a certain
holder of its preferred stock, in which the Company provides co-branded,
advertising supported email services. Under the terms of the agreement, the
Company must remit to the investor a percentage of gross revenues, as defined,
generated from the use of this service. Through December 31, 1998, no material
payments were due under the agreement.
(6) STOCKHOLDERS' EQUITY
The Board of Directors of the Company is authorized under the Company's
Restated Certificate of Incorporation (the "Restated Certificate") to issue
22,878,714 shares of capital stock; 16,655,988 shares of which are authorized
for common stock and 6,222,726 of which are authorized for preferred stock
F-15
<PAGE> 90
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1,100,000 shares are designated for Series A, 1,055,158 shares are designated
for Series B convertible preferred stock ("Series B"), 2,033,670 shares are
designated for Series C convertible preferred stock ("Series C"), and 2,033,898
shares are designated for Series D convertible preferred stock ("Series D")
(collectively, "Series Preferred")).
COMMON AND PREFERRED STOCK
In connection with the Reincorporation Merger, each share of
USA.NET-Colorado common stock was exchanged for one-half share of
USA.NET-Delaware common stock and one share of Series A, and the Company
established a par value for both common and preferred stock of $.001 per share.
In April 1997, the Company entered into a Series B Preferred Stock Purchase
Agreement, Investor Rights Agreement and Co-Marketing Program Agreement
(collectively the "Series B Agreement") under which it sold 527,579 shares of
Series B at $5.69 per share for proceeds of $3,001,925. The Series B Agreement
also granted the purchaser an option to purchase a minimum of 351,494 shares and
a maximum of 527,579 shares of additional Series B at a price equal to the lower
of $5.69 per share or the price per share of any preferred stock sold by the
Company prior to April 8, 1998. The option was exercised on March 23, 1998 with
regard to 356,073 shares at $5.69 per share for proceeds of $2,026,055. The
option for the remaining shares expired.
The Series B Agreement requires that the Company utilize at least
$1,675,352 of the proceeds from the sale of Series B for marketing purposes as
specified in the Series B Agreement. At December 31, 1997 and 1998, the balance
of the restricted cash pursuant to this agreement was $734,704 and $839,504,
respectively. Any cash not used for this specified purpose becomes unrestricted
between April 1999 and March 2000, or the termination of the Series B Agreement,
whichever is earlier.
In connection with the Series B Agreement, an officer of the Company has
entered into a stock restriction agreement. Shares of common stock and Series A
held by the officer at the time of issuance of the Series B are subject to
repurchase by the Company in the event that such officer is terminated for cause
or voluntarily ceases to be an employee, director or consultant prior to April
8, 2000. The repurchase price is $0.57 per share for common stock and $4.76 per
share for Series A.
In October 1997, the Company entered into a Series C Preferred Stock
Purchase Agreement and an Investor Rights Agreement with various purchasers
pursuant to which it sold 736,376 shares of Series C for $6.79 per share for
proceeds of $4,999,995. In addition, the Company entered into a Co-Marketing
Program Agreement with one of those investors. These three agreements are
collectively referred to as the Series C Agreement. The Series C Agreement also
granted the purchasers an option to purchase a minimum of 98,085 to 490,426
shares (dependent upon the number of purchasers who exercise the option) and up
to a maximum of 736,376 shares of Series C at a price of $6.79 per share. The
option was exercised on March 23, 1998 with regard to 736,376 shares at $6.79
per share for total proceeds of $4,999,993. On March 23, 1998 and May 13, 1998,
the Company sold an additional 486,918 and 74,000 shares of Series C,
respectively, at $6.79 per share for proceeds of $3,306,173 and $502,460,
respectively, to various Series C stockholders and other investors.
The Series C Agreement requires that the Company utilize $1,150,000 of the
proceeds from the sale of Series C in October 1997 and $1,000,000 from the sale
on March 23, 1998, for marketing and technical development efforts as specified
in the Series C Agreement. The unused balance of the restricted cash pursuant to
this agreement was released from restriction on May 1, 1998 with regard to the
October 1997 sale of Series C and will be released in April 1999 with regard to
the March 23, 1998 sale. At December 31, 1997 and 1998, the balance of the
restricted cash under this agreement was $1,150,000 and $647,271, respectively.
F-16
<PAGE> 91
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In August 1998, the Company entered into a Series D Preferred Stock
Purchase Agreement and Investor Rights Agreement (collectively the "Series D
Agreement") with various purchasers pursuant to which it sold 1,557,318 shares
of Series D for $14.75 per share for proceeds of $22,970,441 (prior to offering
costs of $1,894,052, including $313,251 for the issuance of the warrant
discussed below).
The holders of Series Preferred have various rights and preferences as
follows:
Conversion
The holders of the Series Preferred may, at the option of the holder, be
converted at any time into shares of common stock at a current conversion rate
of one share of common stock for each share of Series Preferred. The conversion
ratios will be adjusted in certain circumstances, primarily to prevent dilution.
Additionally, each share of Series Preferred will automatically convert into
shares of common stock based on the then current conversion rate (i) at any time
upon the affirmative election of the holders of at least 70% of the outstanding
shares of Series Preferred or (ii) upon the closing of a firmly underwritten
public offering of the common stock of not less than $20 million (before
deduction of underwriters' discounts, commissions and fees) and which results in
a per share price of at least 150% of the then applicable price at which the
Series D converts into common stock.
Voting
The Series Preferred are voted equally with the shares of common stock of
the Company, on an as-if converted to common stock basis.
Dividends
Holders of the Series B, C and D are entitled to receive on a pari passu
basis non-cumulative dividends in preference to any dividend payable on the
Series A and the common stock at the rate of 6% of the original purchase for
each Series price per annum, when, as and if declared by the Board of Directors.
After such payment, the holders of Series A are entitled to receive
non-cumulative dividends in preference to any dividends payable on common stock,
at the rate of 6% of the stated value ($4.76) per annum, when, as and if
declared by the Board of Directors. The holders of Series B, C and D are also
entitled to participate pro rata in any dividends paid on the Series A or common
stock, on an as-if converted basis. The holders of Series A are also entitled to
participate in any dividends paid on the common stock on an as-if converted
basis. No dividends on Series Preferred or common stock have been declared by
the Board of Directors.
The Series B and C Agreements also require the prior approval of the
Director representative of the Series B and C to the Company's Board of
Directors prior to the Company issuing any debt security in excess of 50% of the
Company's equity at the closing of such financing, acquiring or obtaining a 10%
or greater interest in any other corporation, partnership or entity, declaring
or paying dividends on shares of common stock other than in compliance with the
Restated Certificate, or selling additional shares of Series B or C,
respectively. The rights terminate with respect to the Series B when the
original holders of Series B no longer hold at least 250,000 shares of Series B
and with respect to the Series C when there are no longer 250,000 shares of
Series C outstanding.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, including a merger, acquisition, sale of
voting control or sale of substantially all of the assets of the Company in
which the stockholders of the Company do not own a majority of the outstanding
shares of the surviving corporation, the holders of the Series D shall be
entitled to receive in preference to
F-17
<PAGE> 92
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the holders of the Series A, B and C and the common stock, $14.75 per share plus
any declared but unpaid dividends. After distribution of such amounts to the
holders of Series D, the holders of Series B and Series C shall be entitled to
receive on a pari passu basis $5.69 and $6.79 per share, respectively, plus any
declared but unpaid dividends. After distribution of such amounts, the holders
of Series A will be entitled to receive $4.76 per share plus any declared but
unpaid dividends. Following such distributions, the remaining assets shall be
distributed ratably to the holders of the common stock provided, however, that
the Series Preferred will be entitled to participate in distributions to the
common stockholders such that, after giving effect to the applicable liquidation
preferences of each series, the holders of each series of Series Preferred shall
receive aggregate distributions equal to the greater of (i) the liquidation
preference applicable to such series and (ii) the amount such holders would have
received if their shares of Series Preferred had been converted into common
stock immediately prior to such liquidation, dissolution or winding up of the
Company. If the Company's assets are insufficient to repay any such amounts, as
described above, the remaining assets will be distributed ratably, in order of
liquidation preference.
WARRANT
In connection with the August 1998 issuance of the Series D, the Company
issued a warrant to purchase 45,994 shares of the Company's common stock at an
exercise price of $14.75 per share, exercisable for a five-year period
commencing August 12, 1998. The warrant was valued at a total of $313,251
utilizing the Black-Scholes option pricing model, assuming a volatility factor
of 92%, which is based upon an average of comparable public companies.
STOCK OPTION PLAN
During 1997, the Company adopted the 1997 Stock Option Plan (the "Plan")
under which the Company is authorized to grant incentive and non-qualified stock
options to acquire up to 1,244,513 shares of the Company's common stock to
employees and directors of the Company. Under the Plan, the exercise price per
share of a non-qualified stock option must be equal to at least 50% of the fair
market value of the common stock on the date of grant, and the exercise price
per share of an incentive stock option must equal the fair market value of the
common stock on the date of grant. Options granted vest over various terms with
a maximum vesting period of five years and expire after a maximum of 10 years.
The Company accounts for the Plan under APB Opinion No. 25, under which no
compensation cost has been recognized in the accompanying financial statements.
The following table summarizes the Plan at December 31, 1997 and 1998, and
activity during the years then ended:
<TABLE>
<CAPTION>
1997 1998
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year............... -- $ -- 578,500 $ .59
Granted...................................... 610,500 .59 357,800 7.91
Forfeited or canceled........................ (32,000) .57 (92,400) (1.51)
Exercised.................................... -- -- (12,500) (.57)
-------- ----- -------- ------
Outstanding, end of year..................... 578,500 $ .59 831,400 $ 3.64
======== ===== ======== ======
Exercisable, end of year..................... 127,800 $ .58 276,450 $ 1.14
======== ===== ======== ======
Weighted average fair value of options
granted during the year.................... $0.17 $ 1.68
===== ======
</TABLE>
F-18
<PAGE> 93
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The status of stock options outstanding and exercisable under the Plan at
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
----------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF EXERCISE
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES PRICE
- --------------- --------- ------------ -------------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.57-$ 0.68.................. 491,900 8.25 $0.59 252,700 $0.58
$4.00-$ 7.00.................. 155,000 9.33 5.94 23,750 7.00
$9.00-$10.00.................. 184,500 9.75 9.85 -- --
------- ---- ----- ------- -----
831,400 8.78 $3.64 276,450 $1.14
======= ==== ===== ======= =====
</TABLE>
PRO FORMA FAIR VALUE DISCLOSURES
The fair value of each option grant is calculated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Risk-free interest rate................................. 6.1% 5.0%
Expected dividend yield................................. 0% 0%
Expected lives outstanding.............................. 4.5 years 4.8 years
Expected volatility..................................... 0.001% 0.001%
</TABLE>
Cumulative compensation costs recognized in pro forma net income or loss
with respect to options that are forfeited prior to vesting are adjusted as a
reduction of pro forma compensation expense in the period of forfeiture.
Had compensation cost for the Plan been determined consistent with SFAS No.
123, the Company's net loss would have been increased to the following pro forma
amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
Net loss:
As reported..................................... $(4,973,935) $(19,227,787)
=========== ============
Pro forma....................................... $(4,993,087) $(19,300,366)
=========== ============
Basic and diluted net loss per share:
As reported..................................... $ (9.37) $ (35.75)
=========== ============
Pro forma....................................... $ (9.40) $ (35.88)
=========== ============
</TABLE>
F-19
<PAGE> 94
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) MAJOR CUSTOMERS AND SERVICES
Advertising and other revenue was recorded by the Company in the following
significant service categories:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
--------- -----------
<S> <C> <C>
Consumer email service................................ $782,517 $3,170,445
Messaging solutions for Web portals................... -- 1,427,820
Business email and messaging solutions................ -- 104,448
-------- ----------
$782,517 $4,702,713
======== ==========
</TABLE>
A significant portion of the Company's revenue is derived from a limited
number of customers. The Company's sales to customers in excess of 10% of
revenues are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998
--------------- -----------------
$ % $ %
-------- ---- ---------- ----
<S> <C> <C> <C> <C>
Customer A............................... $142,150 18.1% $1,271,625 27.0%
Customer B............................... 116,917 14.9% -- --
Customer C............................... 89,289 11.4% -- --
</TABLE>
The Company's accounts receivable balances from customers in excess of 10%
of the accounts receivable balance are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1998
-------------- ---------------
$ % $ %
------- ---- -------- ----
<S> <C> <C> <C> <C>
Customer A.................................. $92,150 35.3% $145,000 9.7%
Customer B.................................. 35,335 13.5% -- --
Customer D.................................. 31,500 12.0% -- --
Customer E.................................. 29,000 11.1% -- --
Customer F.................................. -- -- 198,153 13.2%
Customer G.................................. -- -- 174,330 11.6%
</TABLE>
(8) INCOME TAXES
The Company terminated its S corporation status effective February 28,
1997. Because the Company incurred losses prior to this date, there is no pro
forma income tax provision/benefit, as the Company's history of operating losses
result in no benefit being recorded for such losses. Tax net operating losses
incurred during this period are not available to offset the Company's future
taxable income, if any.
F-20
<PAGE> 95
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $1,624,000 $7,136,000
Channel acquisition costs.......................... -- 1,916,000
Other.............................................. 19,000 143,000
---------- ----------
1,643,000 9,195,000
Deferred tax liabilities:
Excess depreciation for tax........................ (72,000) (395,000)
---------- ----------
Net deferred income tax asset........................ 1,571,000 8,800,000
Valuation allowance.................................. (1,571,000) (8,800,000)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
At December 31, 1998, for income tax purposes, the Company has
approximately $18,779,000 of net operating loss carryforwards for the period
from March 1, 1997 through December 31, 1998. Such net operating losses begin
expiring in 2012. The net operating loss for tax purposes differs from that for
financial reporting purposes due to differences in reporting certain
transactions for income tax and financial reporting purposes.
The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss carryforwards available to be used in any given year if certain
events occur, including significant changes in ownership interests.
No provision or benefit (actual or pro forma) has been recorded for any
period presented due to the Company's history of net losses.
The Company has determined that approximately $1,571,000 and $8,800,000 of
net deferred tax assets at December 31, 1997 and 1998, did not satisfy the
realization criteria set forth in SFAS No. 109, "Accounting for Income Taxes."
Management believes, that based on all available evidence, it is more likely
than not that the deferred tax assets will not be realized. Accordingly, a
valuation allowance was recorded against the entire net deferred tax asset.
(9) DISCONTINUED OPERATION
In March 1997, the Company sold its ISP business segment in order to focus
its resources on its Internet email business. This business segment was sold to
an entity in which certain significant stockholders of the Company hold a
substantial interest. The Company has no interest in, and does not exercise
influence over, the ISP.
The ISP business segment was sold for a promissory note of $925,000, which
was collected in full during 1997, and the assumption of a note payable of
$324,760. The gain on the sale of the Internet
F-21
<PAGE> 96
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
service provider business segment was $672,827. Summarized results of operations
and financial position data of this discontinued operation were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1997
----------- --------
<S> <C> <C>
Results of operations:
Revenues........................................... $ 1,759,538 $197,496
=========== ========
Income (loss) from operations...................... $(1,629,441) $ 32,088
=========== ========
Net income (loss) from discontinued operation...... $(1,602,778) $ 27,150
=========== ========
</TABLE>
Basic and diluted per share information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1997
----------- --------
<S> <C> <C>
Basic and diluted net income (loss) from
discontinued operation.......................... $ (5.33) $ 0.05
=========== ========
Basic and diluted gain on sale of discontinued
operation....................................... $ -- $ 1.27
=========== ========
</TABLE>
(10) SUBSEQUENT EVENTS
LEASE
On January 21, 1999, the Company entered into a new lease agreement for
additional office space. The lease term is for 38 months and requires monthly
rental payments of approximately $20,500 plus variable operating expenses (see
Note 5).
1997 STOCK OPTION PLAN
At March 19, 1999, the Company had granted stock options under the Plan to
purchase an aggregate of approximately 983,150 shares of common stock, of which
options to purchase approximately 17,400 shares had been exercised, options to
purchase approximately 164,400 shares had been forfeited or cancelled and
options to purchase approximately 801,350 shares at a weighted average exercise
price of approximately $3.55 per share remained outstanding. As discussed below,
the Company will make no future grants under the Plan.
1999 EQUITY INCENTIVE PLAN
The Company adopted the 1999 Equity Incentive Plan (the "1999 Plan"), which
replaces the Plan effective March 19, 1999. There is currently an aggregate of
425,763 shares of common stock authorized for issuance under the 1999 Plan.
The 1999 Plan provides for the grant of incentive stock options and
non-qualified stock options, restricted stock purchase awards, stock bonuses and
stock appreciation rights to employees, including officers and
employee-directors, directors and consultants of the Company.
Through March 31, 1999, options to purchase 66,500 shares of common stock
had been granted under the 1999 Plan and no stock bonuses or restricted stock
had been granted.
F-22
<PAGE> 97
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1999 EMPLOYEE STOCK PURCHASE PLAN
On April 1, 1999 the Board of Directors approved the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan will become effective on
the effective date of the initial public offering of the Company's common stock.
The Purchase Plan is intended to qualify as an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. The first
offering under the Purchase Plan will begin on the effective date of the initial
public offering of the Company's common stock, with the first purchase date
being December 31, 1999. Unless otherwise determined, common stock is purchased
under the Purchase Plan at a price per share equal to the lower of (i) 85% of
the fair market value of a share of common stock on the commencement date of the
offering or (ii) 85% of the fair market value of a share of common stock on the
date of purchase. Generally, all regular employees, including executive
officers, may participate in the Purchase Plan and may authorize payroll
deductions for the purchase of stock. The Purchase Plan will terminate at the
Board of Directors direction or when all of the shares reserved for issuance
have been purchased.
INITIAL PUBLIC OFFERING
On April 5, 1999, the Company filed a registration statement with the SEC
on Form S-1.
F-23
<PAGE> 98
- ------------------------------------------------------
- ------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER USA.NET, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Forward-Looking Statements; Market
Data.............................. 16
Use of Proceeds..................... 17
Dividend Policy..................... 17
Capitalization...................... 18
Dilution............................ 19
Selected Financial Data............. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 21
Business............................ 29
Management.......................... 50
Principal Stockholders.............. 59
Certain Transactions................ 61
Description of Securities........... 64
Shares Eligible for Future Sale..... 67
Underwriting........................ 68
Legal Matters....................... 70
Experts............................. 70
Where You Can Find Additional
Information....................... 70
Index to Financial Statements....... F-1
</TABLE>
-------------------------
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
[USA.NET, INC. LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
CIBC WORLD MARKETS
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 27,800
NASD filing fee............................................. 10,500
Nasdaq National Market listing application fee.............. 95,000
Blue Sky fees and expenses.................................. 6,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 475,000
Accounting fees and expenses................................ 200,000
Transfer agent and registrar fees........................... 15,000
Miscellaneous expenses...................................... 10,700
----------
TOTAL............................................. $1,040,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our amended and restated bylaws that will become effective upon the closing
of this offering provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law and may indemnify our
other officers, employees and other agents to the fullest extent permitted by
Delaware law.
In addition, our restated certificate of incorporation that will become
effective upon the closing of this offering provides that, to the fullest extent
permitted by Delaware law, our directors will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as
directors. This provision of the restated certificate of incorporation does not
eliminate the directors' duty of care. In appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief are
available under Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws and
state and federal environmental laws.
Each director will continue to be subject to liability for:
- Breach of a director's duty of loyalty to us and our stockholders;
- Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- Unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- Any transaction from which a director derived an improper personal
benefit.
We also intend to enter into indemnity agreements with our directors and
executive officers. We have purchased liability insurance for our directors and
executive officers.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in a claim for indemnification.
II-1
<PAGE> 100
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
We have issued and sold the following securities since April 1, 1996:
- From May 1, 1996 through December 30, 1996, our Colorado predecessor
corporation sold an aggregate of 657,350 shares of common stock to
certain existing stockholders at a purchase price of $4.76 per share.
650,000 of these shares were issued pursuant to the conversion of
$3,094,000 in indebtedness owed to three of our principal stockholders.
The issuance and sale to the shares was exempt from registration pursuant
to Section 4(2) of the Securities Act.
- On March 14, 1997, in connection with our reincorporation from Colorado
to Delaware, we issued an aggregate of 531,110 shares of common stock and
an aggregate of 1,062,231 shares of Series A Preferred Stock in exchange
for cancellation of the issued and outstanding shares of common stock of
our Colorado predecessor. The issuance of the shares was exempt from
registration pursuant to Section 3(a)(9) of the Securities Act.
- On April 8, 1997 and March 23, 1998, we issued and sold an aggregate of
883,652 shares of Series B Preferred Stock at a purchase price of $5.69
per share to an accredited investor. The issuance and sale of the shares
was exempt from registration pursuant to Section 4(2) of the Securities
Act.
- On October 17, 1997, March 23, 1998 and May 13, 1998, we issued and sold
an aggregate of 2,033,670 shares of Series C Preferred Stock at a
purchase price of $6.79 per share to accredited investors. The issuance
and sale of the shares was exempt from registration pursuant to Section
4(2) of the Securities Act.
- In August 1998, we issued and sold an aggregate of 1,557,318 shares of
Series D Preferred Stock at a purchase price of $14.75 per share to
accredited investors. The issuance and sale of the shares was exempt from
registration pursuant to Section 4(2) of the Securities Act.
- On August 12, 1998, we issued a warrant to purchase 45,994 shares of
common stock at an exercise price of $14.75 per share to BT Alex. Brown
Incorporated, as partial consideration for its services as placement
agent for our Series D Preferred Stock financing. The issuance of the
warrant was exempt from registration pursuant to Section 4(2) of the
Securities Act.
- We have issued an aggregate of 17,600 shares of common stock pursuant to
the exercise of stock options having a weighted average exercise price of
$.57 per share. The issuance and sale of such shares was exempt from
registration pursuant to Rule 701 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.
3.2* Certificate of Amendment of Restated Certificate of
Incorporation of the Company.
3.3 Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.4 Bylaws of the Company.
3.5 Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.5.
4.2* Specimen stock certificate representing shares of Common
Stock of the Company.
5.1* Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
</TABLE>
II-2
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 1997 Stock Option Plan of the Company.
10.2 1999 Equity Incentive Plan of the Company.
10.3 Intentionally Omitted.
10.4 1999 Employee Stock Purchase Plan of the Company.
10.5 Second Amended and Restated Investor Rights Agreement among
the Company and certain of its stockholders.
10.6 Common Stock Purchase Warrant issued by the Company to BT
Alex. Brown Incorporated.
10.7 Stock Restriction Agreement between the Company and John W.
Street.
10.8 Non-Competition Agreement between the Company and John W.
Street.
10.9 Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.10** Co-Marketing Program Agreement between the Company and
American Express Travel Related Services Company, Inc., as
amended.
10.11** Netcenter Services Agreement between the Company and
Netscape Communications Corporation, as amended.
10.12** Trademark License Agreement between the Company and Netscape
Communications Corporation, as amended.
10.13** Partnership Agreement between the Company and Register.com.
10.14 Business Loan Agreement between the Company and State Bank
and Trust of Colorado Springs.
10.15 Office Lease Agreement between the Company and BVT Chapel
Hills, Ltd., as amended.
10.16 Asset Purchase Agreement between the Company and Internet
Express, LLC.
10.17 Series B Preferred Stock Purchase Agreement between the
Company and American Express Travel Related Services
Company, Inc., as amended.
10.18 Series C Preferred Stock Purchase Agreement between the
Company and the purchasers of its Series C Preferred Stock,
as amended.
10.19 Series D Preferred Stock Purchase Agreement between the
Company and the purchasers of its Series D Preferred Stock.
23.1* Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (included on Page II-5).
27.1 Financial Data Schedule for 1997 and 1998.
27.2 Financial Data Schedule for 1996.
</TABLE>
- ---------------
* To be filed by amendment.
** The Company is applying for confidential treatment with respect to portions
of these exhibits.
(B) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
II-3
<PAGE> 102
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes 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 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.
II-4
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Colorado
Springs, County of El Paso, State of Colorado, on April 5, 1999.
By: /s/ JOHN W. STREET
----------------------------------
John W. Street
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John W. Street and Mary M. Beazley and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments, exhibits thereto and other documents in connection
therewith) to this Registration Statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities Act
of 1933, as amended, which relates to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN W. STREET Chairman of the Board, President April 5, 1999
- ----------------------------------------------------- and Chief Executive Officer
John W. Street (Principal Executive Officer)
/s/ MARY M. BEAZLEY Senior Vice President, Chief April 5, 1999
- ----------------------------------------------------- Financial Officer, Secretary and
Mary M. Beazley Director (Principal Financial
and Accounting Officer)
/s/ JEFFREY A. ALLRED Director April 5, 1999
- -----------------------------------------------------
Jeffrey A. Allred
/s/ KAREN GRIFFITH GRYGA Director April 5, 1999
- -----------------------------------------------------
Karen Griffith Gryga
/s/ LAWRENCE S. SHARNAK Director April 5, 1999
- -----------------------------------------------------
Lawrence S. Sharnak
</TABLE>
II-5
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.
3.2* Certificate of Amendment of Restated Certificate of
Incorporation of the Company.
3.3 Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.4 Bylaws of the Company.
3.5 Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.5.
4.2* Specimen stock certificate representing shares of Common
Stock of the Company.
5.1* Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1 1997 Stock Option Plan of the Company.
10.2 1999 Equity Incentive Plan of the Company.
10.3 Intentionally Omitted.
10.4 1999 Employee Stock Purchase Plan of the Company.
10.5 Second Amended and Restated Investor Rights Agreement among
the Company and certain of its stockholders.
10.6 Common Stock Purchase Warrant issued by the Company to BT
Alex. Brown Incorporated.
10.7 Stock Restriction Agreement between the Company and John W.
Street.
10.8 Non-Competition Agreement between the Company and John W.
Street.
10.9 Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.10** Co-Marketing Program Agreement between the Company and
American Express Travel Related Services Company, Inc., as
amended.
10.11** Netcenter Services Agreement between the Company and
Netscape Communications Corporation, as amended.
10.12** Trademark License Agreement between the Company and Netscape
Communications Corporation, as amended.
10.13** Partnership Agreement between the Company and Register.com.
10.14 Business Loan Agreement between the Company and State Bank
and Trust of Colorado Springs.
10.15 Office Lease Agreement between the Company and BVT Chapel
Hills, Ltd., as amended.
10.16 Asset Purchase Agreement between the Company and Internet
Express, LLC.
10.17 Series B Preferred Stock Purchase Agreement between the
Company and American Express Travel Related Services
Company, Inc., as amended.
10.18 Series C Preferred Stock Purchase Agreement between the
Company and the purchasers of its Series C Preferred Stock,
as amended.
10.19 Series D Preferred Stock Purchase Agreement between the
Company and the purchasers of its Series D Preferred Stock.
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.1* Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (included on Page II-5).
27.1 Financial Data Schedule for 1997 and 1998.
27.2 Financial Data Schedule for 1996.
</TABLE>
- ---------------
* To be filed by amendment.
** The Company is applying for confidential treatment with respect to portions
of these exhibits.
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EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION OF
USA.NET, INC.
John Street hereby certifies that:
1. The original name of this corporation is USA.NET, Inc. and the date
of filing the original Certificate of Incorporation of this corporation with the
Secretary of State of the State of Delaware is March 12, 1997.
2. He is the duly elected and acting President of USA.NET, Inc., a
Delaware corporation.
3. The Certificate of Incorporation of this corporation is hereby
amended and restated to read in its entirety as follows:
I.
The name of the corporation is USA.NET, Inc. (the "Corporation" or the
"Company").
II.
The address of the registered office of the Company in the State of
Delaware is:
1209 Orange Street
City of Wilmington
County of New Castle, 19801
The name of the Company's registered agent at said address is The
Corporation Trust Company.
III.
The purpose of the Company is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This Company is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Company is authorized to issue is twenty-two million eight
hundred seventy-eight thousand seven hundred fourteen (22,878,714) shares,
sixteen million six hundred fifty-five thousand nine hundred eighty-eight
(16,655,988) shares of which shall be Common Stock (the "Common Stock") and six
million two hundred twenty-two thousand seven hundred twenty-six (6,222,726)
shares of which shall be Preferred Stock (the "Preferred Stock"). The Common
Stock shall have a par value of one-tenth of one cent ($.001) per share and the
Preferred Stock shall have a par value of one-tenth of one cent ($.001) per
share.
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B. The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding
and reserved for issuance upon conversion of the Preferred Stock) by the
affirmative vote of the holders of a majority of the stock of the Corporation
(voting together on an as-if-converted basis).
C. One million one hundred thousand (1,100,000) of the authorized
shares of Preferred Stock are hereby designated "Series A Preferred Stock" (the
"Series A Preferred"), one million fifty-five thousand one hundred fifty-eight
(1,055,158) of the authorized shares of Preferred Stock are hereby designated
"Series B Preferred Stock" (the "Series B Preferred"), two million thirty-three
thousand six hundred seventy (2,033,670) of the authorized shares of Preferred
Stock are hereby designated "Series C Preferred Stock" (the "Series C
Preferred") and two million thirty-three thousand eight hundred ninety-eight
(2,033,898) of the authorized shares of Preferred Stock are hereby designated
"Series D Preferred Stock" (the "Series D Preferred"). The Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred are hereinafter
collectively referred to as the "Series Preferred."
D. The rights, preferences, privileges, restrictions and other matters
relating to the Series Preferred are as follows:
1. DIVIDEND RIGHTS.
a. Holders of Series B Preferred, Series C Preferred and Series
D Preferred, in preference to the holders of Series A Preferred and Common Stock
of the Company shall be entitled to receive, when and as declared by the Board
of Directors, but only out of funds that are legally available therefor, cash
dividends at the rate of six percent (6%) of the Original Issue Price per annum
on each outstanding share of Series B Preferred, Series C Preferred and Series D
Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). Such dividends
shall be payable only when, as and if declared by the Board of Directors and
shall be non-cumulative from the Original Issue Date of the Series D Preferred
(as defined in Section 4(e) below). The Original Issue Price of the Series B
Preferred shall be Five Dollars Sixty-Nine Cents ($5.69), the Original Issue
Price of the Series C Preferred shall be Six Dollars Seventy-Nine Cents ($6.79)
and the Original Issue Price of the Series D Preferred shall be Fourteen Dollars
Seventy-Five Cents ($14.75). So long as any shares of Series B Preferred, Series
C Preferred or Series D Preferred shall be outstanding, no dividend, whether in
cash or property, shall be paid or declared, nor shall any other distribution be
made, on any other series of Preferred Stock ranking junior to the Series B
Preferred, Series C Preferred or Series D Preferred with respect to dividends or
on any Common Stock, nor shall any shares of Preferred Stock ranking junior to
the Series B Preferred, Series C Preferred or Series D Preferred with respect to
dividends or any Common Stock be purchased, redeemed, or otherwise acquired for
value by the Company (except for acquisitions of Common Stock by the Company
pursuant to agreements which permit the Company to repurchase such shares upon
termination of services to the Company or in exercise of the Company's right of
first refusal upon a proposed transfer) until all dividends on the Series B
Preferred,
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Series C Preferred and Series D Preferred shall have been paid or declared and
set apart. In the event dividends are paid on any share of Series A Preferred or
Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Series B Preferred, Series C Preferred and Series D
Preferred in an amount equal per share (on an as-if-converted to Common Stock
basis) to the amount paid or set aside for each share of Series A Preferred or
Common Stock.
b. Holders of Series A Preferred, in preference to the holders of
Common Stock of the Company shall be entitled to receive, when and as declared
by the Board of Directors, but only out of funds that are legally available
therefor, cash dividends at the rate of six percent (6%) of the Original Issue
Price per annum on each outstanding share of Series A Preferred (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares). Such dividends shall be payable only when, as and if
declared by the Board of Directors and shall be non-cumulative from the Original
Issue Date. The Original Issue Price of the Series A Preferred shall be Four
Dollars Seventy-Six Cents ($4.76). So long as any shares of Series A Preferred
shall be outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any other series of
Preferred Stock ranking junior to the Series A Preferred with respect to
dividends or on any Common Stock, nor shall any shares of Preferred Stock
ranking junior to the Series A Preferred with respect to dividends or any Common
Stock be purchased, redeemed, or otherwise acquired for value by the Company
(except for acquisitions of Common Stock by the Company pursuant to agreements
which permit the Company to repurchase such shares upon termination of services
to the Company or in exercise of the Company's right of first refusal upon a
proposed transfer) until all dividends on the Series A Preferred shall have been
paid or declared and set apart. In the event dividends are paid on any share of
Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Series A Preferred in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock.
c. The provisions of Section 1(a) and 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares
of any capital stock of the Company in exchange for shares of any other capital
stock of the Company, or (iii) (A) any repurchase of any outstanding securities
of the Company that is unanimously approved by the Company's Board of Directors,
or (B) any repurchase of any outstanding securities by the Company pursuant to
the Second Amended and Restated Investor Rights Agreement dated on or about
August 11, 1998, as amended from time to time.
2. VOTING RIGHTS. Except as otherwise provided by law or
elsewhere herein, the Series Preferred shall be voted equally with the shares of
the Common Stock of the Company and not as a separate class, at any annual or
special meeting of stockholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of Series Preferred shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of Series Preferred are convertible
(pursuant to Section 4 hereof) immediately after the close of business on the
record date fixed for such meeting or the effective date of such written
consent.
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a. ELECTION OF BOARD OF DIRECTORS.
(i) For so long as the authorized size of the Company's
Board of Directors is five (5) or more, (i) the holders of Series C Preferred,
voting as a separate class, for so long as at least 250,000 shares of Series C
Preferred remain outstanding (as adjusted for any stock split, reverse stock
split or similar event affecting the Series C Preferred), shall be entitled to
elect one (1) member of the Company's Board of Directors (which person shall be
designated by Premiere Technologies, Inc. ("Premiere") for so long as Premiere
holds at least 150,000 shares of Series C Preferred) at each meeting or pursuant
to each consent of the Company's stockholders for the election of directors, and
to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director; (ii) the holders of Series B
Preferred, voting as a separate class, for so long as at least 250,000 shares of
Series B Preferred remain outstanding (as adjusted for any stock split, reverse
stock split or similar event affecting the Series B Preferred), shall be
entitled to elect one (1) member of the Company's Board of Directors at each
meeting or pursuant to each consent of the Company's stockholders for the
election of directors, and to remove from office such director and to fill any
vacancy caused by the resignation, death or removal of such director; (iii) the
holders of Series A Preferred, voting as a separate class, for so long as at
least 500,000 shares of Series A Preferred remain outstanding (as adjusted for
any stock split, reverse stock split or similar event affecting the Series A
Preferred), shall be entitled to elect one (1) member of the Company's Board of
Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal of
such director; (iv) the holders of Series Preferred, voting together as a
separate class, shall be entitled to elect one (1) member of the Company's Board
of Directors (which person shall be designated by Philadelphia Ventures Liberty
Fund, L.P. ("Philadelphia") for so long as Philadelphia holds at least 100,000
shares of Series Preferred) at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors, and to remove from office
such director and to fill any vacancy caused by the resignation, death or
removal of such director and (v) the holders of Common Stock and Series
Preferred, voting together as a class, shall be entitled to elect all remaining
members of the Board of Directors, one of whom shall be the then current Chief
Executive Officer of the Company.
(ii) Notwithstanding the foregoing, (A) in the event that
there are at least 250,000 shares of Series B Preferred outstanding (subject to
adjustment for any stock split, reverse stock split or similar event affecting
the Series B Preferred) and the authorized size of the Company's Board of
Directors is seven (7) or more, the holders of Series B Preferred, voting as a
separate class, shall be entitled to elect two (2) members of the Company's
Board of Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
directors and to fill any vacancy caused by the resignation, death or removal of
such directors and (B) in the event that there are at least 250,000 shares of
Series C Preferred outstanding (subject to adjustment for any stock split,
reverse stock split or similar event affecting the Series C Preferred) and the
authorized size of the Company's Board of Directors is seven (7) or more, the
holders of Series C Preferred, voting as a separate class, shall be entitled to
elect two (2) members of the Company's Board of Directors (which persons shall
be designated by Premiere for so long as Premiere holds at least 150,000 shares
of Series C Preferred) at each meeting or pursuant to each consent of the
Company's stockholders for
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the election of directors, and to remove from office such directors and to fill
any vacancy caused by the resignation, death or removal of such directors.
b. SEPARATE VOTE OF SERIES B PREFERRED. For so long as at
least 250,000 shares of Series B Preferred (subject to adjustment for any stock
split, reverse stock split or other similar event affecting the Series B
Preferred) remain outstanding, in addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of more than fifty
percent (50%) of the outstanding Series B Preferred, voting as a separate class,
shall be necessary for effecting or validating the following actions:
(i) Any amendment, alteration, or repeal of any provision
of the Restated Certificate or the Bylaws of the Company (including any filing
of a Certificate of Designation), that materially and adversely affects the
voting powers, preferences, or other special rights or privileges,
qualifications, limitations, or restrictions of the Series B Preferred; and
(ii) Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any other
securities convertible into equity securities of the Company ranking on a parity
with or senior to the Series B Preferred in liquidation preference, voting
rights or dividends rights or any increase in the authorized or designated
number of any such new class or series.
c. SEPARATE VOTE OF SERIES C PREFERRED. For so long as at
least 250,000 shares of Series C Preferred (subject to adjustment for any stock
split, reverse stock split or other similar event affecting the Series C
Preferred) remain outstanding, in addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of more than
two-thirds in interest of the outstanding Series C Preferred, voting as a
separate class, shall be necessary for effecting or validating the following
actions:
(i) Any amendment, alteration, or repeal of any provision
of the Restated Certificate or the Bylaws of the Company (including any filing
of a Certificate of Designation), that materially and adversely affects the
voting powers, preferences, or other special rights or privileges,
qualifications, limitations, or restrictions of the Series C Preferred; and
(ii) Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any other
securities convertible into equity securities of the Company ranking on a parity
with or senior to the Series C Preferred in liquidation preference, voting
rights or dividends rights or any increase in the authorized or designated
number of any such new class or series.
d. SEPARATE VOTE OF SERIES D PREFERRED. In addition to any
other vote or consent required herein or by law, the vote or written consent of
the holders of more than fifty percent (50%) of the outstanding Series D
Preferred, voting as a separate class, shall be necessary for effecting or
validating the following actions:
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(i) Any agreement by the Company or its stockholders
regarding an Asset Transfer or Acquisition (each as defined in Section 3(e)) in
which the holders of Series D Preferred would receive an amount per share of
Series D Preferred less than the Series D Preferred Liquidation Value;
(ii) Any amendment, alteration, or repeal of any provision
of the Restated Certificate or the Bylaws of the Company (including any filing
of a Certificate of Designation), that materially and adversely affects the
voting powers, preferences, or other special rights or privileges,
qualifications, limitations, or restrictions of the Series D Preferred; and
(iii) Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any other
securities convertible into equity securities of the Company ranking on a parity
with or senior to the Series D Preferred in liquidation preference, voting
rights or dividends rights or any increase in the authorized or designated
number of any such new class or series.
e. SEPARATE VOTE OF THE SERIES PREFERRED. For so long as at
least 500,000 shares of Series Preferred, (subject to adjustment for any stock
split, reverse stock split or other similar event affecting the Series
Preferred) remain outstanding, in addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of more than fifty
percent (50%) of the outstanding Series Preferred, voting together as a separate
class, shall be necessary for effecting or validating any agreement by the
Company or its stockholders regarding an Asset Transfer or Acquisition.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of Series A Preferred, Series B Preferred, Series C
Preferred or Common Stock, the holders of Series D Preferred shall be entitled
to be paid out of the assets of the Company an amount per share equal to the sum
of the Original Issue Price of the Series D Preferred plus all declared and
unpaid dividends on the Series D Preferred (as adjusted for stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) (the "Series D Preferred Liquidation Value"). If, upon any liquidation,
dissolution or winding up, the assets of the Company shall be insufficient to
make payment in full to all holders of Series D Preferred of the Series D
Liquidation Value, then such assets shall be distributed among the holders of
Series D Preferred at the time outstanding, ratably in proportion to the full
amounts to which they would otherwise be entitled.
b. Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, after the distribution has been made
pursuant to Section 3(a) above, and before any distribution or payment shall be
made to the holders of Series A Preferred or Common Stock, the holders of Series
B Preferred and Series C Preferred shall be entitled to be paid out of the
assets of the Company an amount per share of Series B Preferred and Series C
Preferred equal to (i) with respect to the Series B Preferred, the sum of the
Original Issue Price of the Series B Preferred plus all declared and unpaid
dividends on the Series B Preferred (as adjusted for stock
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dividends, combinations, splits, recapitalizations and the like with respect to
such shares) (the "Series B Preferred Liquidation Value") and (ii) with respect
to the Series C Preferred, the sum of the Original Issue Price of the Series C
Preferred plus all declared and unpaid dividends on the Series C Preferred (as
adjusted for stock dividends, combinations, splits, recapitalizations and the
like with respect to such shares) (the "Series C Preferred Liquidation Value").
If, upon any liquidation, dissolution or winding up, the assets of the Company
shall be insufficient to make payment in full to all holders of Series B
Preferred and Series C Preferred of the liquidation preferences set forth in
this Section 3(b), then such assets shall be distributed among the holders of
Series B Preferred and Series C Preferred at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.
c. Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, after the distributions have been
made pursuant to Sections 3(a) and 3(b) above, and before any distribution or
payment shall be made to the holders of any Common Stock, the holders of Series
A Preferred shall be entitled to be paid out of the assets of the Company an
amount per share of Series A Preferred equal to the Original Issue Price of the
Series A Preferred plus all declared and unpaid dividends on the Series A
Preferred (as adjusted for stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) (the "Series A
Preferred Liquidation Value"). If, upon any liquidation, dissolution or winding
up, the assets of the Company shall be insufficient to make payment in full to
all holders of Series A Preferred of the Series A Preferred Liquidation Value,
then such assets shall be distributed among the holders of Series A Preferred at
the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be entitled.
d. After the payment of the full liquidation preferences of
the Series D Preferred as set forth in Section 3(a) above, the Series B
Preferred and Series C Preferred as set forth in Section 3(b) above and the
Series A Preferred as set forth in Section 3(c) above, the remaining assets of
the Company legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock. The holders of Series Preferred
shall be entitled to participate in distributions to holders of the Common Stock
such that, after giving effect to all distributions pursuant to Section 3(a),
3(b) and 3(c), the holders of Series Preferred receive aggregate distributions
equal to the greater of the Series D Preferred Liquidation Value, Series C
Preferred Liquidation Value, Series B Preferred Liquidation Value or Series A
Preferred Liquidation Value, as applicable, and the amounts such holders would
have received if the Series D Preferred, Series C Preferred, Series B Preferred
or Series A Preferred had been converted into Common Stock immediately prior to
such liquidation, dissolution or winding up of the Company.
e. The following events shall be considered a liquidation
under this Section:
(i) any consolidation or merger of the Company with or into
any other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation, merger or
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reorganization, or any transaction or series of related transactions in which in
excess of fifty percent (50%) of the Company's voting power is transferred (an
"Acquisition"); or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset Transfer").
4. CONVERSION RIGHTS.
The holders of the Series Preferred shall have the following
rights with respect to the conversion of the Series Preferred into shares of
Common Stock (the "Conversion Rights"):
a. OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of Common Stock. The number of shares of Common Stock to which a holder of
Series Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the applicable "Series Conversion Rate" then in effect
(determined as provided in Section 4(b)) by the number of shares of Series
Preferred being converted.
b. CONVERSION RATE. The conversion rate in effect at any time
for conversion of the Series A Preferred (the "Series A Preferred Conversion
Rate") shall be the quotient obtained by dividing the Original Issue Price of
the Series A Preferred by the "Series A Preferred Price," calculated as provided
in Section 4(c). The conversion rate in effect at any time for conversion of the
Series B Preferred (the "Series B Preferred Conversion Rate") shall be the
quotient obtained by dividing the Original Issue Price of the Series B Preferred
by the "Series B Preferred Price," calculated as provided in Section 4(c). The
conversion rate in effect at any time for conversion of the Series C Preferred
(the "Series C Preferred Conversion Rate") shall be the quotient obtained by
dividing the Original Issue Price of the Series C Preferred by the "Series C
Preferred Price," calculated as provided in Section 4(c). The conversion rate in
effect at any time for conversion of the Series D Preferred (the "Series D
Preferred Conversion Rate") shall be the quotient obtained by dividing the
Original Issue Price of the Series D Preferred by the "Series D Preferred
Price," calculated as provided in Section 4(c).
c. CONVERSION PRICE. The conversion price for the Series A
Preferred shall initially be the Original Issue Price of the Series A Preferred
(the "Series A Preferred Price"). The conversion price for the Series B
Preferred shall initially be the Original Issue Price of the Series B Preferred
(the "Series B Preferred Price"). The conversion price for the Series C
Preferred shall initially be the Original Issue Price of the Series C Preferred
(the "Series C Preferred Price"). The conversion price for the Series D
Preferred shall initially be the Original Issue Price of the Series D Preferred
(the "Series D Preferred Price"). The Series A Preferred Price, Series B
Preferred Price, Series C Preferred Price and Series D Preferred Price shall
collectively be referred to as the "Preferred Prices," and each a "Preferred
Price." Such initial Preferred Prices shall be adjusted from time to time in
accordance with this Section 4. All references to each Preferred Price herein
shall mean such Preferred Price as so adjusted.
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d. MECHANICS OF CONVERSION. Each holder of Series Preferred
who desires to convert the same into shares of Common Stock pursuant to this
Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series
Preferred, and shall give written notice to the Company at such office that such
holder elects to convert the same. Such notice shall state the number of shares
of Series Preferred being converted. Thereupon, the Company shall promptly issue
and deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay in cash or, to the extent sufficient funds are not then legally
available therefor, in Common Stock (at the Common Stock's fair market value
determined by the Board of Directors as of the date of such conversion), any
declared and unpaid dividends on the shares of Series Preferred being converted.
Such conversion shall be deemed to have been made at the close of business on
the date of such surrender of the certificates representing the shares of Series
Preferred to be converted, and the person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Company shall at any time or from time to time after the date that the first
share of Series D Preferred is issued (the "Original Issue Date") effect a
subdivision of the outstanding Common Stock without a corresponding subdivision
of the Preferred Stock, the applicable Preferred Price in effect immediately
before that subdivision shall be proportionately decreased. Conversely, if the
Company shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares
without a corresponding combination of the Preferred Stock, the applicable
Preferred Price in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 4(e) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
f. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If
the Company at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the applicable Preferred Price that
is then in effect shall be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the applicable Preferred Price then in effect by a fraction
(1) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the applicable Preferred Price shall be recomputed accordingly
as of the close of business on such record date and thereafter the applicable
Preferred Price shall be adjusted pursuant to this Section 4(f) to reflect the
actual payment of such dividend or distribution.
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g. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision shall be made so
that the holders of the Series Preferred shall receive upon conversion thereof,
in addition to the number of shares of Common Stock receivable thereupon, the
amount of other securities of the Company which they would have received had
their Series Preferred been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, subject to all other adjustments called for
during such period under this Section 4 with respect to the rights of the
holders of the Series Preferred or with respect to such other securities by
their terms.
h. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series Preferred is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(e) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 4), in any such event each holder
of Series Preferred shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property receivable upon
such recapitalization, reclassification or other change by holders of the
maximum number of shares of Common Stock into which such shares of Series
Preferred could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
i. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the Original Issue Date, there
is a capital reorganization of the Common Stock (other than an Acquisition or
Asset Transfer as defined in Section 3(e)) or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4, as a part of such capital reorganization, provision
shall be made so that the holders of the Series Preferred shall thereafter be
entitled to receive upon conversion of the Series Preferred the number of shares
of stock or other securities or property of the Company to which a holder of the
number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of Series Preferred after the capital
reorganization to the end that the provisions of this Section 4 (including
adjustment of the applicable Preferred Price then in effect and the number of
shares issuable upon conversion of the Series Preferred) shall be applicable
after that event and be as nearly equivalent as practicable.
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<PAGE> 11
j. SALE OF SHARES BELOW APPLICABLE PREFERRED PRICE.
(i) If at any time or from time to time after the Original
Issue Date, the Company issues or sells, or is deemed by the express provisions
of this subsection (j) to have issued or sold, Additional Shares of Common Stock
(as defined in subsection (j)(iv) below), other than as a dividend or other
distribution on any class of stock as provided in Section 4(f) above, and other
than a subdivision or combination of shares of Common Stock as provided in
Section 4(e) above, for an Effective Price (as defined in subsection (j)(iv)
below) less than the then effective applicable Preferred Price, then and in each
such case the then existing applicable Preferred Price shall be reduced, as of
the opening of business on the date of such issue or sale, to a price determined
by multiplying the applicable Preferred Price by a fraction (i) the numerator of
which shall be (A) the number of shares of Common Stock deemed outstanding (as
defined below) immediately prior to such issue or sale, plus (B) the number of
shares of Common Stock which the aggregate consideration received (as defined in
subsection (j)(ii)) by the Company for the total number of Additional Shares of
Common Stock so issued would purchase at such applicable Preferred Price, and
(ii) the denominator of which shall be the number of shares of Common Stock
deemed outstanding (as defined below) immediately prior to such issue or sale
plus the total number of Additional Shares of Common Stock so issued. For the
purposes of the preceding sentence, the number of shares of Common Stock deemed
to be outstanding as of a given date shall be the sum of (A) the number of
shares of Common Stock actually outstanding, (B) the number of shares of Common
Stock into which the then outstanding shares of Series Preferred could be
converted if fully converted on the day immediately preceding the given date,
and (C) the number of shares of Common Stock which could be obtained through the
exercise or conversion of all other rights, options and convertible securities
outstanding on the day immediately preceding the given date whether or not then
exercisable.
(ii) For the purpose of making any adjustment required
under this Section 4(j), the consideration received by the Company for any issue
or sale of securities shall (A) to the extent it consists of cash, be computed
at the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale but without deduction of
any expenses payable by the Company, (B) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined in
good faith by the Board of Directors, and (C) if Additional Shares of Common
Stock, Convertible Securities (as defined in subsection (j)(iii)) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Company for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably determined in
good faith by the Board of Directors to be allocable to such Additional Shares
of Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under this
Section 4(j), if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the applicable Preferred Price, in each case the
11
<PAGE> 12
Company shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the maximum number of Additional
Shares of Common Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to the
total amount of the consideration, if any, received by the Company for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion thereof; provided that, if
in the case of Convertible Securities, the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that, if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further that, if the minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the Company upon the
exercise or conversion of such rights, options or Convertible Securities. No
further adjustment of the applicable Preferred Price, as adjusted upon the
issuance of such rights, options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the applicable Preferred Price as adjusted upon the issuance of such
rights, options or Convertible Securities shall be readjusted to the applicable
Preferred Price which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of Series
Preferred.
(iv) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company or deemed to be issued pursuant to
this Section 4(j), whether or not subsequently reacquired or retired by the
Company other than (1) shares of Common Stock issued upon conversion of the
Series Preferred; (2) shares of Common Stock and/or options, warrants or other
Common Stock purchase rights, and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits,
12
<PAGE> 13
recapitalizations and the like) (collectively, the "Option Shares") after the
Original Issue Date to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board, provided
that, the number of Option Shares issued pursuant to this clause (2) does not
exceed twenty percent (20%) of the total outstanding capital stock of the
Company (assuming conversion of all shares of Preferred Stock into Common Stock
and assuming the conversion or exercise of all options, warrants or other rights
to purchase capital stock of the Company, including the Option Shares issued);
(3) shares of Common Stock or Preferred Stock (and Common Stock issued or
issuable upon conversion of such Preferred Stock) issued pursuant to the
exercise of options, warrants or convertible securities outstanding as of the
Original Issue Date; (4) Common Stock or Convertible Securities issued for
consideration other than cash pursuant to a merger, consolidation, acquisition
or similar business combination; (5) shares of Common Stock issued upon the
exercise of the warrant held by BT Alex. Brown & Sons Incorporated and (6)
Common Stock or Convertible Securities issued pursuant to any equipment leasing
arrangement, or debt financing approved by the Board of Directors (collectively
the "Debt Financing Shares") from a bank or similar financial institution which
is not an affiliate of John Street; provided that the number of Debt Financing
Shares issued in all such transactions does not have an aggregate value in
excess of $250,000. The "Effective Price" of Additional Shares of Common Stock
shall mean the quotient determined by dividing the total number of Additional
Shares of Common Stock issued or sold, or deemed to have been issued or sold by
the Company under this Section 4(j), into the aggregate consideration received,
or deemed to have been received by the Company for such issue under this Section
4(j), for such Additional Shares of Common Stock.
k. CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the applicable Preferred Price for the number of shares of
Common Stock or other securities issuable upon conversion of the Series
Preferred, if the Series Preferred is then convertible pursuant to this Section
4, the Company, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series Preferred at the
holder's address as shown in the Company's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (1) the
consideration received or deemed to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (2) the Series Preferred Price at the time in effect, (3) the number of
Additional Shares of Common Stock and (4) the type and amount, if any, of other
property which at the time would be received upon conversion of the Series
Preferred.
l. NOTICES OF RECORD DATE. Upon (i) any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(e)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined in Section 3(e)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall mail to
each holder of Series Preferred at least twenty (20) days prior to the record
date specified therein a notice
13
<PAGE> 14
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up is expected to become effective, and (3) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up.
m. AUTOMATIC CONVERSION.
(i) Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective applicable
Preferred Price, (A) at any time upon the affirmative election of the holders of
at least seventy percent (70%) of the outstanding shares of Series Preferred
voting together as a single class, or (B) immediately upon the closing of a
firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company in which (i) the per share
price is at least one hundred fifty percent (150%) of the then applicable Series
D Preferred Price and (ii) the gross cash proceeds to the Company (before
underwriting discounts, commissions and fees) are at least Twenty Million
Dollars ($20,000,000). Upon such automatic conversion, any declared and unpaid
dividends shall be paid in accordance with the provisions of Section 4(d).
(ii) Upon the occurrence of the event specified in
paragraph (1) above, the outstanding shares of Series Preferred shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Series Preferred are either delivered to the Company or its transfer agent as
provided below, or the holder notifies the Company or its transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Series Preferred, the holders of Series Preferred shall
surrender the certificates representing such shares at the office of the Company
or any transfer agent for the Series Preferred. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series Preferred
surrendered were convertible on the date on which such automatic conversion
occurred, and any declared and unpaid dividends shall be paid in accordance with
the provisions of Section 4(d).
n. FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance
14
<PAGE> 15
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of any fractional share, the Company
shall, in lieu of issuing any fractional share, pay cash equal to the product of
such fraction multiplied by the Common Stock's fair market value (as determined
by the Board of Directors) on the date of conversion.
o. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company
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 the Series Preferred, 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 Series Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series Preferred, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
p. NOTICES. Any notice required by the provisions of this
Section 4 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Company.
q. PAYMENT OF TAXES. The Company will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series Preferred
so converted were registered.
r. NO DILUTION OR IMPAIRMENT. Without the consent of the
holders of at least seventy percent (70%) of the outstanding Series Preferred,
the Company shall not amend its Restated Certificate of Incorporation or
participate in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or take any other voluntary action, for
the purpose of avoiding or seeking to avoid the observance or performance of any
of the terms to be observed or performed under this Section 4 by the Company,
but shall at all times in good faith assist in carrying out all such action as
may be reasonably necessary or appropriate in order to protect the conversion
rights of the holders of the Series Preferred against dilution or other
impairment.
5. NO REISSUANCE OF SERIES PREFERRED. No share or shares of
Series Preferred acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued.
15
<PAGE> 16
6. NO PREEMPTIVE RIGHTS. Stockholders shall have no preemptive
rights except as granted by the Company pursuant to written agreements.
V.
A. A director of the Company shall not be personally liable to the Company
or its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article V to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article V shall only be prospective
and shall not effect the rights under this Article V in effect at the time of
the alleged occurrence of any action or omission to act giving rise to
liability.
VI.
For the management of the business and for the conduct of the affairs of
the Company, and in further definition, limitation and regulation of the powers
of the Company, of its directors and of its stockholders or any class thereof,
as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
Company shall be vested in its Board of Directors. The number of directors which
shall constitute the whole Board of Directors shall be fixed by the Board of
Directors in the manner provided in the Bylaws.
B. The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws; provided, however, that the stockholders may change or repeal
any Bylaw adopted by the Board of Directors by the affirmative vote of the
holders of a majority of the voting power of all of the then outstanding shares
of the capital stock of the Company; and, provided further, that no amendment or
supplement to the Bylaws adopted by the Board of Directors shall vary or
conflict with any amendment or supplement thus adopted by the stockholders.
C. The directors of the Company need not be elected by written ballot
unless the Bylaws so provide.
* * * *
4. This Restated Certificate of Incorporation has been duly approved by
the Board of Directors of this Company.
16
<PAGE> 17
5. This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and the
stockholders of the Company. The total number of outstanding shares entitled to
vote or act by written consent was 539,710 shares of Common Stock, 1,062,231
shares of Series A Preferred Stock, 883,652 shares of Series B Preferred Stock
and 2,033,670 shares of Series C Preferred Stock. A majority of the outstanding
shares of Common Stock and Preferred Stock, voting together as a single class, a
majority of the outstanding shares of Series B Preferred Stock, voting as a
separate class, and more than two-thirds of the outstanding shares of Series C
Preferred Stock, voting as a separate class, approved this Restated Certificate
of Incorporation by written consent in accordance with Section 228 of the
General Corporation Law of the State of Delaware.
17
<PAGE> 18
IN WITNESS WHEREOF, USA.NET, Inc. has caused this Restated Certificate of
Incorporation to be signed by the President in Colorado Springs, Colorado this
11th day of August, 1998.
USA.NET, INC.
By: /s/ JOHN STREET
--------------------------------------
John Street
Chairman of the Board, Chief Executive
Officer and President
18
<PAGE> 1
EXHIBIT 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
USA.NET, INC.
USA.NET, INC., a corporation organized and existing under the laws of
the state of Delaware (the "Corporation") hereby certifies that:
1. The name of the Corporation is USA.NET, Inc.
2. The Corporation's original Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on March 12, 1997.
3. The Restated Certificate of Incorporation of the Corporation
attached hereto as Exhibit A was duly adopted in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned has signed this certificate this
_____ day of __________, 1999, and hereby affirms and acknowledges under penalty
of perjury that the filing of this Restated Certificate of Incorporation is the
act and deed of USA.NET, Inc.
USA.NET, INC.
By:
---------------------------------------
John W. Street
Chairman of the Board, Chief Executive
Officer and President
<PAGE> 2
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
USA.NET, INC.
I.
The name of this corporation is USA.NET, Inc.
II.
The address of the registered office of the corporation in the State
of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
19801 and the name of the registered agent of the corporation in the State of
Delaware at such address is The Corporation Trust Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is ______________
(__________) shares. _______________ (_________) shares shall be Common Stock,
each having a par value of one-tenth of One Cent ($.001). ______________
(_________) shares shall be Preferred Stock, each having a par value of
one-tenth of One Cent ($.001).
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
1.
<PAGE> 3
V.
A. For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation, of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided
that:
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed exclusively by one or more resolutions adopted by the Board of
Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Closing of
the Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose
terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
such director's death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
3. REMOVAL OF DIRECTORS
a. Neither the Board of Directors nor any
individual director may be removed without cause.
b. Subject to any limitation imposed by law,
any individual director or directors may be removed with cause by the
affirmative vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of the Corporation entitled to vote at
an election of directors (the "Voting Stock").
4. VACANCIES
a. Subject to the rights of the holders of any
series of Preferred Stock, any vacancies on the Board of Directors resulting
from death, resignation, disqualification,
2.
<PAGE> 4
removal or other causes and any newly created directorships resulting from any
increase in the number of directors, shall, unless the Board of Directors
determines by resolution that any such vacancies or newly created directorships
shall be filled by the stockholders, except as otherwise provided by law, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors, and not by
the stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately prior to any
such increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the
directors then in offices as aforesaid, which election shall be governed by
Section 211 of the DGCL.
B.
1. BYLAW AMENDMENTS.
Subject to paragraph (h) of Section 43 of the Bylaws
, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative
vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power
of all of the then-outstanding shares of the Voting Stock. The Board of
Directors shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected
by written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and, following the closing of the Initial Public
Offering, no action shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
3.
<PAGE> 5
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI and VII.
4.
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
USA.NET, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
<TABLE>
<S> <C>
Article I. OFFICES.............................................................................1
Section 1. Registered Office.............................................................1
Section 2. Other Offices.................................................................1
Article II. CORPORATE SEAL......................................................................1
Section 3. Corporate Seal................................................................1
ARTICLE III. STOCKHOLDERS' MEETINGS..............................................................1
Section 4. Place of Meetings.............................................................1
Section 5. Annual Meeting................................................................2
Section 6. Special Meetings..............................................................4
Section 7. Notice of Meetings............................................................4
Section 8. Quorum........................................................................5
Section 9. Adjournment and Notice of Adjourned Meetings..................................5
Section 10. Voting Rights.................................................................6
Section 11. Joint Owners of Stock.........................................................6
Section 12. List of Stockholders..........................................................6
Section 13. Action Without Meeting........................................................7
Section 14. Organization..................................................................7
ARTICLE IV. DIRECTORS...........................................................................8
Section 15. Number and Term of Office.....................................................8
Section 16. Powers........................................................................8
Section 17. Classes of Directors..........................................................9
Section 18. Vacancies.....................................................................9
Section 19. Resignation...................................................................9
Section 20. Removal......................................................................10
Section 21. Meetings.....................................................................10
(a) Annual Meetings..............................................................10
(b) Regular Meetings.............................................................10
(c) Special Meetings.............................................................10
(d) Telephone Meetings...........................................................10
(e) Notice of Meetings...........................................................11
(f) Waiver of Notice.............................................................11
Section 22. Quorum and Voting............................................................11
Section 23. Action Without Meeting.......................................................11
Section 24. Fees and Compensation........................................................12
Section 25. Committees...................................................................12
(a) Executive Committee..........................................................12
(b) Other Committees.............................................................12
</TABLE>
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<TABLE>
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(c) Term.......................................................................13
(d) Meetings...................................................................13
Section 26. Organization...............................................................13
ARTICLE V. OFFICERS.........................................................................14
Section 27. Officers Designated........................................................14
Section 28. Tenure and Duties of Officers..............................................14
(a) General......................................................................14
(b) Duties of Chairman of the Board of Directors.................................14
(c) Duties of President..........................................................14
(d) Duties of Secretary..........................................................15
(e) Duties of Chief Financial Officer............................................15
Section 29. Delegation of Authority....................................................15
Section 30. Resignations...............................................................16
Section 31. Removal....................................................................16
ARTICLE VI. EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION......................................................................16
Section 32. Execution of Corporate Instruments.........................................16
Section 33. Voting of Securities Owned by the Corporation..............................17
ARTICLE VII. SHARES OF STOCK............................................................17
Section 34. Form and Execution of Certificates.........................................17
Section 35. Lost Certificates..........................................................18
Section 36. Transfers..................................................................18
Section 37. Fixing Record Dates........................................................18
Section 38. Registered Stockholders....................................................20
ARTICLE VIII. OTHER SECURITIES OF THE CORPORATION..............................................20
Section 39. Execution of Other Securities..............................................20
ARTICLE IX. DIVIDENDS........................................................................21
Section 40. Declaration of Dividends...................................................21
Section 41. Dividend Reserve...........................................................21
ARTICLE X. FISCAL YEAR......................................................................21
Section 42. Fiscal Year................................................................21
</TABLE>
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<TABLE>
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ARTICLE XI. INDEMNIFICATION....................................................................21
Section 43. Indemnification of Directors, Officers, Employees and Other Agents...........21
(a) Directors....................................................................21
(b) Officers, Employees and Other Agents.........................................22
(c) Expenses.....................................................................23
(d) Enforcement..................................................................23
(e) Non-Exclusivity of Rights....................................................23
(f) Survival of Rights...........................................................24
(g) Insurance....................................................................24
(h) Amendments...................................................................24
(i) Saving Clause................................................................24
(j) Certain Definitions..........................................................24
ARTICLE XII. NOTICES............................................................................25
Section 44. Notices......................................................................25
(a) Notice to Stockholders.......................................................25
(b) Notice to Directors..........................................................26
(c) Affidavit of Mailing.........................................................26
(d) Time Notices Deemed Given....................................................26
(e) Methods of Notice............................................................26
(f) Failure to Receive Notice....................................................26
(g) Notice to Person with Whom Communication Is Unlawful.........................26
(h) Notice to Person with Undeliverable Address..................................27
ARTICLE XIII. AMENDMENTS.........................................................................27
Section 45. Amendments...................................................................27
ARTICLE XIV. LOANS TO OFFICERS..................................................................27
Section 46. Loans to Officers............................................................27
</TABLE>
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BYLAWS
OF
USA.NET, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be
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designated from time to time by the Board of Directors, or, if not so
designated, then at the office of the corporation required to be maintained
pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of Directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date of the corporation's proxy statement
released to stockholders in connection with the previous year's annual meeting
of stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received a reasonable time before the solicitation is made. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in
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accordance with the procedures set forth in this paragraph (b). The chairman of
the annual meeting shall, if the facts warrant, determine and declare at the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this paragraph (b), and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of Directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a Director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
Director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a Director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a Director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
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SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized Directors (whether or not there exist
any vacancies in previously authorized Directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (iii) by the
holders of shares entitled to cast not less than thirty percent (30%) of the
votes at the meeting, and shall be held at such place, on such date, and at such
time as the Board of Directors shall fix; provided, however, that following
registration of any of the classes of equity securities of the corporation
pursuant to the provisions of the 1934 Act, special meetings of the stockholders
may only be called by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized Directors.
(b) If a special meeting is called by any person or persons other than
the Chairman of the Board of Directors or the Board of Directors, the request
shall be in writing, specifying the general nature of the business proposed to
be transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the Chairman of the Board of
Directors, the President, any Vice President, or the Secretary of the
corporation. No business may be transacted at such special meeting otherwise
than specified in such notice. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Section 7 of these Bylaws, that a meeting will be held
not less than thirty-five (35) nor more than sixty (60) days after the receipt
of the request. If the notice is not given within twenty (20) days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given 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, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
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. Any
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stockholder so waiving notice of such meeting shall be bound by the proceedings
of any such meeting in all respects as if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. Any shares, the voting of which at said
meeting is enjoined, or which for any reason cannot be lawfully voted at such
meeting, shall not be counted to determine a quorum at such meeting. In the
absence of a quorum any meeting of stockholders may be adjourned, from time to
time, either by the chairman of the meeting or by vote of the holders of a
majority of the shares represented thereat, but no other business shall be
transacted at such meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, all action taken by the
holders of a majority of the voting power represented at any meeting at which a
quorum is present shall be valid and binding upon the corporation; provided,
however, that Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of Directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of Directors) of the shares of
such class or classes or series present in person or represented by proxy at the
meeting shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
represented thereat. When a meeting is adjourned to another time or place,
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 which 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.
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SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a written proxy granted in
accordance with Delaware law. An agent so appointed need not be a stockholder.
No proxy shall be voted after three (3) years from its date of creation unless
the proxy provides for a longer period. All elections of Directors shall be by
written ballot, unless otherwise provided in the Certificate of Incorporation.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
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SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the 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,
shall be 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.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State 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.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
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(b) The Board of Directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The Board of Directors shall consist
of one or more members, the number thereof to be determined from time to time by
resolution of the Board of Directors. The number of authorized Directors may be
modified from time to time by amendment of this Section 15 in accordance with
the provisions of Section 45 hereof. Except as provided in Section 18, the
Directors shall be elected by the stockholders at their annual meeting in each
year and shall hold office until the next annual meeting and until their
successors shall be duly elected and qualified. Directors need not be
stockholders unless so required by the Certificate of Incorporation. If for any
cause, the Directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws. No
reduction of the authorized number of Directors shall have the effect of
removing any Director before the Director's term of office expires, unless such
removal is made pursuant to the provisions of Section 20 hereof.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
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SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the adoption
of these Bylaws, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the adoption of these Bylaws, the term
of office of the Class I directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the adoption of these Bylaws, the term of office of the
Class III directors shall expire and Class III directors shall be elected for a
full term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies occurring on the Board of Directors and any newly
created Directorships resulting from any increase in the authorized number of
Directors, shall be filled only by the affirmative vote of a majority of the
stockholders entitled to vote thereon. Any Director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the Director for which the vacancy was created or occurred and until such
Director's successor shall have been elected and qualified. A vacancy in the
Board of Directors shall be deemed to exist under this Bylaw in the case of the
death, removal or resignation of any Director, or if the stockholders fail at
any meeting of stockholders at which Directors are to be elected (including any
meeting referred to in Section 20 below) to elect the number of Directors then
constituting the whole Board of Directors.
SECTION 19. RESIGNATION. Any Director may resign at any time by delivering
his written resignation to either the Board of Directors or the Secretary, such
resignation to specify whether it will be effective at a particular time, upon
receipt by the Board of Directors or the Secretary or at the pleasure of the
Board of Directors. If no such specification is made, it shall be deemed
effective at the pleasure of the Board of Directors. Unless otherwise provided
in the Certificate of Incorporation, when one or more Directors shall resign
from the Board of Directors, effective at a future date, a
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majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office for the unexpired portion of the term of
the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 20. REMOVAL. At a special meeting of stockholders called for the
purpose in the manner hereinabove provided, subject to any limitations imposed
by law, the Certificate of Incorporation or any agreement by and among the
Corporation and its investors, the Board of Directors, or any individual
Director, may be removed from office, with or without cause, and a new Director
or Directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of Directors.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall
be held immediately before or after the annual meeting of stockholders and at
the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or a majority of the Directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
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(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each Director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the 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.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting of
the Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the Directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 42
hereof, for which a quorum shall be one-third of the exact number of Directors
fixed from time to time in accordance with Section 15 hereof, a quorum of the
Board of Directors shall consist of a majority of the exact number of Directors
fixed from time to time in accordance with Section 15 of these Bylaws; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the Directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the Directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT 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 of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
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SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and specifically granted by
the Board of Directors shall have and may exercise when the Board of Directors
is not in session all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, including, without
limitation, the power or authority to declare a dividend, to authorize the
issuance of stock and to adopt a certificate of ownership and merger, and may
authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending 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 fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
these Bylaws.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, from time to time appoint such
other committees as may be permitted by law. Such other committees appointed by
the Board of Directors shall consist of one (1) or more members of the Board of
Directors and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall such committee have the powers denied to the Executive Committee in
these Bylaws.
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(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors 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, and, in addition, in the absence or disqualification of any
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.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any Director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any Director by attendance thereat, except when the Director
attends such special 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. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the Directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors
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present, shall preside over the meeting. The Secretary, or in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings of
the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been
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elected Chief Executive Officer of the corporation, the President shall be the
chief executive officer of the corporation and shall, subject to the control of
the Board of Directors, have general supervision, direction and control of the
business and officers of the corporation. The President shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors shall designate from time
to time.
(d) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(e) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
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SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
Directors in office at the time, or by the unanimous written consent of the
Directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may,
in its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
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All checks and drafts drawn on banks or other depositories on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless 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.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares
of stock of the corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the Chairman of the Board of Directors, or the President or
any Vice President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
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. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required
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to be set forth or stated on certificates pursuant to this Section 34 or
otherwise required by law or with respect to this Section 34 a statement that
the corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and 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.
Except as otherwise expressly provided by law, the rights and obligations of the
holders of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) 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, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors,
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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. 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.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board of Directors within ten (10) days
of the date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders 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
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date
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for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 38. 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, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signatures of the persons signing and
attesting the corporate seal on such bond, debenture or other corporate security
may be the imprinted facsimile of the signatures of such persons. Interest
coupons appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS. The corporation shall indemnify its Directors to the
fullest extent not prohibited by the Delaware General Corporation Law; provided,
however, that the corporation shall not be required to indemnify any Director in
connection with any proceeding (or part thereof) initiated by such person or any
proceeding by such person against the corporation or its Directors, officers,
employees or other agents unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the Board of Directors
of the corporation, (iii) such indemnification is provided by the corporation,
in its sole discretion, pursuant to the powers vested in the corporation under
the Delaware General Corporation Law.
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(b) OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have
power to indemnify its officers, employees and other agents as set forth in the
Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to 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, by reason of the fact that he is or was a Director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a Director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any Director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to Directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the Director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
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(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its Directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a Director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid
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in settlement or judgment and any other costs and expenses of any nature or kind
incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors, officers, and employees or agents, so that any person who is or was a
Director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a Director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(iv) References to a "Director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a Director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a Director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such Director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing,
24
<PAGE> 29
timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method
of giving notice be employed in respect of all Directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any Director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such Director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held
25
<PAGE> 30
without notice to any such person with whom communication is unlawful shall
have the same force and effect as if such notice had been duly given. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Delaware General Corporation Law,
the certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such persons
with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS.
Subject to paragraph (i) of Section 43 of these Bylaws, these Bylaws
may be altered or amended or repealed and new Bylaws adopted by the stockholders
entitled to vote. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
26
<PAGE> 31
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee 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 these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
27
<PAGE> 1
EXHIBIT 3.5
AMENDED AND RESTATED
BYLAWS
OF
USA.NET, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C> <C>
ARTICLE I OFFICES........................................................................................1
Section 1. Registered Office.....................................................................1
Section 2. Other Offices.........................................................................1
ARTICLE II CORPORATE SEAL.................................................................................1
Section 3. Corporate Seal........................................................................1
ARTICLE III STOCKHOLDERS' MEETINGS.........................................................................1
Section 4. Place Of Meetings.....................................................................2
Section 5. Annual Meetings.......................................................................2
Section 6. Special Meetings......................................................................4
Section 7. Notice Of Meetings....................................................................5
Section 8. Quorum................................................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings..........................................6
Section 10. Voting Rights.........................................................................6
Section 11. Joint Owners Of Stock.................................................................6
Section 12. List Of Stockholders..................................................................6
Section 13. Action Without Meeting................................................................7
Section 14. Organization..........................................................................8
ARTICLE IV DIRECTORS......................................................................................8
Section 15. Number And Term Of Office.............................................................8
Section 16. Powers................................................................................8
Section 17. Classes of Directors..................................................................8
Section 18. Vacancies.............................................................................9
Section 19. Resignation...........................................................................9
Section 20. Removal...............................................................................9
Section 21. Meetings.............................................................................10
Section 22. Quorum And Voting....................................................................11
Section 23. Action Without Meeting...............................................................11
Section 24. Fees And Compensation................................................................11
Section 25. Committees...........................................................................12
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C> <C>
Section 26. Organization.........................................................................13
ARTICLE V OFFICERS......................................................................................13
Section 27. Officers Designated..................................................................13
Section 28. Tenure And Duties Of Officers........................................................13
Section 29. Delegation Of Authority..............................................................15
Section 30. Resignations.........................................................................15
Section 31. Removal..............................................................................15
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION..........15
Section 32. Execution Of Corporate Instruments...................................................15
Section 33. Voting Of Securities Owned By The Corporation........................................16
ARTICLE VII SHARES OF STOCK...............................................................................16
Section 34. Form And Execution Of Certificates...................................................16
Section 35. Lost Certificates....................................................................17
Section 36. Transfers............................................................................17
Section 37. Fixing Record Dates..................................................................17
Section 38. Registered Stockholders..............................................................18
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION...........................................................18
Section 39. Execution Of Other Securities........................................................18
ARTICLE IX DIVIDENDS.....................................................................................19
Section 40. Declaration Of Dividends.............................................................19
Section 41. Dividend Reserve.....................................................................19
ARTICLE X FISCAL YEAR...................................................................................20
Section 42. Fiscal Year..........................................................................20
ARTICLE XI INDEMNIFICATION...............................................................................20
Section 43. Indemnification Of Directors, Executive Officers, Other Officers, Employees
And Other Agents.....................................................................20
ARTICLE XII NOTICES.......................................................................................23
Section 44. Notices..............................................................................23
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C> <C>
ARTICLE XIII AMENDMENTS....................................................................................25
Section 45. Amendments...........................................................................25
ARTICLE XIV LOANS TO OFFICERS.............................................................................25
Section 46. Loans To Officers....................................................................25
</TABLE>
iii.
<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
USA.NET, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal
1.
<PAGE> 6
of business to be considered by the stockholders may be made at an annual
meeting of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii)
by any stockholder of the corporation who was a stockholder of record at the
time of giving of notice provided for in the following paragraph, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in Section 5.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting
by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i)
the stockholder must have given timely notice thereof in writing to the
Secretary of the corporation, (ii) such other business must be a proper matter
for stockholder action under the General Corporation Law of Delaware, (iii) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in
the case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a
nomination or nominations, have delivered a proxy statement and form of proxy
to holders of a percentage of the corporation's voting shares reasonably
believed by such stockholder or beneficial owner to be sufficient to elect the
nominee or nominees proposed to be nominated by such stockholder, and must, in
either case, have included in such materials the Solicitation Notice, and (iv)
if no Solicitation Notice relating thereto has been timely provided pursuant to
this section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement
of an adjournment of an annual meeting commence a new time period for the
giving of a stockholder's notice as described above. Such stockholder's notice
shall set forth: (A) as to each person whom the stockholder proposed to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "1934 Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (B) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business
2.
<PAGE> 7
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether either such stockholder or beneficial owner
intends to deliver a proxy statement and form of proxy to holders of, in the
case of the proposal, at least the percentage of the corporation's voting
shares required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the corporation's
voting shares to elect such nominee or nominees (an affirmative statement of
such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 5(b) of
these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the corporation at least
one hundred (100) days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set
forth in this Section 5. Except as otherwise provided by law, the Chairman of
the meeting shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made, or proposed,
as the case may be, in accordance with the procedures set forth in these Bylaws
and, if any proposed nomination or business is not in compliance with these
Bylaws, to declare that such defective proposal or nomination shall not be
presented for stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders
must provide notice as required by the regulations promulgated under the 1934
Act. Nothing in these Bylaws shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporation proxy
statement pursuant to Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the 1934 Act.
3.
<PAGE> 8
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption), and shall be held at such place, on such
date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice
provided for in these Bylaws who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 6(c). In the
event the corporation calls a special meeting of stockholders for the purpose
of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be
delivered to the Secretary at the principal executive offices of the
corporation not earlier than the close of business on the one hundred twentieth
(120th) day prior to such special meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such meeting or the
tenth (10th) day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
4.
<PAGE> 9
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given 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, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
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. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these
Bylaws, in all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders. Except as otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. Where a separate vote by a
class or classes or series is required, except where otherwise provided by the
statute or by the Certificate of Incorporation or these Bylaws, a majority of
the outstanding shares of such class or classes or series, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and, except where otherwise provided by the
statute or by the Certificate of Incorporation or these Bylaws, the affirmative
vote of the majority (plurality, in the case of the election of directors) of
the votes cast by the holders of shares of such class or classes or series
shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the
shares casting votes. When a meeting is adjourned to another time or place,
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 which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days or if after the
5.
<PAGE> 10
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.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section 12
of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Every person entitled to vote shall have the right to do so either in person or
by an agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for a
longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes,
but the vote is evenly split on any particular matter, each faction may vote
the securities in question proportionally, or may apply to the Delaware Court
of Chancery for relief as provided in the Delaware General Corporation Law,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the purpose
of subsection (c) shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the 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,
shall be signed by the holders of outstanding stock having not less than the
minimum
6.
<PAGE> 11
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.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to
take action are delivered to the corporation by delivery to its registered
office in the State of Delaware, its principal place of business or an officer
or agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
(c) 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 Delaware General Corporation Law 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 consent has been given in
accordance with Section 228 of the Delaware General Corporation Law.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended (the "1933 Act"), covering the offer and sale of Common Stock of the
corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by
a majority in interest of the stockholders entitled to vote, present in person
or by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting
shall have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business for
the meeting, rules and procedures for maintaining order at the meeting and the
safety of those present, limitations on participation in such meeting to
stockholders of record of the corporation and their duly authorized and
constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to
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the meeting after the time fixed for the commencement thereof, limitations on
the time allotted to questions or comments by participants and regulation of
the opening and closing of the polls for balloting on matters which are to be
voted on by ballot. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years.
At the second annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose
terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
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SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of Incorporation, any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, except as otherwise provided by
law, be filled only by the affirmative vote of a majority of the directors then
in office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor shall have been elected
and qualified. A vacancy in the Board of Directors shall be deemed to exist
under this Bylaw in the case of the death, removal or resignation of any
director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the
directors then in offices as aforesaid, which election shall be governed by
Section 211 of the Delaware General Corporation Law.
SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether
it will be effective at a particular time, upon receipt by the Secretary or at
the pleasure of the Board of Directors. If no such specification is made, it
shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) Neither the Board of Directors nor any individual director may be
removed without cause.
(b) Subject to any limitation imposed by law, any individual director
or directors may be removed with cause by the affirmative vote of a majority of
the voting power of the corporation entitled to vote at an election of
directors.
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SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders
and at the place where such meeting is held. No notice of an annual meeting of
the Board of Directors shall be necessary and such meeting shall be held for
the purpose of electing officers and transacting such other business as may
lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, regular meetings of the Board of Directors may be held at any
time or date and at any place within or without the State of Delaware which has
been designated by the Board of Directors and publicized among all directors.
No formal notice shall be required for regular meetings of the Board of
Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by
electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent
in writing to each director by first class mail, charges prepaid, at least
three (3) days before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived by
any director by attendance thereat, except when the director attends the
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.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
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SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact
number of directors fixed from time to time by the Board of Directors in
accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT 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 of
Directors or committee, as the case may be, consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the
Board of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors 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 which may require it; but no such
committee shall have the power or authority in reference to (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the Delaware General Corporation Law to be submitted to
stockholders for approval, or (ii) adopting, amending or repealing any bylaw of
the corporation.
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(b) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees,
but in no event shall any such committee have the powers denied to the
Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board
of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors 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, and, in addition, in the absence or disqualification of any
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.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special 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. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President (if a
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director), or if the President is absent, the most senior Vice President (if a
director), or, in the absence of any such person, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, any Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more
Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and
the Controller, all of whom shall be elected at the annual organizational
meeting of the Board of Directors. The Board of Directors may also appoint one
or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and
such other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by
the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of
the corporation and shall have the powers and duties prescribed in paragraph
(c) of this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and
shall, subject to the control of the Board of Directors, have general
supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.
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(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities
of the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume
and perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
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SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY
THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory
officer or officers, or other person or persons, to execute on behalf of the
corporation any corporate instrument or document, or to sign on behalf of the
corporation the corporate name without limitation, or to enter into contracts
on behalf of the corporation, except where otherwise provided by law or these
Bylaws, and such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so
to do.
Unless 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.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the
name of the corporation by the Chairman of the Board of Directors, or the
President or any Vice President and by the Treasurer or Assistant Treasurer or
the Secretary or Assistant Secretary, certifying the number of shares owned by
him in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or
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registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the powers, designations, preferences, and rights, and the limitations
or restrictions of the shares authorized to be issued or shall, except as
otherwise required by law, set forth on the face or back a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and 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.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to this section or otherwise required by law or with
respect to this section a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and 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. Except as otherwise expressly
provided by law, the rights and obligations of the holders of certificates
representing stock of the same class and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it
shall require or to give the corporation a surety bond in such form and amount
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the Delaware General Corporation Law.
SECTION 37. FIXING RECORD DATES.
(a) 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, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon
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which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall, subject to applicable law, not be more
than sixty (60) nor less than ten (10) days before the date of such meeting. If
no record date is fixed by the Board of Directors, 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. 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.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such
a request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
of Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders 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
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
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SECTION 38. 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, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary
or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such
bond, debenture or other corporate security may be the imprinted facsimile of
the signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation
or such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond,
debenture or other corporate security so signed or attested shall have been
delivered, such bond, debenture or other corporate security nevertheless may be
adopted by the corporation and issued and delivered as though the person who
signed the same or whose facsimile signature shall have been used thereon had
not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation
and applicable law, if any, may be declared by the Board of Directors pursuant
to law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board
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of Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of the
corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify
its directors and executive officers (for the purposes of this Article XI,
"executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware
General Corporation Law or any other applicable law; provided, however, that
the corporation may modify the extent of such indemnification by individual
contracts with its directors and executive officers; and, provided, further,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall
have power to indemnify its other officers, employees and other agents as set
forth in the Delaware General Corporation Law or any other applicable law. The
Board of Directors shall have the power to delegate the determination of
whether indemnification shall be given to any such person except executive
officers to such officers or other persons as the Board of Directors shall
determine.
(c) EXPENSES. The corporation shall advance to 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, by reason of the fact that he
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is or was a director or executive officer, of the corporation, or is or was
serving at the request of the corporation as a director or executive officer of
another corporation, partnership, joint venture, trust or other enterprise,
prior to the final disposition of the proceeding, promptly following request
therefor, all expenses incurred by any director or executive officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to the
best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. The claimant in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also
the expense of prosecuting his claim. In connection with any claim for
indemnification, the corporation shall be entitled to raise as a defense to any
such action that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law or any other applicable
law for the corporation to indemnify the claimant for the amount claimed. In
connection with any claim by an executive officer of the corporation (except in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled to
raise a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law or any other applicable
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law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action
or create a presumption that claimant has not met the applicable standard of
conduct. In any suit brought by a director or executive officer to enforce a
right to indemnification or to an advancement of expenses hereunder, the burden
of proving that the director or executive officer is not entitled to be
indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any applicable statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law or any other applicable law, the corporation, upon approval by
the Board of Directors, may purchase insurance on behalf of any person required
or permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this
Section 43 shall be invalid due to the application of the indemnification
provisions of another jurisdiction, then the corporation shall indemnify each
director and executive officer to the full to the full extent under any other
applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement,
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arbitration and appeal of, and the giving of testimony in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was
a director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this Bylaw with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its separate
existence had continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or
agent of another corporation, partnership, joint venture, trust or other
enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock
record of the corporation or its transfer agent.
22.
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(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given,
and the time and method of giving the same, shall in the absence of fraud, be
prima facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method
of giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise
any power or right, or enjoy any privilege, pursuant to any notice sent him in
the manner above provided, shall not be affected or extended in any manner by
the failure of such stockholder or such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such
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person during the period between such two consecutive annual meetings, or (ii)
all, and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed addressed
to such person at his address as shown on the records of the corporation and
have been returned undeliverable, the giving of such notice to such person
shall not be required. Any action or meeting which shall be taken or held
without notice to such person shall have the same force and effect as if such
notice had been duly given. If any such person shall deliver to the corporation
a written notice setting forth his then current address, the requirement that
notice be given to such person shall be reinstated. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate need not state that notice was not given to persons to whom notice
was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee
who is a Director of the corporation or its subsidiaries, whenever, in the
judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee 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 these
Bylaws 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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EXHIBIT 10.1
USA.NET, INC.
1997 STOCK OPTION PLAN
ADOPTED MARCH 12, 1997
AS AMENDED THROUGH JUNE 15, 1998
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall, in
the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
1.
<PAGE> 2
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(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 in accordance with
subsection 3(c) of the Plan.
(e) "Company" means USA.NET, Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board, in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave; or (ii) transfers between the Company, Affiliates or their
successors.
(h) "DIRECTOR" means a member of the Board.
2.
<PAGE> 3
(i) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall 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 the common
stock of the Company determined in good faith by the Board.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(n) "OPTION" means a stock option granted pursuant to the Plan.
(o) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.
(p) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(q) "PLAN" means this 1997 Stock Option Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
3.
<PAGE> 4
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Options; when and how each Option shall be granted;
whether an Option will be an Incentive Stock Option or a Nonstatutory Stock
Option; the provisions of each Option granted (which need not be identical),
including the time or times such Option may be exercised in whole or in part;
and the number of shares for which an Option shall be granted to each such
person.
(ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 11.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to any person or
persons (the "Committee"). If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board (and references in this Plan to the
Board shall thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time
4.
<PAGE> 5
to time by the Board. The Board may abolish the Committee at any time and revest
in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate one million two hundred forty-four thousand five hundred
thirteen (1,244,513) shares of the Company's common stock. If any Option shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not purchased under such Option shall
revert to and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Nonstatutory
Stock Options may be granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant. To the extent required by
applicable law, the provisions of this
5.
<PAGE> 6
subsection 5(b) shall also apply to the grant of a Nonstatutory Stock Option
granted to a ten percent (10%) stockholder described in the preceding sentence.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value on the date of
grant. The exercise price of each Nonstatutory Stock Option shall be not less
than fifty percent (50%) of the Fair Market Value on the date of grant.
Notwithstanding the foregoing, the Board may grant an Option with an exercise
price lower than that set forth above if such Option is granted as part of a
transaction pursuant to Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person
6.
<PAGE> 7
to whom the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board. In the case of any deferred payment arrangement,
interest shall be payable at least annually and shall be charged at the minimum
rate of interest necessary to avoid the treatment as interest, under any
applicable provisions of the Code, of any amounts other than amounts stated to
be interest under the deferred payment arrangement.
(d) Transferability. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option shall only be
transferable by the Optionee upon such terms and conditions as are set forth in
the Option Agreement for such Nonstatutory Option, as the Board or Committee
shall determine in its discretion, except that each Nonstatutory Stock Option
may be transferred to the spouse, children and lineal descendants of the
Optionee (or to a trust created solely for the benefit of the Optionee and the
foregoing persons) or to an organization exempt from taxation pursuant to
Section 501(c)(3) of the Code or to which tax deductible charitable
contributions may be made under Section 170 of the Code (excluding such
organizations classified as private foundations under applicable regulations and
rulings). The person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option
7.
<PAGE> 8
Agreement may provide that from time to time during each of such installment
periods, the Option may become exercisable ("vest") with respect to some or all
of the shares allotted to that period, and may be exercised with respect to some
or all of the shares allotted to such period and/or any prior period as to which
the Option became vested but was not fully exercised. To the extent required by
applicable law, Options shall vest at the rate of at least twenty percent (20%)
per year. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised. Notwithstanding any
other provisions of the Plan to the contrary, an Option shall be fully vested in
the event of an Optionee's death or total and permanent disability (as
determined by the Company in its sole discretion).
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or any
person to whom an Option is transferred under subsection 6(d), as a condition of
exercising any such Option, (1) to give written assurances satisfactory to the
Company as to the Optionee's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Option; and (2)
to give written assurances satisfactory to the Company stating that such person
is acquiring the stock subject to the Option for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant
8.
<PAGE> 9
to such requirements, shall be inoperative if (i) the issuance of the shares
upon the exercise of the Option has been registered under a then currently
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may require the Optionee to provide such other representations, written
assurances or information which the Company shall determine is necessary,
desirable or appropriate to comply with applicable securities and other laws as
a condition of granting an Option to such Optionee or permitting the Optionee to
exercise such Option. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(g) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant, or such longer or shorter period specified in the Option
Agreement (which shall be at least thirty (30) days, if required by applicable
law), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionee does not exercise his or
her Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares
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covered by such Option shall revert to and again become available for issuance
under the Plan. Finally, an Optionee's Option Agreement may also provide that if
the exercise of the Option following the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant (other than upon the
Optionee's death or disability) would be prohibited at any time solely because
the issuance of share would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in the first paragraph of this
Section 7, or (ii) the expiration of a period of three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant during which the exercise of the Option would not be in violation of
such registration requirements.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as
an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
10.
<PAGE> 11
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
as of the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. 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 revert to an again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company or to
any other restriction the Board determines to be appropriate.
(k) RIGHT OF REPURCHASE. The Option may, but need not, include a provision
whereby the Company may elect, prior to the date of the first registration of an
equity security of
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the Company under Section 12 of the Exchange Act, to repurchase all or any part
of the vested shares exercised pursuant to the Option.
(l) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, to exercise a right of first refusal following receipt of notice
from the Optionee of the intent to transfer all or any part of the shares
exercised pursuant to the Option.
(m) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the common stock otherwise
issuable to the Optionee as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of the common stock of
the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available at
all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is unable
to
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<PAGE> 13
obtain from any such regulatory commission or agency the authority which counsel
for the Company deems necessary for the lawful issuance and sale of stock under
the Plan, the Company shall be relieved from any liability for failure to issue
and sell stock upon exercise of such Options unless and until such authority is
obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which an
Option may first be exercised or the time during which an Option or any part
thereof will vest pursuant to subsection 6(e), notwithstanding the provisions in
the Option stating the time at which it may first be exercised or the time
during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee with or
without cause, the right of the Company's Board of Directors and/or the
Company's shareholders to remove any Director pursuant to the terms of the
Company's
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<PAGE> 14
shareholders to remove any Director pursuant to the terms of the Company's
By-Laws and applicable law, or the right to terminate the relationship of any
Consultant pursuant to the terms of such Consultant's agreement with the Company
or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds One Hundred Thousand Dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Board or the Committee shall have the authority to effect, at any
time and from time to time (i) the repricing of any outstanding Options under
the Plan and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options and the grant in substitution therefor
of new Options under the Plan covering the same or different numbers of shares
of common stock, but having an exercise price per share not less than (one
hundred percent (100%) of the Fair Market Value in the case of an Incentive
Stock Option or, in the case of a ten percent (10%) stockholder (as defined in
subsection 5(c)), not less than one hundred and ten percent (110%) of the Fair
Market Value) per share of Common Stock on the new grant date. Notwithstanding
the foregoing, the Board may grant an Option with an exercise price lower than
that set forth above if such Option is granted as part of a transaction to which
Section 424(c) of the Code applies.
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<PAGE> 15
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Option (through merger, consolidation, reorganization, reincorporation,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a), and the outstanding Options will be appropriately adjusted in
the class(es) and number of shares and price per share of stock subject to such
outstanding Options. Such adjustments shall be made by the Board or Committee,
the determination of which shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a "transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a sale of all or substantially all of the assets
of the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4) the
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty
15.
<PAGE> 16
percent (50%) of the combined voting power entitled to vote in the election of
directors, then to the extent permitted by applicable law: (i) any surviving or
acquiring corporation shall assume any Options outstanding under the Plan or
shall substitute similar Options (including an option to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 10(b)) for those outstanding under the Plan, or (ii) such Options
shall continue in full force and effect. In the event any surviving or acquiring
corporation refuses to assume such Options, or to substitute similar options for
those outstanding under the Plan, then, with respect to Options held by persons
then performing services as Employees, Directors or Consultants, then such
options shall be fully vested and the time during which such Options may be
exercised shall be accelerated prior to such event and the Options terminated if
not exercised after such acceleration and at or prior to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company within twelve (12) months before or after the adoption of the
amendment where the amendment requires shareholder approval in order for the
Plan to satisfy the requirements of Section 422 of the Code (including an
increase in the number of shares reserved for issuance under the Plan).
(b) The Board may, in its sole discretion, submit any other amendment to
the Plan for shareholder approval.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided
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<PAGE> 17
or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or to bring the
Plan and/or Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Option granted before amendment of the
Plan shall not be impaired by any amendment of the Plan unless (i) the Company
requests the consent of the person to whom the Option was granted and (ii) such
person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Options; provided, however, that the rights and obligations
under any Option shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the stockholders of the Company, whichever
is earlier. No Options may be granted under the Plan while the Plan is suspended
or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders
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of the Company, which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board.
18.
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EXHIBIT 10.2
USA.NET, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED MARCH 19, 1999
APPROVED BY STOCKHOLDERS MARCH 23, 1999
TERMINATION DATE: MARCH 18, 2009
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock appreciation rights, (iv) stock bonuses and (v) rights to
acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Stock Awards, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(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 of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means USA.NET, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
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(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
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(iii) Prior to the Listing Date, the value of the Common Stock shall be
determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, 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.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an
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<PAGE> 4
"affiliated corporation" receiving compensation for prior services (other than
benefits under a tax qualified pension plan), was not an officer of the Company
or an "affiliated corporation" at any time and is not currently receiving direct
or indirect remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(y) "PLAN" means this USA.NET, Inc. 1999 Equity Incentive Plan.
(z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock appreciation right, a stock bonus and a right to acquire
restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; what type or combination of types of Stock Award shall be granted; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive Common Stock
pursuant to a Stock Award; and the number of shares of Common Stock with respect
to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in
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<PAGE> 5
the exercise of this power, may correct any defect, omission or inconsistency in
the Plan or in any Stock Award Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate four hundred
twenty-five thousand seven hundred sixty-three (425,763) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such Stock
Award shall revert to and again
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<PAGE> 6
become available for issuance under the Plan. Shares subject to stock
appreciation rights exercised in accordance with the Plan shall not be available
for subsequent issuance under the Plan. If any Common Stock acquired pursuant to
the exercise of an Option shall for any reason be repurchased by the Company
under an unvested share repurchase option provided under the Plan, the stock
repurchased by the Company under such repurchase option shall not revert to and
again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may be
unissued shares or reacquired shares, bought on the market or otherwise.
(d) SHARE RESERVE LIMITATION. Prior to the Listing Date and to the extent
then required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares of Common Stock
provided for under any stock bonus or similar plan of the Company shall not
exceed the applicable percentage as calculated in accordance with the conditions
and exclusions of Section 260.140.45 of Title 10 of the California Code of
Regulations, based on the shares of Common Stock of the Company that are
outstanding at the time the calculation is made.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS.
(i) A Ten Percent Stockholder shall not be granted an Incentive Stock
Option unless the exercise price of such Option is at least one hundred ten
percent (110%) of the Fair Market Value of the Common Stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(ii) Prior to the Listing Date, a Ten Percent Stockholder shall not be
granted a Nonstatutory Stock Option unless the exercise price of such Option is
at least (i) one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
(iii) Prior to the Listing Date, a Ten Percent Stockholder shall not be
granted a restricted stock award unless the purchase price of the restricted
stock is at least (i) one hundred percent (100%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
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<PAGE> 7
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options and/or stock appreciation rights
covering more than one hundred thousand (100,000) shares of Common Stock during
any calendar year. This subsection 5(c) shall not apply prior to the Listing
Date and, following the Listing Date, this subsection 5(c) shall not apply until
(i) the earliest of: (1) the first material modification of the Plan (including
any increase in the number of shares of Common Stock reserved for issuance under
the Plan in accordance with Section 4); (2) the issuance of all of the shares of
Common Stock reserved for issuance under the Plan; (3) the expiration of the
Plan; or (4) the first meeting of stockholders at which Directors are to be
elected that occurs after the close of the third calendar year following the
calendar year in which occurred the first registration of an equity security
under Section 12 of the Exchange Act; or (ii) such other date required by
Section 162(m) of the Code and the rules and regulations promulgated thereunder.
(d) ELIGIBILITY OF CONSULTANTS PRIOR TO THE LISTING DATE. Prior to the
Listing Date, a Consultant shall not be eligible for the grant of a Stock Award
if, at the time of grant, the offer and sale of the Company's securities to such
Consultant are not exempt under Rule 701 of the Securities Act ("Rule 701")
because of the nature of the services that the Consultant is providing to the
Company unless the Board determines that such grant need not comply with the
requirements of Rule 701 and can satisfy another exemption under the Securities
Act.
(e) ELIGIBILITY OF CONSULTANTS FROM AND AFTER THE LISTING DATE. From and
after the Listing Date, a Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, Form S-8 under the Securities Act is not
available to register the offer and sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company unless the Board determines that such securities either
should be registered in another manner under the Securities Act or are not
required to be registered under the Securities Act.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of
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the Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, an Incentive Stock Option may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option granted on or after the Listing
Date shall be not less than eighty-five percent (85%) of the Fair Market Value
of the Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option granted prior to the Listing Date shall not be transferable except by
will or by the laws of descent and distribution and, to the extent provided in
the Option Agreement, to such further extent as permitted by Section
260.140.41(d) of Title 10 of the California Code of Regulations at the time of
the grant of the Option, and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. A Nonstatutory Stock
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Option granted on or after the Listing Date shall be transferable to the extent
provided in the Option Agreement. If the Nonstatutory Stock Option does not
provide for transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California Code
of Regulations at the time of the grant of the Option, then:
(i) Options granted prior to the Listing Date to an Employee who is not
an Officer, Director or Consultant shall provide for vesting of the total number
of shares of Common Stock at a rate of at least twenty percent (20%) per year
over five (5) years from the date the Option was granted, subject to reasonable
conditions such as continued employment; and
(ii) Options granted prior to the Listing Date to Officers, Directors
or Consultants may be made fully exercisable, subject to reasonable conditions
such as continued employment, at any time or during any period established by
the Company.
(i) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period shall not be less than thirty (30) days for Options
granted prior to the Listing Date unless such termination is for cause), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier
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of (i) the expiration of the term of the Option set forth in subsection 6(a) or
(ii) the expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (2) the expiration of the term of
such Option as set forth in the Option Agreement. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate.
(m) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Subject to the "Repurchase Limitation" in subsection 10(h), any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
(n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option.
(o) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option. Except as expressly provided
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in this subsection 6(o), such right of first refusal shall otherwise comply with
any applicable provisions of the Bylaws of the Company.
(p) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board
to make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option shall be subject to the same exercise price and
term provisions heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.
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(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. For a stock bonus award made before the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a stock bonus award made on or after the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall be transferable by the Participant only upon such terms and conditions as
are set forth in the stock bonus agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the stock bonus agreement
remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. The terms and conditions of the restricted stock purchase
agreements may change from time to time, and the terms and conditions of
separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five (85%) of the Common Stock's Fair Market Value on the date such award
is made or at the time the purchase is consummated. For restricted stock awards
made on or after the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the Common Stock's Fair Market Value on the date
such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
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(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made before the
Listing Date, rights to acquire shares of Common Stock under the restricted
stock purchase agreement shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award made on or
after the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.
(c) STOCK APPRECIATION RIGHTS.
(i) AUTHORIZED RIGHTS. The following three types of stock appreciation
rights shall be authorized for issuance under the Plan:
(1) TANDEM RIGHTS. A "Tandem Right" means a stock appreciation
right granted appurtenant to an Option which is subject to the same terms and
conditions applicable to the particular Option grant to which it pertains with
the following exceptions. The Tandem Right shall require the holder to elect
between the exercise of the underlying Option for shares of Common Stock and the
surrender, in whole or in part, of such Option for an appreciation distribution.
The appreciation distribution payable on the exercised Tandem Right shall be in
cash (or, if so provided, in an equivalent number of shares of Common Stock
based on Fair Market Value on the date of the Option surrender) in an amount up
to the excess of (A) the Fair Market Value (on the date of the Option surrender)
of the number of shares of Common Stock covered by that portion of the
surrendered Option in which the Optionholder is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT RIGHTS. A "Concurrent Right" means a stock
appreciation right granted appurtenant to an Option which applies to all or a
portion of the shares of Common Stock subject to the underlying Option and which
is subject to the same terms and conditions applicable to the particular Option
grant to which it pertains with the following exceptions. A Concurrent Right
shall be exercised automatically at the same time the underlying Option is
exercised with respect to the particular shares of Common Stock to which the
Concurrent Right pertains. The appreciation distribution payable on the
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on the
date of the exercise of the Concurrent Right) in an amount equal to such portion
as determined by the Board at the time of the grant of the excess of (A) the
aggregate Fair Market Value (on the date of the exercise of the Concurrent
Right) of the vested shares of Common Stock purchased under the underlying
Option which
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have Concurrent Rights appurtenant to them over (B) the aggregate exercise price
paid for such shares.
(3) INDEPENDENT RIGHTS. An "Independent Right" means a stock
appreciation right granted independently of any Option but which is subject to
the same terms and conditions applicable to a Nonstatutory Stock Option with the
following exceptions. An Independent Right shall be denominated in share
equivalents. The appreciation distribution payable on the exercised Independent
Right shall be not greater than an amount equal to the excess of (a) the
aggregate Fair Market Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (b) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so provided, in an equivalent number of shares of Common Stock based on Fair
Market Value on the date of the exercise of the Independent Right.
(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights appurtenant to
Incentive Stock Options may be granted only to Employees. The "Section 162(m)
Limitation" provided in subsection 5(c) and any authority to reprice Options
shall apply as well to the grant of stock appreciation rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation right,
the holder shall provide written notice of exercise to the Company in compliance
with the provisions of the Stock Award Agreement evidencing such right. Except
as provided in subsection 5(c) regarding the "Section 162(m) Limitation," no
limitation shall exist on the aggregate amount of cash payments that the Company
may make under the Plan in connection with the exercise of a stock appreciation
right.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
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9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any shares of Common
Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (iii) the issuance of the shares
of Common Stock
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upon the exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act or (iv) as to any particular requirement, a determination is made
by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a Stock
Award Agreement, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of Common Stock
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to the Participant by the Company)
or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; or (iii) delivering to the
Company owned and unencumbered shares of Common Stock.
(g) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
(h) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is made, any repurchase
option contained in a Stock Award granted prior to the Listing Date to a person
who is not an Officer, Director or Consultant shall be upon the terms described
below:
(i) FAIR MARKET VALUE. If the repurchase option gives the Company the
right to repurchase the shares of Common Stock upon termination of employment at
not less than the Fair Market Value of the shares of Common Stock to be
purchased on the date of termination of Continuous Service, then (i) the right
to repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the shares
of Common Stock become publicly traded.
(ii) ORIGINAL PURCHASE PRICE. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
Continuous Service at the
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original purchase price, then (i) the right to repurchase at the original
purchase price shall lapse at the rate of at least twenty percent (20%) of the
shares of Common Stock per year over five (5) years from the date the Stock
Award is granted (without respect to the date the Stock Award was exercised or
became exercisable) and (ii) the right to repurchase shall be exercised for cash
or cancellation of purchase money indebtedness for the shares of Common Stock
within ninety (90) days of termination of Continuous Service (or in the case of
shares of Common Stock issued upon exercise of Options after such date of
termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Company and the Participant (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code regarding "qualified small business stock").
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common Stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.
In the event of (i) a sale, lease or other disposition of all or substantially
all of the assets of the Company, (ii) a merger or consolidation in which the
Company is not the surviving corporation or (iii) a reverse merger in which the
Company is the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then any
surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(c)) for those outstanding under the
Plan. In the event any surviving corporation or acquiring corporation refuses to
assume such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the
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Stock Awards shall terminate if not exercised (if applicable) at or prior to
such event. With respect to any other Stock Awards outstanding under the Plan,
such Stock Awards shall terminate if not exercised (if applicable) prior to such
event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. After the Listing Date, in
the event of an acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
Directors, then any such acquiring person, entity or group shall assume any
Stock Awards outstanding under the Plan or shall substitute similar stock awards
(including an award to acquire the same consideration paid to the stockholders
in the transaction described in this subsection 11(d)) for those outstanding
under the Plan. In the event any such acquiring person, entity or group refuses
to assume such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the Stock Awards shall terminate if
not exercised (if applicable) at or prior to such event. With respect to any
other Stock Awards outstanding under the Plan, such Stock Awards shall terminate
if not exercised (if applicable) prior to such event.
(e) CHANGE IN CONTROL--CHANGE IN INCUMBENT BOARD. After the Listing Date,
in the event that the individuals who, as of the Listing Date, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least
fifty percent (50%) of the Board, then with respect to Stock Awards held by
persons whose Continuous Service has not terminated, the vesting of such Stock
Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full. If the election, or nomination for
election, by the Company's stockholders of any new Director was approved by a
vote of at least fifty percent (50%) of the Incumbent Board, such new Director
shall be considered as a member of the Incumbent Board.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
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(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state's conflict of laws rules.
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EXHIBIT 10.4
USA.NET, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED APRIL 1, 1999
APPROVED BY THE STOCKHOLDERS ON _____________, 1999
EFFECTIVE DATE: [DATE OF THE INITIAL PUBLIC OFFERING]
1. PURPOSE.
(a) The purpose of this 1999 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of USA.NET, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
committee as provided in subparagraph 2(c). Whether or not the Board has
delegated administration the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
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exercise of this power, may correct any defect, omission or inconsistency in the
Plan, in a manner and to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such
acts as the Board or the Committee deems necessary or expedient to promote the
best interests of the Company and its Affiliates and to carry out the intent
that the Plan be treated as an "employee stock purchase plan" within the meaning
of Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate _____________ (________) shares
of the Company's common stock (the "Common Stock"). If any right granted under
the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for the
Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the Plan
to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 5 through 8, inclusive.
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(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such
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employee may purchase under all outstanding rights and options shall be treated
as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board or the Committee may provide in an Offering that certain employees who are
highly compensated employees within the meaning of Section 423(b)(4)(D) of the
Code shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined by the Board for each Offering) during the
period which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
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7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings (as defined
by the Board for each Offering) during the Offering. The payroll deductions made
for each participant shall be credited to an account for such participant under
the Plan and shall be deposited with the general funds of the Company. A
participant may reduce (including to zero) or increase such payroll deductions,
and an eligible employee may begin such payroll deductions, after the beginning
of any Offering only as provided for in the Offering. A participant may make
additional payments into his or her account only if specifically provided for in
the Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's right
to acquire Common Stock under that Offering shall be automatically terminated. A
participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of a participant's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(a) On each date specified therefor in the relevant Offering ("Purchase
Date"), each participant's accumulated payroll deductions and other additional
payments specifically provided for in the Offering (without any increase for
interest) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms of
the Plan and the applicable Offering, at the purchase price specified in the
Offering. Unless otherwise provided for in the applicable Offering, no
fractional shares shall be issued
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upon the exercise of rights granted under the Plan. The amount, if any, of
accumulated payroll deductions remaining in each participant's account after the
purchase of shares which is less than the amount required to purchase one share
of stock on the final Purchase Date of an Offering shall be held in each such
participant's account for the purchase of shares under the next Offering under
the Plan, unless such participant withdraws from such next Offering, as provided
in subparagraph 7(b), or is no longer eligible to be granted rights under the
Plan, as provided in paragraph 5, in which case such amount shall be distributed
to the participant after such final Purchase Date, without interest. The amount,
if any, of accumulated payroll deductions remaining in any participant's account
after the purchase of shares which is equal to the amount required to purchase
whole shares of Common Stock on the final Purchase Date of an Offering shall be
distributed in full to the participant after such Purchase Date, without
interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no rights granted under the Plan or any Offering shall be exercised then all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire stock) shall be distributed to
the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall at all times make reasonable efforts to keep available the number of
shares of stock required to satisfy such rights, provided that this section
shall not require the Company to take any action that would result in adverse
tax, accounting or financial consequences to the Company.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
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10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock to participants pursuant to rights
granted under the Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shares acquired upon exercise
of rights hereunder are recorded in the books of the Company (or its transfer
agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board or the Committee at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 12 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months before or
after the adoption of the amendment if such amendment
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requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) The Board or the Committee may amend the Plan in any respect the
Board or the Committee deems necessary or advisable to provide eligible
employees with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
employee stock purchase plans and/or to bring the Plan and/or rights granted
under it into compliance therewith.
(c) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice in the form prescribed by the Company. In the
event of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its sole discretion, may deliver such shares and/or cash to the spouse or to
any one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board or the Committee in its discretion, may suspend or
terminate the Plan at any time. No rights may be granted under the Plan while
the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the
person to whom such rights were granted, or except as necessary to comply with
any laws or governmental regulation, or except as necessary to ensure that the
Plan and/or rights granted under the Plan comply with the requirements of
Section 423 of the Code.
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16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the effective date of the initial
public offering of the Common Stock of the Company (the "Effective Date"), but
no rights granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted by the Board, which date may be
prior to the Effective Date.
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USA.NET, INC.
EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED APRIL 1, 1999
1. GRANT; OFFERING DATE.
(a) The Board of Directors of USA.NET, Inc. (the "Company"), pursuant
to the Company's 1999 Employee Stock Purchase Plan (the "Plan"), hereby
authorizes the grant of rights to purchase shares of the common stock of the
Company ("Common Stock") to all Eligible Employees (an "Offering"). Subject to
subsection 1(b) below, the first Offering shall begin on the effective date of
the initial public offering of the Company's Common Stock (the "Effective Date")
and shall end on June 30, 2000 (the "Initial Offering"). Thereafter, subject to
subsection 1(b) below, an Offering shall begin on July 1 every year, beginning
on July 1, 2000. An Offering shall end on the day prior to the first day of the
subsequent Offering. The first day of an Offering is that Offering's "Offering
Date." If an Offering Date would fall on a day during which the Company's Common
Stock is not actively traded, then the Offering Date shall be the next
subsequent day during which the Company's Common Stock is actively traded.
(b) Prior to the commencement of any Offering, the Board of Directors
(or the Committee described in subparagraph 2(c) of the Plan, if any) may change
any or all terms of such Offering and any subsequent Offerings. The granting of
rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (a) the Board of Directors (or such
Committee) determines that such Offering shall not occur, or (b) no shares
remain available for issuance under the Plan in connection with the Offering.
2. ELIGIBLE EMPLOYEES.
(a) All employees of the Company and each of its Affiliates (as defined
in the Plan) incorporated in the United States, shall be granted rights to
purchase Common Stock under each Offering on the Offering Date of such Offering,
provided that each such employee otherwise meets the employment requirements of
subparagraph 5(a) of the Plan (an "Eligible Employee"). Notwithstanding the
foregoing, the following employees shall not be Eligible Employees or be granted
rights under an Offering: (i) part-time or seasonal employees whose customary
employment is less than 20 hours per week or 5 months per calendar year or (ii)
5% stockholders (including ownership through unexercised options) described in
subparagraph 5(c) of the Plan.
(b) Each person who first becomes an Eligible Employee during any
Offering will, on the first business day of the month of July or January during
the Offering, which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a right under such
Offering, which right shall thereafter be deemed to be a part of the Offering.
1
<PAGE> 11
Such right shall have the same characteristics as any rights originally granted
under the Offering except that:
(1) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right; and
(2) the Offering for such right shall begin on its Offering
Date and end coincident with the end of the ongoing Offering.
3. RIGHTS.
(a) Subject to the limitations contained herein and in the Plan, on
each Offering Date each Eligible Employee shall be granted the right to purchase
the number of shares of Common Stock purchasable with up to fifteen percent
(15%) of such Eligible Employee's Earnings paid during such Offering after the
Eligible Employee first commences participation; provided, however, that no
employee may purchase Common Stock on a particular Purchase Date that would
result in more than fifteen percent (15%) of such employee's Earnings in the
period from the Offering Date to such Purchase Date having been applied to
purchase shares under all ongoing Offerings under the Plan and all other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Internal Revenue Code of 1986, as amended (the "Code"). For this
Offering, "Earnings" means the total compensation paid to an employee, including
all salary, wages (including amounts elected to be deferred by the employee,
that would otherwise have been paid, under any cash or deferred arrangement or
other deferred compensation program established by the Company), overtime pay,
commissions, bonuses, and other remuneration paid directly to the employee, but
excluding profit sharing, the cost of employee benefits paid for by the Company,
education or tuition reimbursements, imputed income arising under any Company
group insurance or benefit program, traveling expenses, business and moving
expense reimbursements, income received in connection with stock options,
contributions made by the Company under any employee benefit plan, and similar
items of compensation.
(b) Notwithstanding the foregoing, the maximum number of shares of
Common Stock an Eligible Employee may purchase on a Purchase Date in an Offering
is such number of shares as has a fair market value (determined as of the
Offering Date for such Offering) equal to (x) $25,000 multiplied by the number
of calendar years in which the right under such Offering has been outstanding
any time, minus (y) the fair market value of any other shares of Common Stock
(determined as of the relevant Offering Date with respect to such shares) which,
for purposes of the limitation of Section 423(b)(8) of the Code, are attributed
to any of such calendar years in which the right is outstanding. The amount in
clause (y) of the previous sentence shall be determined in accordance with
regulations under Section 423(b)(8) of the Code based on (i) the number of
shares previously purchased with respect to such calendar years pursuant to such
Offering or any other Offering under the Plan, or pursuant to any other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Code, and (ii) the number of shares subject to other rights outstanding
on the Offering Date for such Offering pursuant to the Plan or any other such
Company plan.
2
<PAGE> 12
(c) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of shares available under either of the
limits set forth in this subsection 3(c), the Board shall make a pro rata
allocation of the shares available in a uniform and equitable manner.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common Stock
on the Offering Date or eighty-five percent (85%) of the fair market value of
the Common Stock on the Purchase Date, in each case rounded up to the nearest
whole cent per share. For the Initial Offering, the fair market value of the
Common Stock at the time when the Offering commences shall be the price per
share at which shares of Common Stock are first sold to the public in the
Company's initial public offering.
5. PARTICIPATION.
(a) Except as otherwise provided in this paragraph 5, an Eligible
Employee may elect to participate in an Offering only at the beginning of the
Offering; provided, however, that a person who first becomes an Eligible
Employee during an Offering may elect to participate at the Offering Date
applicable to such Eligible Employee in accordance with subparagraph 2(b). An
Eligible Employee shall become a participant in an Offering by delivering an
agreement authorizing payroll deductions. Such deductions may be in whole
percentages only, with a minimum percentage of one percent (1%) and maximum
percentage of fifteen percent (15%) of Earnings. A participant may not make
additional payments into his or her account. The agreement shall be made on such
enrollment form as the Company provides, and must be delivered to the Company
before the date of participation to be effective for such Offering, as
determined by the Company and communicated to Eligible Employees. As to the
Initial Offering, the time for filing an enrollment form and commencing
participation for individuals who are Eligible Employees on the Offering Date
for the Initial Offering shall be determined by the Company and communicated to
such Eligible Employees.
(b) Generally, a participant may increase or reduce (including to zero)
his or her participation level only as of each July 1 or January 1 during any
Offering (except not during the ten (10) days immediately preceding a Purchase
Date. Any such change in participation shall be made by delivering a notice to
the Company or a designated Affiliate in such form and at such time as the
Company provides. Notwithstanding the foregoing, a participant may reduce his or
her participation level to zero once at any time during the twelve (12) month
period ending on a Purchase Date (except not during the ten (10) days
immediately preceding a Purchase Date). Additionally, a participant may withdraw
from an Offering and receive his or her accumulated payroll deductions from the
Offering (reduced to the extent, if any, such deductions have been used to
acquire Common Stock for the participant on any prior Purchase Dates), without
interest at any time prior to the end of the Offering, excluding only each ten
(10) day period immediately preceding a Purchase Date (or such shorter period of
time determined by the Company and
3
<PAGE> 13
communicated to participants), by delivering a withdrawal notice to the Company
in such form as the Company provides. A participant who has withdrawn from an
Offering shall not be entitled to again participate in such Offering, but may
participate in other Offerings under the Plan by submitting a new participation
agreement in accordance with the terms thereof.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date,
each participant's accumulated payroll deductions (without any increase for
interest) shall be applied to the purchase of whole shares of Common Stock, up
to the maximum number of shares permitted under the Plan and the Offering.
"Purchase Date" shall be defined as the last day of each December and of each
June. (Notwithstanding the foregoing sentence, June 30, 1999 under the Initial
Offering shall not be a Purchase Date.) If a Purchase Date would not fall on a
day during which the Company's Common Stock is actively traded, then the
Purchase Date shall be the nearest prior day during which the Company's Common
Stock is actively traded.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall
be given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the shareholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan), the provisions of the Plan
shall control.
4
<PAGE> 1
EXHIBIT 10.5
USA.NET, INC.
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. General ..............................................................1
1.1 Amendment of Prior Agreement.............................................1
Section 2. Registration; Restrictions on Transfer................................2
2.1 Restrictions on Transfer.................................................2
2.2 Demand Registration......................................................3
2.3 Piggyback Registrations..................................................4
2.4 Form S-3 Registration....................................................5
2.5 Expenses of Registration.................................................6
2.6 Obligations of the Company...............................................7
2.7 Termination of Registration Rights.......................................8
2.8 Delay of Registration; Furnishing Information............................8
2.9 Indemnification..........................................................9
2.10 Assignment of Registration Rights.......................................11
2.11 Amendment of Registration Rights........................................11
2.12 Limitation on Subsequent Registration Rights............................11
2.13 "Market Stand-Off" Agreement............................................11
2.14 Rule 144 Reporting......................................................12
2.15 Definitions.............................................................12
Section 3. Covenants of the Company.............................................14
3.1 Basic Financial Information and Reporting...............................14
3.2 Inspection Rights.......................................................14
3.3 Confidentiality of Records..............................................14
3.4 Reservation of Common Stock.............................................15
3.5 Proprietary Information and Inventions Agreement........................15
3.6 SBIC Covenants..........................................................15
3.7 Notification of Certain Events..........................................16
3.8 Termination of Covenants................................................16
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 4. Preemptive Rights....................................................16
4.1 Subsequent Offerings....................................................16
4.2 Exercise of Rights......................................................16
4.3 Issuance of Equity Securities to Other Persons..........................16
4.4 Termination of Preemptive Rights........................................17
4.5 Transfer of Preemptive Rights...........................................17
4.6 Excluded Securities.....................................................17
Section 5. Rights of First Offer and Co-Sale Rights.............................18
5.1 Definitions.............................................................18
5.2 Sales by Major Investors................................................18
5.3 Exempt Transfers........................................................21
5.4 Prohibited Transfers....................................................22
5.5 Legend..................................................................22
5.6 Transfer of Rights......................................................23
5.7 Termination of Rights...................................................23
Section 6. Miscellaneous........................................................23
6.1 Governing Law...........................................................23
6.2 Survival................................................................23
6.3 Successors and Assigns..................................................23
6.4 Entire Agreement........................................................24
6.5 Severability............................................................24
6.6 Amendment and Waiver....................................................24
6.7 Delays or Omissions.....................................................24
6.8 Notices.................................................................24
6.9 Attorneys' Fees.........................................................25
6.10 Titles and Subtitles....................................................25
6.11 Counterparts............................................................25
</TABLE>
ii.
<PAGE> 4
USA.NET, INC.
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the
"Agreement") is entered into as of the 12th day of August, 1998, by and among
USA.NET, INC., a Delaware corporation (the "Company") and the holders of the
Company's Series A Preferred Stock ("Series A Stock"), Series B Preferred Stock
("Series B Stock"), Series C Preferred Stock ("Series C Stock") (the "Prior
Investors") and the purchasers of the Company's Series D Preferred Stock
("Series D Stock") (the "Additional Investors") set forth on Exhibit A hereto.
The Prior Investors and the Additional Investors shall collectively be referred
to hereinafter as the "Investors" and each individually as an "Investor."
RECITALS
WHEREAS, the Company and the Prior Investors entered into an Amended
and Restated Investor's Rights Agreement (the "Prior Rights Agreement") dated as
of October 17, 1997, as thereafter amended, pursuant to which the Company
granted such Prior Investors certain rights and such Prior Investors undertook
certain obligations with respect to their shares of the Company's capital stock.
WHEREAS, in connection with the issuance of the Series D Stock to the
Additional Investors, the Company and the Prior Investors have agreed to provide
the Additional Investors certain rights as set forth herein.
WHEREAS, the Company and the Prior Investors desire to amend and
restate the Prior Rights Agreement as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 AMENDMENT OF PRIOR AGREEMENT. Effective and contingent upon the
execution of this Agreement by the requisite Prior Investors, the Prior Rights
Agreement is hereby amended and restated as set forth herein, and the Company
and the Investors hereby agree to be bound by the provisions hereof as the sole
agreement of the Company and the Investors with respect to registration rights
of the Company's securities and certain other rights and obligations set forth
herein.
1.
<PAGE> 5
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by
the terms of this Agreement, (B) such Holder shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its partners
or former partners in accordance with partnership interests, (B) a corporation
to its stockholders in accordance with their interest in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, or (D) to the Holder's family
member or trust for the benefit of an individual Holder; provided that in each
case the transferee will be subject to the terms of this Agreement to the same
extent as if he were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company
2.
<PAGE> 6
to the effect that the securities proposed to be disposed of may lawfully be so
disposed of without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Holders of more than fifty percent
(50%) of the Registrable Securities then outstanding (the "Initiating Holders")
that the Company file a registration statement under the Securities Act covering
the registration of Registrable Securities having an aggregate offering price to
the public in excess of Ten Million Dollars ($10,000,000), then the Company
shall, within thirty (30) days of the receipt thereof, give written notice of
such request to all Holders, and subject to the limitations of this Section 2.2,
use its best efforts to effect, as soon as practicable, the registration under
the Securities Act of all Registrable Securities that the Holders request to be
registered.
(b) 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
this Section 2.2 or any request pursuant to Section 2.4 and the Company shall
include such information in the written notice referred to in Section 2.2(a) or
Section 2.4(a), as applicable. In such event, the right of any Holder to include
its Registrable Securities in such registration 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) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding any
other provision of this Section 2.2 or Section 2.4, if the underwriter advises
the Company that marketing factors require a limitation of the number of
securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
3.
<PAGE> 7
(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the earlier of (A) October 17, 2002 and (B) the
date one hundred eighty (180) days following the closing of the Initial
Offering; or
(ii) after the Company has effected two (2) registrations
pursuant to this Section 2.2, and such registrations have been declared or
ordered effective, provided that no registration shall be deemed to be effective
unless at least seventy percent (70%) of the Registrable Securities requested to
be registered by the persons exercising such demand right are included in such
registration; or
(iii) during the period starting with the date of filing of,
and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to the Initial Offering; provided
that the Company makes reasonable good faith efforts to cause such registration
statement to become effective;
(iv) if within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 2.2(a), the Company gives
notice to the Holders of the Company's intention to make its Initial Offering
within ninety (90) days; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company not more than once in any twelve (12) month period.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or
4.
<PAGE> 8
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders;
and third, to any stockholder of the Company (other than a Holder) on a pro rata
basis. No such reduction shall (i) reduce the securities being offered by the
Company for its own account to be included in the registration and underwriting,
or (ii) reduce the amount of securities of the selling Holders included in the
registration below twenty-five percent (25%) of the total amount of securities
included in such registration, unless such offering is the Initial Offering and
such registration does not include shares of any other selling stockholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event will
shares of any other selling stockholder be included in such registration which
would reduce the number of shares which may be included by Holders without the
written consent of Holders of not less than two-thirds (66 2/3%) of the
Registrable Securities proposed to be sold in the offering.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.5 hereof.
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 (or any successor to Form S-3) or
any similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are
5.
<PAGE> 9
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within fifteen (15) days after receipt of
such written notice from the Company; provided, however, that the Company shall
not be obligated to effect any such registration, qualification or compliance
pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders, or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than Five Hundred Thousand Dollars ($500,000), or
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than one hundred twenty (120) days after
receipt of the request of the Holder or Holders under this Section 2.4;
provided, that such right to delay a request shall be exercised by the Company
not more than once in any twelve (12) month period, or
(iv) if the Company has, within the six (6) month period
preceding the date of such request, already effected a registration on Form S-3
for the Holders pursuant to this Section 2.4, or
(v) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 2.2 or
2.4, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request or (b) the Holders of a majority of Registrable Securities
agree
6.
<PAGE> 10
to forfeit their right to one requested registration pursuant to Section 2.2, in
which event such right shall be forfeited by all Holders). If the Holders are
required to pay the Registration Expenses, such expenses shall be borne by the
holders of securities (including Registrable Securities) requesting such
registration in proportion to the number of shares for which registration was
requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand
registration.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days or, if earlier,
until the Holder or Holders have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable 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 material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
7.
<PAGE> 11
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 2 shall terminate and be of no further force and
effect five (5) years after the date of the Qualified Public Offering. In
addition, a Holder's registration rights shall expire if (i) the Company has
completed its Initial Offering and is subject to the provisions of the Exchange
Act, (ii) such Holder (together with its affiliates, partners and former
partners) holds less than 1% of the Company's outstanding Common Stock (treating
all share of convertible Preferred Stock on an as converted basis) and (iii) all
Registrable Securities held by and issuable to such Holder (and its affiliates,
partners and former partners) may be sold under Rule 144 during any ninety (90)
day period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.2 or Section 2.4,
whichever is applicable.
8.
<PAGE> 12
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, directors and legal
counsel of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 2.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably
9.
<PAGE> 13
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or controlling person
of such other Holder in connection with investigating or defending any such
loss, claim, damage, liability or action if it is judicially determined that
there was such a Violation; provided, however, that the indemnity agreement
contained in this Section 2.9(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld; provided further, that in no event shall any indemnity
under this Section 2.9 exceed the gross proceeds from the offering received by
such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability 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 Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law 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; provided, that in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.
10.
<PAGE> 14
(e) The obligations of the Company and Holders under this Section
2.9 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement. 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.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
(i) is a subsidiary, parent, general partner, limited partner, retired partner,
member or retired member of a Holder, (ii) is a Holder's family member or trust
for the benefit of an individual Holder, or (iii) acquires at least two hundred
fifty thousand (250,000) shares of Registrable Securities (as adjusted for stock
splits and combinations); provided, however, (A) the transferor shall, within
ten (10) days after such transfer, furnish to the Company written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned and (B) such transferee
shall agree to be subject to all restrictions set forth in this Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least seventy percent (70%)
of the Registrable Securities then outstanding. Any amendment or waiver effected
in accordance with this Section 2.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 2, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of at least seventy percent (70%) of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company that would grant such holder registration rights
senior to those granted to the Holders hereunder.
2.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that such
Holder shall not sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by such Holder (other than those included
in the registration) for a period specified by the representative of the
underwriters of Common Stock (or other securities) of the Company not to exceed
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
(i) such agreement shall apply only to the Company's Initial
Offering; and
(ii) all officers and directors of the Company and holders of
at least one percent (1%) of the Company's voting securities enter into similar
agreements.
11.
<PAGE> 15
Each Holder agrees to execute and deliver such other agreements as may
be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. The
obligations described in this Section 2.13 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day period.
2.14 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of 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 Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell any such securities without registration.
2.15 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 2.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.
12.
<PAGE> 16
"QUALIFIED PUBLIC OFFERING" means a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Company in which (i) the per share price is at least one hundred
fifty percent (150%) of the then applicable price at which the Series D
Preferred Stock converts into Common Stock pursuant to the terms of the
Company's Restated Certificate of Incorporation and (ii) the gross cash proceeds
to the Company (before underwriting discounts, commissions and fees) are at
least $20,000,000.
"REGISTER," "REGISTERED," AND "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) Common Stock of the Company
issued or issuable upon conversion of the Shares; (ii) for purposes of Section 2
only, Common Stock of the Company issued or issuable upon exercise of that
certain warrant issued to BT Alex. Brown Incorporated on or about August 11,
1998 and (iii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such above-described securities. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to the
public either pursuant to a registration statement or Rule 144 or sold in a
private transaction in which the transferor's rights under Section 2 of this
Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" means all expenses incurred by the
Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements not
to exceed Twenty-Five Thousand Dollars ($25,000) of a single special counsel for
the Holders, blue sky fees and expenses and the expense of any special audits
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).
"SEC" OR "COMMISSION" means the Securities and Exchange
Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts and selling
commissions applicable to the sale.
13.
<PAGE> 17
"SHARES" means the Company's Common Stock, Series A Stock, Series
B Stock, Series C Stock and Series D Stock held by the Investors listed on
Exhibit A hereto and their permitted assigns.
SECTION 3. COVENANTS OF THE COMPANY
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will furnish each Investor, as soon as
practicable after the end of each fiscal year of the Company, and in any event
within one hundred twenty (120) days thereafter, a consolidated balance sheet of
the Company, as at the end of such fiscal year, and a consolidated statement of
income and a consolidated statement of cash flows of the Company, for such year,
all prepared in accordance with generally accepted accounting principles
consistently applied. Such financial statements shall be accompanied by a report
and opinion thereon by independent public accountants selected by the Company's
Board of Directors.
(b) The Company will furnish each Investor, as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a consolidated balance sheet of the Company as of the end
of each such quarterly period, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such period and for the
current fiscal year to date.
(c) The rights granted under this Section 3.1 may be assigned or
transferred by an Investor to an assignee or transferee which (i) is a
subsidiary, parent, general partner, limited partner or retired partner of such
Investor, (ii) is an Investor's family member or trust for the benefit of an
individual Investor or (iii) acquires at least two hundred fifty thousand
(250,000) shares of Registrable Securities (as adjusted for stock splits and
combinations).
3.2 INSPECTION RIGHTS. Each holder of at least (i) 105,000 shares of
Series A Stock, (ii) 87,800 shares of Series B Stock, (iii) 73,600 shares of
Series C Stock or (iv) 33,900 shares of Series D Stock (each a "Major Investor),
and all other holders of Series D Stock, shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under this
Section 3.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to
use its best efforts to insure that its authorized representatives use, the same
degree of care as such Investor uses to protect its own confidential information
to keep confidential any information furnished to it which the Company
identifies as being confidential or proprietary (so long as such information is
not in the public domain), except that such Investor may disclose such
proprietary or
14.
<PAGE> 18
confidential information to any partner, subsidiary or parent of such Investor
for the purpose of evaluating its investment in the Company as long as such
partner, subsidiary or parent is advised of the confidentiality provisions of
this Section 3.3.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the conversion
of the Series A Stock, Series B Stock, Series C Stock and Series D Stock, all
Common Stock issuable from time to time upon such conversion.
3.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company
shall require all key employees and consultants to execute and deliver a
Proprietary Information and Inventions Agreement in the form attached to the
Series D Preferred Stock Purchase Agreement dated on or about August 11, 1998
(the "Purchase Agreement").
3.6 SBIC COVENANTS.
(a) The Company acknowledges that Philadelphia Ventures Liberty
Fund, L.P. (the "SBIC Investor") is a Federal licensee under the Small Business
Investment Act of 1958, as amended (the "Small Business Act"), and, as such, is
subject to regulation by the United States Small Business Administration (the
"SBA") as a small business investment company.
(b) As a result of the SBIC Investor's status as Federal
licensee, the Company covenants and agrees that until May 13, 1999, the Company
shall not make a material change in its primary business activity by becoming
involved in real estate financing, project financing, farm land purchasing,
relender or reinvestor financing, foreign investment and other businesses as
described in 13 C.F.R. Section 107.720, which would make it ineligible for
financing as a portfolio company by a small business investment company under 13
C.F.R. Section 107.760(b), a regulation promulgated by the SBA. In the event
that the Company breaches the foregoing covenant, the Company agrees that,
subject to applicable law, the SBIC Investor shall not be required to retain its
investment in the Series C Stock as further set forth in 13 C.F.R. Section
107.760 and shall be authorized to return such shares in exchange for
reimbursement by the Company of the purchase price paid for such shares.
(c) The Company covenants and agrees that proceeds from the SBIC
Investor from its purchase of Series C Preferred Stock will be used for working
capital purposes or to otherwise finance the growth, modernization or expansion
of the Company. The Company shall provide the SBIC Investor and the SBA
reasonable access to the Company's books and records for the purpose of
confirming the use of such proceeds.
(d) The Company shall provide the SBIC Investor with sufficient
information to permit such Investor to comply with its obligations under the
Small Business Act, provided, however, that the SBIC Investor agrees that it
will protect any information which the Company labels as confidential to the
extent permitted by law. Until May 13, 2000, any submission of financial
information under Section 3.1 to the SBIC Investor shall be accompanied by a
certificate of the president, chief executive officer, treasurer or chief
financial officer, which certificate shall
15.
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state that the Company is not in material default under any of its covenants set
forth in this Section 3.
3.7 NOTIFICATION OF CERTAIN EVENTS. The Company shall promptly notify
The American Express Travel Related Services Company, Inc. and all Major
Investors in writing of any material outstanding or threatened claim, suit,
investigation, proceeding or other process or any material order, judgment,
directive or restrictions against or involving the Company or the transactions
contemplated hereby.
3.8 TERMINATION OF COVENANTS. All covenants of the Company contained
in Section 3 of this Agreement (other than Section 3.6) shall expire and
terminate as to each Investor on the effective date of the Qualified Public
Offering.
SECTION 4. PREEMPTIVE RIGHTS
4.1 SUBSEQUENT OFFERINGS. Each Investor shall have a preemptive right
to purchase its pro rata share of all Equity Securities, as defined below, that
the Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.6 hereof.
Each Investor's pro rata share is equal to the ratio of (A) the number of shares
of the Company's Common Stock (including all shares of Common Stock issued or
issuable upon conversion of the Shares) of which such Investor is deemed to be a
holder immediately prior to the issuance of such Equity Securities to (B) the
total number of shares of the Company's outstanding Common Stock (including all
shares of Common Stock issued or issuable upon conversion of the Shares or upon
the exercise of any outstanding warrants or options) held by all Investors
immediately prior to the issuance of the Equity Securities. The term "Equity
Securities" shall mean (i) any Common Stock, Preferred Stock or other security
of the Company, (ii) any security convertible, with or without consideration,
into any Common Stock, Preferred Stock or other security (including any option
to purchase such a convertible security), (iii) any security carrying any
warrant or right to subscribe to or purchase any Common Stock, Preferred Stock
or other security or (iv) any such warrant or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Investor shall have fifteen
(15) days from the giving of such notice to agree to purchase its pro rata share
of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Investor who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of the
Investors elect to purchase their pro rata share of the Equity Securities, then
the Company shall promptly notify in writing the Investors who do so elect and
shall offer such Investors the right to acquire such unsubscribed shares. The
Investors shall have five (5) days after receipt of such notice to notify
16.
<PAGE> 20
the Company of their election to purchase all or a portion thereof of the
unsubscribed shares. If such Investors fail to exercise in full the preemptive
rights, the Company shall have ninety (90) days thereafter to sell the Equity
Securities in respect of which the Investors' rights were not exercised, at a
price and upon general terms and conditions materially no more favorable to the
purchasers thereof than specified in the Company's notice to the Investors
pursuant to Section 4.2 hereof. If the Company has not sold such Equity
Securities within ninety (90) days of the notice provided pursuant to Section
4.2, the Company shall not thereafter issue or sell any Equity Securities,
without first offering such securities to the Investors in the manner provided
above.
4.4 TERMINATION OF PREEMPTIVE RIGHTS. The preemptive rights
established by this Section 4 shall not apply to, and shall terminate upon the
effective date of the registration statement pertaining to the Qualified Public
Offering.
4.5 TRANSFER OF PREEMPTIVE RIGHTS. The preemptive rights of each
Investor under this Section 4 may be transferred to the same parties set forth
in Section 2.10(i) and (ii), or to a transferee or assignee of Registrable
Securities which acquires at least two hundred fifty thousand (250,000) shares
of Registrable Securities (as adjusted for stock splits, combinations and the
like), subject to the same restrictions as any transfer of registration rights
pursuant to Section 2.10.
4.6 EXCLUDED SECURITIES. The preemptive rights established by this
Section 4 shall have no application to any of the following Equity Securities:
(a) shares of Series D Stock issued pursuant to Section 2.3 of
the Purchase Agreement;
(b) shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights issued pursuant to such options, warrants or other
rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors (collectively, the "Option Shares"), provided that the number
of Option Shares issued pursuant to this clause (a) does not exceed twenty
percent (20%) of the total outstanding capital stock of the Company (assuming
conversion of all shares of Preferred Stock into Common Stock and assuming the
conversion or exercise of all options, warrants or other rights to purchase
capital stock of the Company, including the Option Shares issued);
(c) stock issued pursuant to any rights or agreements outstanding
as of the date of this Agreement, options and warrants outstanding as of the
date of this Agreement; and stock issued pursuant to any such rights or
agreements granted after the date of this Agreement, provided that the
preemptive rights established by this Section 4 applied with respect to the
initial sale or grant by the Company of such rights or agreements;
(d) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;
17.
<PAGE> 21
(e) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
(f) shares of Common Stock issued upon conversion of the Shares;
(g) any Equity Securities issued pursuant to any equipment
leasing arrangement, or debt financing approved by the Board of Directors
(collectively the "Debt Financing Shares") from a bank or similar financial
institution which is not an affiliate of John Street; provided that the number
of Debt Financing Shares issued in all such transactions does not have an
aggregate value in excess of $250,000;
(h) any Equity Securities that are issued by the Company pursuant
to a registration statement filed under the Securities Act; and
(i) shares of the Company's Common Stock or Preferred Stock
issued in connection with strategic transactions involving the Company and other
entities, including (A) joint ventures, manufacturing, marketing or distribution
arrangements or (B) technology transfer or development arrangements; provided
that such strategic transactions and the issuance of shares therein, has been
approved by the Company's Board of Directors, including the representatives
designated by the holders of the Series A Stock, Series B Stock, Series C Stock
and Series D Stock.
SECTION 5. RIGHTS OF FIRST OFFER AND CO-SALE RIGHTS
5.1 DEFINITIONS. For purposes of this Section 5, the following
definitions shall apply:
(a) "CO-SALE STOCK" shall mean shares of the Company's Common
Stock now owned or subsequently acquired by a Major Investor. The number of
shares of Common Stock owned by each Major Investor is set forth on Exhibit A,
which Exhibit shall be amended from time to time to reflect changes in the
number of shares owned by each Major Investor.
(b) "COMMON STOCK" shall mean the Company's Common Stock and
shares of Common Stock issued or issuable upon conversion of the Company's
outstanding Preferred Stock.
5.2 SALES BY MAJOR INVESTORS.
(a) NOTICE REQUIREMENT. If any Major Investor proposes to sell or
transfer any shares of Co-Sale Stock then such Major Investor shall promptly
give written notice (the "Notice") simultaneously to the Company and to each of
the other Investors at least forty-five (45) days prior to the closing of such
sale or transfer. The Company shall provide such Major Investor with a list of
the addresses of the Investors for purposes of satisfying such notice
requirement. The Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of shares of Co-Sale Stock to
be sold or transferred, the nature of such sale or transfer, the consideration
to be paid, and the name and address of each prospective purchaser or
transferee. In the event that the sale or transfer is being made pursuant
18.
<PAGE> 22
to the provisions of Sections 5.3(a) hereof, the Notice shall state under which
section the sale or transfer is being made.
(b) COMPANY'S RIGHT TO PURCHASE. For a period of fifteen (15)
days following receipt of any Notice described in Section 5.2(a), the Company
shall have the right to purchase all or a portion of the Co-Sale Stock subject
to such Notice on the same terms and conditions as set forth therein. The
Company's purchase right shall be exercised by written notice signed by an
officer of the Company and delivered to the selling Major Investor with a check
for payment for the Co-Sale Stock being purchased.
(c) MAJOR INVESTORS' RIGHT TO PURCHASE. If the Company does not
purchase all of the Co-Sale Stock available pursuant to its rights under Section
5.2(b) within the period set forth therein, each non-selling Major Investor
shall then have the right, exercisable upon written notice to the selling Major
Investor within thirty (30) days of the date of the original Notice described in
Section 5.2(a), to purchase its pro rata share of the Co-Sale Stock subject to
the Notice (less shares purchased by the Company pursuant to Section 5.2(b)) on
the same terms and conditions.
(i) Each non-selling Major Investor may buy all or any part
of that number of shares equal to the product obtained by multiplying (x) the
aggregate number of shares of Co-Sale Stock covered by the Notice (less shares
purchased by the Company pursuant to Section 5.2(b)) by (y) a fraction the
numerator of which is the number of shares of Common Stock owned by the
non-selling Major Investor (on an as-if-converted basis) at the time of the sale
or transfer and the denominator of which is the total number of shares of Common
Stock owned by all of the non-selling Major Investors (on an as-if-converted
basis) at the time of the sale or transfer.
(ii) If not all of the non-selling Major Investors elect to
purchase their pro rata share of the Co-Sale Stock covered by the Notice as
provided in Section 5.2(c)(i) above, then the selling Major Investor shall
promptly notify the non-selling Major Investors who do so elect and shall offer
such non-selling Major Investors the right to acquire such unsubscribed shares.
The non-selling Major Investors who elect to participate shall have five (5)
days after receipt of such notice to notify the selling Major Investor of its
election to purchase all or a portion thereof of the unsubscribed shares.
(d) INVESTORS' RIGHT TO PARTICIPATE IN THE SALE OF CO-SALE STOCK.
Should the non-selling Major Investors and/or the Company fail to exercise their
respective rights to purchase all of the shares of Co-Sale Stock described in
the Notice issued pursuant to Section 5.2(a) following the exercise or
expiration of the rights of purchase described in Sections 5.2(b) and 5.2(c),
then each Investor shall have the right, exercisable upon written notice to the
selling Major Investor within forty-five (45) days of the date of the original
Notice described in Section 5.2(a), to participate in such sale of Co-Sale Stock
on the same terms and conditions. Such notice shall indicate the number of
shares of Common Stock such Investor wishes to sell under his or her right to
participate. To the extent one or more of the Investors exercise such right of
participation in accordance with the terms and conditions set forth below, the
number of
19.
<PAGE> 23
shares of Co-Sale Stock that the selling Major Investor may sell in the
transaction shall be correspondingly reduced.
(i) Each Investor may sell all or any part of that number of
shares equal to the product obtained by multiplying (x) the aggregate number of
shares of Co-Sale Stock covered by the Notice (as reduced by any purchases
pursuant to Sections 5.2(b) or 5.2(c)) by (y) a fraction the numerator of which
is the number of shares of Common Stock owned by the Investor at the time of the
sale or transfer (on an as-if-converted basis) and the denominator of which is
the total number of shares of Common Stock owned by the selling Major Investor
and the Investors at the time of the sale or transfer (on an as-if-converted
basis).
(ii) Each Investor who elects to participate in the sale
pursuant to this Section 5.2(d) (a "Participant") shall effect its participation
in the sale by promptly delivering to the selling Major Investor for transfer to
the prospective purchaser one or more certificates, properly endorsed for
transfer, which represent:
(1) the type and number of shares of Common Stock which
such Participant elects to sell; or
(2) that number of shares of Preferred Stock which is
at such time convertible into the number of shares of Common Stock which such
Participant elects to sell; provided, however, that if the prospective purchaser
objects to the delivery of Preferred Stock in lieu of Common Stock, such
Participant shall convert such Preferred Stock into Common Stock and deliver
Common Stock as provided in this Section 5.2(d). The Company agrees to make any
such conversion concurrently with the actual transfer of such shares to the
purchaser.
(iii) The stock certificate or certificates that the
Participant delivers to the selling Major Investor pursuant to this Section
5.2(d) shall be transferred to the prospective purchaser in consummation of the
sale of the Common Stock pursuant to the terms and conditions specified in the
Notice, and the selling Major Investor shall concurrently therewith remit to
such Participant that portion of the sale proceeds to which such Participant is
entitled by reason of its participation in such sale. To the extent that any
prospective purchaser or purchasers prohibits such assignment or otherwise
refuses to purchase shares or other securities from a Participant exercising its
rights of co-sale hereunder, the selling Major Investor shall not sell to such
prospective purchaser or purchasers any Co-Sale Stock unless and until,
simultaneously with such sale, the selling Major Investor shall purchase such
shares or other securities from such Participant on the same terms and
conditions specified in the Notice.
(iv) The exercise or non-exercise of the rights of the
Participants hereunder to participate in one or more sales of Co-Sale Stock made
by a selling Major Investor shall not adversely affect their rights to
participate in subsequent sales of Co-Sale Stock subject to Section 5.2(a).
20.
<PAGE> 24
(e) SALE OF CO-SALE STOCK. Should any shares of Co-Sale Stock
remain for sale to a third-party following the exercise or expiration of the
rights of purchase described in Sections 5.2(b) and 5.2(c) and the rights of
co-sale described in Section 5.2(d), then the selling Major Investor may, not
later than seventy-five (75) days following delivery to the Company of the
Notice, enter into an agreement providing for the closing of the transfer of the
Co-Sale Stock covered by the Notice (less shares purchased pursuant to Sections
5.2(b) and 5.2(c)) within thirty (30) days of such agreement on terms and
conditions not more favorable to the transferor than those described in the
Notice. Any proposed transfer on terms and conditions more favorable than those
described in the Notice, as well as any subsequent proposed transfer of any of
the Co-Sale Stock by the selling Major Investor, shall again be subject to the
purchase rights of the Company and the Major Investors and the co-sale rights of
the Investors and shall require compliance by the selling Major Investor with
the procedures described in this Section 5.2.
5.3 EXEMPT TRANSFERS.
(a) Notwithstanding the foregoing, the purchase rights of the
Company and the Major Investors and the co-sale rights of the Investors shall
not apply to (i) any pledge of Co-Sale Stock made pursuant to a bona fide loan
transaction with a financial institution that creates a mere security interest,
(ii) any transfer to the ancestors, descendants, or significant other or spouse
or to trusts for the benefit of such persons or the Major Investor (so long as
the transferee is not a Major Investor), (iii) any transfer to a general
partner, limited partner, member or retired partner or member of the Major
Investor or (iv) any bona fide gift; provided that in the event of any pledge or
transfer made pursuant to one of the exemptions provided by clauses (i), (ii)
and (iii), (A) the selling Major Investor shall inform the Investors of such
pledge, transfer or gift prior to effecting it and (B) the pledgee, transferee
or donee shall furnish the Investors with a written agreement to be bound by and
comply with all provisions of Section 5.2. Such transferred Co-Sale Stock shall
remain "Co-Sale Stock" hereunder, and such pledgee, transferee or donee shall be
treated as an Investor for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 5.2
shall not apply to the sale of any Co-Sale Stock to the public pursuant to a
registration statement filed with, and declared effective by, the SEC under the
Securities Act.
(c) This Section 5 is subject to, and shall in no manner limit
the right of the Company to repurchase securities from any Investor pursuant to
a stock restriction agreement or other agreement between the Company and such
Investor.
5.4 PROHIBITED TRANSFERS.
(a) In the event that any Major Investor (a "Violating Investor")
should sell any Co-Sale Stock in contravention of the purchase rights of the
Company and the Major Investors and the co-sale rights of the Investors under
this Agreement (a "Prohibited Transfer"), each Investor, in addition to such
other remedies as may be available at law, in equity or hereunder, shall have
the put option provided below, and such Violating Investor shall be bound by the
applicable provisions of such option.
21.
<PAGE> 25
(b) In the event of a Prohibited Transfer, each Investor shall
have the right to sell to the Violating Investor the type and number of shares
of Common Stock equal to the number of shares each Investor would have been
entitled to transfer to the purchaser under Section 5.2(d) hereof had the
Prohibited Transfer been effected pursuant to and in compliance with the terms
hereof. Such sale shall be made on the following terms and conditions:
(i) The price per share at which the shares are to be sold to
the Violating Investor shall be equal to the price per share paid by the
purchaser to such Violating Investor in the Prohibited Transfer. The Violating
Investor shall also reimburse each non-selling Investor for any and all fees and
expenses, including legal fees and expenses, incurred pursuant to the exercise
or the attempted exercise of the Investor's rights under Section 5.2.
(ii) Within ninety (90) days after the later of the dates on
which the non-selling Investor (a) received notice of the Prohibited Transfer or
(b) otherwise became aware of the Prohibited Transfer, each non-selling Investor
shall, if exercising the option created hereby, deliver to the Violating
Investor the certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.
(iii) The Violating Investor shall, upon receipt of the
certificate or certificates for the shares to be sold by an Investor, pursuant
to this Section 5.4(b), pay the aggregate purchase price therefor and the amount
of reimbursable fees and expenses, as specified in Section 5.4(b)(i) , in cash
or by other means acceptable to the Investor.
(iv) Notwithstanding the foregoing, any attempt by any Major
Investor to transfer Co-Sale Stock in violation of Section 5.2 hereof shall be
voidable at the option of Investors holding more than two-thirds in interest of
the Common Stock held by all Investors (on an as-converted basis) if the
Investors do not elect to exercise the put option set forth in this Section 5.4,
and the Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such shares without the written consent of a
majority in interest of the Investors.
5.5 LEGEND.
(a) Each certificate representing shares of Co-Sale Stock now or
hereafter owned by each Major Investor or issued to any person in connection
with a transfer pursuant to Section 5.3 hereof shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND BETWEEN THE INVESTOR, THE
COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
COMPANY."
22.
<PAGE> 26
(b) Each Major Investor agrees that the Company may instruct its
transfer agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in Section 5.5 above to enforce the
provisions of this Agreement and the Company agrees to promptly do so. The
legend shall be removed upon termination of this Agreement.
5.6 TRANSFER OF RIGHTS. The purchase rights of each Major Investor
and the rights of co-sale of each Investor under this Section 5 may be
transferred to the same parties set forth in Section 2.10(i) and (ii), or to a
transferee or assignee of Registrable Securities which acquires at least two
hundred fifty thousand (250,000) shares of Registrable Securities (as adjusted
for stock splits, combinations and the like), subject to the same restrictions
as any transfer of registration rights pursuant to Section 2.10.
5.7 TERMINATION OF RIGHTS. The purchase rights of the Major Investors
and the rights of co-sale of each Investor under this Section 5 shall not apply
to and shall terminate upon the Company's Initial Offering.
SECTION 6. MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of New York without giving effect to conflict of law
principles, with the exception that matters of corporate law shall be governed
by the State of Delaware.
6.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 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 and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
6.4 ENTIRE AGREEMENT. This Agreement, and the Exhibits hereto,
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
23.
<PAGE> 27
6.5 SEVERABILITY. 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.
6.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of at least seventy percent (70%) of the Registrable Securities then
outstanding.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of at least seventy percent (70%)
of the Registrable Securities then outstanding.
(c) Notwithstanding the foregoing, this Agreement may be amended
with only the written consent of the Company to include additional holders of
shares of Series D Stock as "Investors," "Holders" and parties hereto.
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part 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, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature pages hereof
or Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.
6.9 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
24.
<PAGE> 28
6.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.11 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.
25.
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this SECOND
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the
first paragraph hereof.
COMPANY: PRIOR INVESTORS:
USA.NET, INC. [NAME OF INVESTOR]
By: /s/ JOHN W. STREET By:
------------------------------ ------------------------------
John W. Street, President Name:
Chairman of the Board and Chief ----------------------------
Executive Officer Title:
1155 Kelly Johnson Blvd., Suite 400 ---------------------------
Colorado Springs, CO 80903
Phone: (719) 265-2930
Facsimile: (719) 269-2932 ADDITIONAL INVESTORS:
[NAME OF INVESTOR]
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
BT ALEX. BROWN INCORPORATED
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
26
<PAGE> 1
EXHIBIT 10.6
NO. W-1
THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FOR NONPUBLIC OFFERINGS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, THESE
SECURITIES MAY NOT BE RESOLD OR OTHERWISE DISPOSED OF UNLESS, IN THE OPINION OF
COUNSEL FOR OR SATISFACTORY TO THE ISSUER, REGISTRATION UNDER THE APPLICABLE
FEDERAL OR STATE SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH
REGISTRATION REQUIREMENTS.
VOID AFTER 5:00 P.M. MOUNTAIN TIME ON AUGUST 12, 2003
WARRANT TO PURCHASE
45,994 SHARES OF COMMON STOCK OF
USA.NET, INC.
This is to certify that, FOR VALUE RECEIVED, BT ALEX. BROWN
INCORPORATED or its registered assigns pursuant to Section (d) hereof
("HOLDER"), is entitled to purchase, subject to the provisions of this Warrant,
from USA.NET, Inc., a Delaware corporation (the "COMPANY"), forty-five thousand
nine hundred ninety-four (45,994) fully paid, validly issued and nonassessable
shares (the "INITIAL WARRANT SHARES") of Common Stock, par value $.001 per
share, of the Company ("COMMON STOCK"), at the exercise price of $14.75 per
share (the "INITIAL EXERCISE PRICE") on or prior to 5:00 p.m. Mountain Time on
August 12, 2003 (the "EXPIRATION DATE"). The Initial Warrant Shares and the
Initial Exercise Price may be adjusted from time to time as hereinafter set
forth. The Initial Warrant Shares, as adjusted from time to time, are
hereinafter sometimes referred to as "WARRANT SHARES," and the Initial Exercise
Price, as adjusted from time to time, is hereinafter sometimes referred to as
the "EXERCISE PRICE."
(a) EXERCISE OF WARRANT; NOTIFICATION OF EXPIRATION DATE OF WARRANT.
The Warrant may be exercised at any time or from time to time, on or prior to
the Expiration Date (the "EXPIRATION DATE"), provided, however, that if such day
is a day on which banking institutions in the State of Colorado are authorized
by law to close, then on the next succeeding day which shall not be such a day.
The Warrant may be exercised by presentation and surrender hereof to the Company
at its principal office, or at the office of its stock transfer agent, if any,
with the Purchase Form annexed hereto duly executed (with signature guaranteed
if required by the Company or its stock transfer agent) and accompanied by
payment of the Exercise Price for the number of Warrant Shares specified in such
form and any applicable taxes. The purchase price for any Warrant Shares
purchased pursuant to the exercise of this Warrant shall be paid in full upon
such exercise in cash or by certified or bank check or pursuant to a cashless
exercise procedure whereby the Warrant Shares issued upon exercise of this
Warrant will be sold with Holder receiving the difference between the Exercise
Price and the sale price, in cash, and the
1.
<PAGE> 2
Company receiving the Exercise Price for the Warrant Shares, in cash, or any
combination of the foregoing methods of paying the Exercise Price. In the
alternative, the Warrant may be exchanged for Warrant Shares as described in
Section (k). As soon as practicable after each such exercise of the Warrant, but
not later than five (5) business days from the date of such exercise, the
Company shall issue and deliver to the Holder a certificate or certificates for
the Warrant Shares issuable upon such exercise, registered in the name of the
Holder or the Holder's designee, except in the case of a cashless exercise. If
the Warrant should be exercised in part only, the Company shall, upon surrender
of the Warrant for cancellation, execute and deliver a new Warrant evidencing
the rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable thereunder. In the event of a cash exercise, upon receipt by the
Company of the Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, together with the Exercise
Price thereof and taxes as aforesaid in cash or certified or bank check and the
investment letter described below, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder. In order to assure the availability
of an exemption from registration under the federal or applicable state
securities laws, the Company may condition the exercise of the Warrant upon the
Holder delivering to the Company an investment letter in a form reasonably
satisfactory to the Company. It is further understood that certificates for the
Warrant Shares, if any, to be issued upon exercise of the Warrant may contain a
restrictive legend in accordance with Section (j) hereof. Notwithstanding
anything herein to the contrary, the Company shall mail to the Holder, by
certified mail, return receipt requested, notice of the Expiration Date of the
Warrants, no later than sixty (60) days prior to the Expiration Date. In the
event the Company shall fail to send such required notice at the time and in the
manner set forth in the preceding sentence, the Expiration Date of the Warrants
shall be extended to a date sixty (60) days following the date that a written
notice of the Expiration Date of the Warrants is sent by the Company.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants. If the Common Stock is or becomes listed on any national
securities exchange or the NASDAQ National Market System, the Company shall also
list such shares on such exchange subject to notice of issuance or maintain the
listing of its Common Stock on the NASDAQ system, as the case may be. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirement of any domestic securities
exchange upon which the Common Stock may be listed; provided, however, that the
Company shall not be required to effect a registration under Federal or State
securities laws with respect to such exercise.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant. With respect
to any fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the effective Exercise Price.
2.
<PAGE> 3
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. The Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
Holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to Section (j) hereof, the Holder may
transfer or assign the Warrant, in whole or in part and from time to time. Upon
surrender of this Warrant to the Company at its principal office or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed (with signature guaranteed, if required by the Company or
its stock transfer agent) and funds sufficient to pay any transfer tax, the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee or assignees named in such instrument of assignment and this
Warrant shall promptly be cancelled. This Warrant may be divided by or combined
with other Warrants which carry the same rights upon presentation hereof at the
principal office of the Company or at the office of its stock transfer agent, if
any, together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof. The term
"WARRANT" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and in the case
of loss, theft or destruction, of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor, date and amount. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the original Warrant shall
be at any time enforceable by anyone.
(e) NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the Exercise Price or as a stockholder of the Company, whether
such liability is asserted by the Company or by its creditors.
(f) ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The
Exercise Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section (f). Upon each adjustment of the
Exercise Price pursuant to this Section (f), the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(i) SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased.
3.
<PAGE> 4
(ii) DIVIDENDS IN STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor:
(1) Common Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution;
(2) any cash paid or payable otherwise than as a cash
dividend; or
(3) Common Stock or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Common Stock issued as a stock split or adjustments in
respect of which shall be covered by the terms of (f)(i) above);
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (f)(ii)(2) and (f)(ii)(3) above) which such
Holder would hold on the date of such exercise had he been the holder of record
of such Common Stock as of the date on which holders of Common Stock received or
became entitled to receive such shares or all other additional stock and other
securities and property.
(iii) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time prior to the Expiration Date,
the Common Stock issuable upon the exercise of this Warrant is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than an Organic Change
(as defined below) or a subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section (f)), in any such event the Holder hereof shall, upon
the exercise of this Warrant, be entitled to receive the kind and amount of
stock and other securities and property the Holder would have received had it
exercised this Warrant immediately prior to such recapitalization,
reclassification or other change, all subject to further adjustment as provided
herein or with respect to such other securities or property by the terms
thereof.
(iv) SALE OF SHARES BELOW EXERCISE PRICE.
(1) If at any time or from time to time prior to the
Expiration Date, the Company issues or sells, or is deemed by the express
provisions of this subsection (f) to have issued or sold, Additional Shares of
Common Stock (as defined in subsection (f)(iv)(4) below), other than as a
dividend or other distribution on any class of stock as provided in Section
(f)(ii) above, and other than a subdivision or combination of shares of Common
Stock as provided in
4.
<PAGE> 5
Section (f)(i) above, for an Effective Price (as defined in subsection
(f)(iv)(4) below) less than the Exercise Price, then and in each such case, the
then existing Exercise Price shall be reduced, as of the opening of business on
the date of such issue or sale, to a price determined by multiplying the
Exercise Price then in effect by a fraction (i) the numerator of which shall be
(A) the number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale, plus (B) the number of shares of Common
Stock which the aggregate consideration received (as defined in subsection
(f)(iv)(2)) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at the Exercise Price, and (ii) the denominator
of which shall be the number of shares of Common Stock deemed outstanding (as
defined below) immediately prior to such issue or sale plus the total number of
Additional Shares of Common Stock so issued. For the purposes of the preceding
sentence, the number of shares of Common Stock deemed to be outstanding as of a
given date shall be the sum of (A) the number of shares of Common Stock actually
outstanding, (B) the number of shares of Common Stock into which the then
outstanding shares of the Company's Preferred Stock could be converted if fully
converted on the day immediately preceding the given date, and (C) the number of
shares of Common Stock which could be obtained through the exercise or
conversion of all other rights, options and convertible securities outstanding
on the day immediately preceding the given date whether or not then exercisable.
(2) For the purpose of making any adjustment required
under this Section (f)(iv), the consideration received by the Company for any
issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Company after deduction of
any underwriting or similar commissions, compensation or concessions paid or
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (B) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional Shares
of Common Stock, Convertible Securities (as defined in subsection (f)(3)) or
rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable to
such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(3) For the purpose of the adjustment required under
this Section (f)(iv), if the Company issues or sells any rights or options for
the purchase of, or stock or other securities convertible into, Additional
Shares of Common Stock (such convertible stock or securities being herein
referred to as "Convertible Securities") and if the Effective Price of such
Additional Shares of Common Stock is less than the Exercise Price, in each case
the Company shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the maximum number of Additional
Shares of Common Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to the
total amount of the consideration, if any, received by the Company for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Company (other than by cancellation
5.
<PAGE> 6
of liabilities or obligations evidenced by such Convertible Securities) upon the
conversion thereof; provided that, if in the case of Convertible Securities, the
minimum amounts of such consideration cannot be ascertained, but are a function
of antidilution or similar protective clauses, the Company shall be deemed to
have received the minimum amounts of consideration without reference to such
clauses; provided further that, if the minimum amount of consideration payable
to the Company upon the exercise or conversion of rights, options or Convertible
Securities is reduced over time or on the occurrence or non-occurrence of
specified events other than by reason of antidilution adjustments, the Effective
Price shall be recalculated using the figure to which such minimum amount of
consideration is reduced; provided further that, if the minimum amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the increased minimum amount
of consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities. No further adjustment of the number
of shares of Common Stock the Holder is entitled to upon exercise of this
Warrant, as adjusted upon the issuance of such rights, options or Convertible
Securities, shall be made as a result of the actual issuance of Additional
Shares of Common Stock on the exercise of any such rights or options or the
conversion of any such Convertible Securities. If any such rights or options or
the conversion privilege represented by any such Convertible Securities shall
expire without having been exercised, the number of shares of Common Stock the
Holder is entitled to upon exercise of this Warrant shall be readjusted to the
number of shares the Holder would have been entitled to had an adjustment been
made on the basis that the only Additional Shares of Common Stock so issued were
the Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities.
(4) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued by the Company or deemed to be issued pursuant
to this Section (f)(iv), whether or not subsequently reacquired or retired by
the Company other than (1) shares of Common Stock issued upon conversion of the
Company's Preferred Stock; (2) shares of Common Stock and/or options, warrants
or other Common Stock purchase rights, and the Common Stock issued pursuant to
such options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) (collectively, the "Option
Shares") after the date hereof, to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board, provided that, the number of Option Shares issued pursuant to this clause
(2) does not exceed twenty percent (20%) of the total outstanding capital stock
of the Company (assuming conversion of all shares of Preferred Stock into Common
Stock and assuming the conversion or exercise of all options, warrants or other
rights to purchase capital stock of the Company, including the Option Shares
issued); (3) shares of Common Stock or Preferred Stock (and Common Stock issued
or issuable upon conversion of such Preferred Stock) issued pursuant to the
exercise of options, warrants or convertible securities outstanding
6.
<PAGE> 7
prior to the date hereof; (4) Common Stock or Convertible Securities issued for
consideration other than cash pursuant to a merger, consolidation, acquisition
or similar business combination and (5) Common Stock or Convertible Securities
issued pursuant to any equipment leasing arrangement, or debt financing approved
by the Board of Directors (collectively the "Debt Financing Shares") from a bank
or similar financial institution; provided that the number of Debt Financing
Shares issued in all such transactions does not have an aggregate value in
excess of $250,000. The "Effective Price" of Additional Shares of Common Stock
shall mean the quotient determined by dividing the total number of Additional
Shares of Common Stock issued or sold, or deemed to have been issued or sold by
the Company under this Section (f)(iv), into the aggregate consideration
received, or deemed to have been received by the Company for such issue under
this Section (f)(iv), for such Additional Shares of Common Stock.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (f), the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officers
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officers certificate shall be
made available at all reasonable times for inspection by the Holder or any
holder of a Warrant executed and/or delivered pursuant to Section (a) or Section
(d), and the Company shall, forthwith after each such adjustment, mail, by
certified mail, a copy of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any shares of any class or any
other rights, or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder or any holder of a Warrant executed
and/or delivered pursuant to Section (a) or Section (d), at least fifteen (15)
days prior to the date specified in (x) or (y) below, as the case may be, a
notice containing a brief description of the proposed action and stating 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 the holders of
Common Stock or other securities shall receive cash or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION, MERGER OR SALE. In
case of any reclassification or capital reorganization of outstanding shares of
Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with another
corporation in which merger the Company is the continuing corporation and which
does not result in any reclassification or capital reorganization
7.
<PAGE> 8
of outstanding shares of Common Stock of the class issuable upon exercise of
this Warrant) or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety (an "ORGANIC CHANGE"), the Company shall,
as a condition precedent to such transaction, cause effective provisions to be
made so that the Holder or any holder of a Warrant executed and/or delivered
pursuant to Section (a) or Section (d) shall have the right thereafter by
exercising the Warrant at any time prior to the expiration of the Warrant, to
purchase the kind and amount of shares of stock and other securities and
property receivable upon such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of shares purchasable and receivable upon
the exercise of this Warrant) shall thereafter be applicable, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
hereof. Any such provision shall include provision or adjustments which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
the Warrant. The foregoing provisions of this Section (i) shall similarly apply
to successive Organic Changes.
(j) SECURITIES LAW COMPLIANCE.
(i) The Holder of the Warrant, by acceptance hereof,
acknowledges that the Warrant and the shares of Common Stock to be issued upon
exercise hereof or conversion thereof are being acquired solely for the Holder's
own account and not as a nominee for any other party, and for investment, and
that the Holder will not offer, sell, transfer, assign or otherwise dispose of
this Warrant or any shares of Common Stock to be issued upon exercise hereof or
conversion thereof except under circumstances that will not result in a
violation of the Securities Act of 1933, as amended (the "ACT") or any state
securities laws. Upon exercise of the Warrant, the Holder shall, if requested by
the Company, confirm in writing, in a form reasonably satisfactory to the
Company, that the shares of Common Stock so purchased are being acquired solely
for the Holder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.
(ii) If appropriate, the Warrant and any Warrants issued upon
partial exercise or substitution or upon assignment or transfer pursuant to
Section (a) or Section (d), as the case may be, and all shares of Common Stock
issued upon exercise hereof or conversion thereof shall be stamped or imprinted
with legends setting forth the restrictions on transfer arising under applicable
federal and state securities laws.
(k) RIGHT TO CONVERT WARRANT INTO COMMON STOCK.
(i) RIGHT TO CONVERT. The Holder shall have the right to
require the Company to convert this Warrant provided in this Section (k), into
Common Stock (the "NET CONVERSION RIGHT"). Upon exercise of the Net Conversion
Right, the Company shall deliver to the Holder (without payment by the Holder of
any Exercise Price or of any other cash or consideration) that number of shares
of Common Stock equal to the quotient obtained by dividing (x) the value of this
Warrant at the time the Net Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price in effect immediately prior to the
exercise of the Net Conversion Right from the aggregate fair market value of the
shares of
8.
<PAGE> 9
Common Stock issuable upon exercise of this Warrant immediately prior to the
exercise of the Net Conversion Right) by (y) the fair market value of one share
of Common Stock immediately prior to the exercise of the Net Conversion Right.
(ii) METHOD OF EXERCISE. The Net Conversion Right may be
exercised by the Holder by the surrender of this Warrant at the principal office
of the Company together with a written statement specifying that the Holder
thereby intends to exercise the Net Conversion Right. Certificates for the
shares of Common Stock issuable upon exercise of the Net Conversion Right shall
be delivered to the Holder within five (5) days following the Company's receipt
of this Warrant together with the aforesaid written statement.
(iii) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section (k), fair market value of a share of Common Stock as of a particular
date (the "DETERMINATION DATE") shall be determined in accordance with the
following:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ National Market System, the fair market
value shall be the average of the closing price of the Common Stock on such
exchange or system for each of the last five (5) business days prior to the date
of exercise of this Warrant;
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, the fair market value shall be the average of
the closing price reported by the National Quotation Bureau, Inc., for each of
the last five (5) business days prior to the date of the exercise of this
Warrant; or
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so reported, the
fair market value shall be an amount determined in good faith by the Board of
Directors of the Company which shall not be less than the book value thereof as
at the end of the most recent fiscal year of the Company ending prior to the
date of the exercise of the Warrant, determined in such reasonable manner as may
be prescribed by the Board of Directors of the Company.
(l) ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
current Holder of the Warrant being exercised.
(m) CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
(n) MARKET STAND-OFF AGREEMENT. The Company (or a representative of the
underwriters) may, in connection with an underwritten registration of the
offering of any securities of the Company under the Act, require that the Holder
not sell, dispose of (other than to donees who agree to be similarly bound),
transfer, make any short sale of, grant any option for
9.
<PAGE> 10
the purchase of, or enter into any hedging or similar transaction with the same
economic effect as a sale, any Common Stock or other securities of the Company
held by the undersigned, for a period of time specified by the underwriters(s)
(not to exceed one hundred eighty (180) days) following the effective date of
the registration statement of the Company filed under the Act relating to the
Company's initial public offering and not to exceed ninety (90) days following a
subsequent underwritten registration. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to
Common Stock or other securities held by the Holder until the end of such
period.
(o) AMENDMENTS. Neither the Warrant nor any term hereof may be changed,
waived, discharged or terminated without the prior written consent of the
Holder.
(p) NO IMPAIRMENT. The Company will not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of any
Holder.
(q) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Colorado, without regard to the conflict of law
provisions therein.
(r) NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first class mail, postage
prepaid, addressed (a) if to the Holder, to BT Alex. Brown Incorporated, 1 South
Street, Baltimore, Maryland 21202, Attention: Thomas Hitchner, or (b) if to the
Company, to 1155 Kelly Johnson Blvd., Suite 400, Colorado Springs, Colorado
80920, or at such other address as to the Company shall have furnished to the
Holder in writing.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10.
<PAGE> 11
IN WITNESS WHEREOF, USA.NET, Inc. has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: August 12, 1998
COMPANY: USA.NET, INC.
By: /s/ JOHN W. STREET
-------------------------------
Name: John W. Street
-----------------------------
Title: President, CEO
----------------------------
11.
<PAGE> 12
PURCHASE FORM
Dated _____________, 19____
The undersigned hereby irrevocably elects to exercise its rights
pursuant to this Warrant to the extent of purchasing ______ shares of Common
Stock of USA.NET, Inc., and hereby makes payment of $________, in cash, in
payment of the exercise price thereof.
The undersigned hereby irrevocably elects to exercise its rights
pursuant to this Warrant to the extent of purchasing ____ shares of Common Stock
and hereby authorizes you to deliver such shares of Common Stock for sale to
________, and to retain from the proceeds of such sale $________, in cash, in
payment of the exercise price thereof and to remit to the undersigned the
balance of such proceeds.
-------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
--------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
------------------------------------------------------------
Signature:
----------------------------------------------------------
<PAGE> 13
ASSIGNMENT FORM
FOR VALUE RECEIVED, _____________________________________ hereby sells,
assigns and transfers unto
Name:
--------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
------------------------------------------------------------
the right to purchase Common Stock of USA.NET, Inc. (the "COMPANY"), represented
by this Warrant to the extent of ______ shares as to which such right is
exercisable and does hereby irrevocably constitute and appoint
_______________________ as Attorney, to transfer the same on the books of the
Company with full power of substitution in the premises.
Date:_____________, 19___
Signature:
--------------------------------------------
<PAGE> 1
EXHIBIT 10.7
STOCK RESTRICTION AGREEMENT
This Agreement is made as of the 8th day of April, 1997 (the "Effective
Date"), by and between USA.NET, Inc., a Delaware corporation (the
"Corporation"), and John W. Street ("Founder").
WHEREAS, Founder is the holder of an aggregate of 161,102 shares of the
Corporation's Common Stock (the "Common Stock Shares") and 322,208 shares of the
Corporation's Series A Preferred Stock (the "Series A Shares") (the Common Stock
Shares and the Series A Shares are collectively referred to hereinafter as the
"Stock");
WHEREAS, the Corporation desires to issue and sell shares of its Series
B Preferred Stock to the American Express Travel Related Services Company, Inc.
("TRS");
WHEREAS, TRS has imposed, as a condition to the purchase of such Series
B Preferred Stock, the requirement that Founder enter into an agreement
containing the provisions set forth herein; and
WHEREAS, the purchase of Series B Preferred Stock by TRS is in the best
interests of the Corporation and Founder;.
NOW, THEREFORE, in consideration of the premises set forth herein, the
continued employment of the Founder, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. All shares of Stock shall be subject to the option set forth
in this paragraph 1 ("Purchase Option"):
(a) In the event that Founder voluntarily ceases to be
an employee or director of, or consultant to, the Corporation or (ii) Founder is
terminated for Cause (as defined below) by the Corporation (including a parent
or subsidiary of the Corporation) at any time prior to the earlier of:
(i) the date three years from the date hereof;
(ii) the closing of the Corporation's sale,
lease or other disposition of all or substantially all of its assets;
(iii) the closing of any consolidation or merger
of the Corporation with or into any other corporation or other entity or person,
or any other corporate reorganization, in which the stockholders of the
Corporation immediately prior to such consolidation, merger or reorganization,
own less than 50% of the Corporation's voting power immediately after such
consolidation, merger or reorganization, or any transaction or series of related
transactions in which in excess of fifty percent (50%) of the Corporation's
voting power is transferred;
1.
<PAGE> 2
(iv) the liquidation, dissolution or winding up
of the Corporation; or
(v) Founder's death or total and permanent
disability (as defined in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended.
then the Corporation (or its assignee) shall have the right at
any time within ninety (90) days after such cessation of employment or service
as a director or consultant (or such longer period as may be determined by the
Corporation if such later repurchase is deemed necessary by the Corporation for
treatment of its stock as Qualified Small Business Stock under Section 1202 of
the Internal Revenue Code of 1986, as amended, and regulations promulgated
thereunder), to exercise its option to repurchase from Founder or his personal
representative, as the case may be, any or all of the shares of Stock. Any such
repurchase shall be at a price per share equal to (i) with respect to the Common
Stock Shares, Fifty-Seven Cents ($.57) and (ii) with respect to the Series A
Shares, Four Dollars Seventy-Six Cents ($4.76).
(b) The Corporation shall pay for any of the Stock
purchased pursuant to its Purchase Option in cash.
(c) As used herein, employment with the Corporation shall
include employment with an affiliate of the Corporation.
(d) "CAUSE" as used herein shall mean: (i) dishonesty
which is not the result of an inadvertent or innocent mistake of Founder with
respect to the Corporation or any of its subsidiaries; (ii) willful misfeasance
or nonfeasance of duty by Founder that materially injures the reputation,
business or business relationships of the Corporation or any of its subsidiaries
or any of their respective officers, directors or executives; (iii) any conduct
which would be sufficient to criminally charge Founder with the commission of a
crime involving moral turpitude or a crime other than a vehicle offense which
could reflect in some material fashion unfavorably upon the business or business
relationships of the Corporation or any of its subsidiaries or any of their
respective officers, directors or executives; (iv) willful or prolonged absence
from work by Founder (other than by reason of disability due to physical or
mental illness) or failure, neglect or refusal by Founder to perform his duties
and responsibilities without the same being corrected upon thirty (30) days
prior written notice; or (v) if Founder materially violates any term of this
Agreement or the Corporation's employment policies and procedures (including but
not limited to the Corporation's policies with respect to sexual harassment and
discrimination) and such action or failure is not remedied or reasonable steps
to effect such remedy are not commenced within thirty (30) days of written
notice.
2. The Purchase Option may be exercised by giving written notice
of exercise delivered or mailed as provided in paragraph 11. Upon providing of
such notice and payment or tender of the purchase price, the Corporation shall
become the legal and beneficial owner of the Stock being purchased and all
rights and interests therein or related thereto.
2.
<PAGE> 3
3. If from time to time during the term of the Purchase Option
there is any stock dividend or liquidating dividend or distribution of cash
and/or property, stock split or other change in the character or amount of any
of the outstanding securities of the Corporation then, in such event, any and
all new, substituted or additional securities or other property to which Founder
is entitled by reason of his ownership of Stock will be immediately subject to
the Purchase Option and be included in the word "Stock" for all purposes of the
Purchase Option with the same force and effect as the shares of Stock then
subject to the Purchase Option. While the total repurchase price shall remain
the same after each such event, the repurchase price per share of Common Stock
Shares and Series A Shares, as applicable, upon exercise of the Purchase Option
shall be appropriately adjusted.
4. All certificates representing any shares of Stock of the
Corporation subject to the provisions of this Agreement shall have endorsed
thereon legends in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND
THE REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS
CORPORATION. ANY TRANSFER OR ATTEMPTED TRANSFER OF ANY SHARES
SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS
WRITTEN CONSENT OF THE ISSUER OF THESE SHARES."
5. As security for his faithful performance of the terms of this
Agreement and to insure the availability for delivery of Founder's Stock upon
exercise of the Purchase Option herein provided for, Founder agrees, at the
closing hereunder (or as soon thereafter as practicable), to deliver (or have
the Corporation deliver on the Founder's behalf) to and deposit with the
Secretary of the Corporation ("Escrow Agent"), as Escrow Agent in this
transaction, two (2) stock assignments duly endorsed (with the dates and number
of shares left blank) in the forms attached hereto as Exhibit A, together with
the certificate or certificates evidencing all of the Stock subject to the
Purchase Option; said documents are to be held by the Escrow Agent and delivered
by said Escrow Agent pursuant to the Joint Escrow Instructions of the
Corporation and Founder set forth in Exhibit B attached hereto and incorporated
herein by this reference, which instructions shall also be delivered to the
Escrow Agent at the closing hereunder (or as soon thereafter as practicable).
6. Founder shall not sell or transfer any shares of the Stock
then subject to the Purchase Option. Without in any way limiting the foregoing,
Founder further agrees that he shall in no event make any disposition of all or
any portion of the Stock unless and until:
(a) There is then in effect a registration statement
under the Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or
(b) (i) He shall have notified the Corporation of the
proposed disposition and shall have furnished the Corporation with a detailed
statement of the circumstances surrounding the proposed disposition, (ii) he
shall have furnished the Corporation with an opinion of his own counsel to the
effect that such disposition will not require registration of such shares under
3.
<PAGE> 4
the Act; and (iii) such opinion of his counsel shall have been concurred in by
counsel for the Corporation, such concurrence not to be unreasonably withheld,
and the Corporation shall have advised him of such concurrence.
7. The Corporation shall not be required (i) to transfer on its
books any shares of Stock of the Corporation which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement or
(ii) to treat as owner of such shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such shares shall have been
so transferred.
8. Subject to the provisions of this Agreement, Founder (but not
any unapproved transferee) shall, during the term of this Agreement, exercise
all rights and privileges of a shareholder of the Corporation with respect to
the Stock.
9. This Agreement is not an employment contract and nothing in
this Agreement shall be deemed to create in any way whatsoever any obligation on
the part of Founder to continue in the employ of the Corporation, or of the
Corporation to continue Founder in the employ of the Corporation.
10. The parties agree to execute such further instruments and to
take such further action as reasonably may be necessary to carry out the intent
of this Agreement.
11. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in any United States Post Office Box, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his
address hereinafter shown below his signature or at such other address as such
party may designate by ten (10) days' advance written notice to the other party
hereto.
12. This Agreement shall bind and inure to the benefit of the
successors and assigns of the Corporation and, subject to the restrictions on
transfer herein set forth, inure to the benefit of and be binding upon Founder,
his heirs, executors, administrators, successors, and assigns. Without limiting
the generality of the foregoing, the Purchase Option of the Corporation
hereunder shall be assignable by the Corporation at any time or from time to
time, in whole or in part.
13. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, as such laws are applied by
Colorado courts to contracts made and to be performed entirely in Colorado by
residents of that State. The parties agree that any action brought by either
party to interpret or enforce any provision of this Agreement shall be brought
in, and each party agrees to, and does hereby, submit to the jurisdiction and
venue of, the appropriate state or federal court for the district encompassing
the Corporation's principal office.
14. The parties acknowledge and agree that TRS shall be a third
party beneficiary to this Agreement, entitled to enforce its terms. In addition,
this Agreement may not be terminated without the prior written consent of TRS.
4.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Restriction Agreement as of the day and year first above written.
USA.NET, INC. FOUNDER
By: /s/ JOHN W. STREET /s/ JOHN W. STREET
--------------------------------- -------------------------------
John W. Street
Name: John W. Street
-------------------------------
Title: President, CEO
------------------------------
Address: P.O. Box 62028
Colorado Springs,
CO 80962-2028
Attachments
Exhibit A - Stock Assignment Separate from Certificate
Exhibit B - Joint Escrow Instructions
5.
<PAGE> 6
EXHIBIT A
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
<PAGE> 7
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ___________ hereby sells, assigns and transfers
unto USA.NET, Inc., a Delaware corporation (the "Corporation"), pursuant to that
certain Stock Restriction Agreement, dated __________, 1997, by and between the
undersigned and the Corporation (the "Agreement"),
____________________________________________ (___________) shares of Common
Stock of the Corporation standing in the undersigned's name on the books of the
Corporation represented by Certificate No(s). ________________________ and does
hereby irrevocably constitute and appoint the Corporation's Secretary attorney
to transfer said stock on the books of the Corporation with full power of
substitution in the premises. This Assignment may only be used in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement that remain subject to the Corporation's right of repurchase in
accordance with and subject to the terms and conditions of the Agreement.
Dated: _______________
-----------------------------------
(Signature)
-----------------------------------
(Print Name)
<PAGE> 8
EXHIBIT B
JOINT ESCROW INSTRUCTIONS
<PAGE> 9
JOINT ESCROW INSTRUCTIONS
Secretary
USA.NET, Inc.
102 South Tejon
Suite 220
Colorado Springs, CO 80903
Dear Sir or Madam:
As Escrow Agent for both USA.NET, Inc., a Delaware corporation (the
"Corporation"), and John W. Street ("Shareholder"), you are hereby authorized
and directed to hold the documents delivered to you pursuant to the terms of
that certain Stock Restriction Agreement ("Agreement") dated as of April 8,
1997, to which a copy of these Joint Escrow Instructions is attached as Exhibit
B, in accordance with the following instructions:
1. If the Corporation shall elect to exercise the Purchase Option set
forth in the Agreement, the Corporation shall give to Shareholder and you a
written notice specifying the number of shares of Stock to be purchased, the
purchase price, and the time for a closing thereunder at the principal office of
the Corporation. Shareholder and the Corporation hereby irrevocably authorize
and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred and (c) to deliver the same, together with the certificate
evidencing the shares of Stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (by check, cancellation of
all or a portion of any outstanding indebtedness of Shareholder to the
Corporation, or as otherwise may be provided for in the Agreement) for the
number of shares of Stock being purchased pursuant to the exercise of the
Purchase Option.
3. Shareholder irrevocably authorizes the Corporation to deposit with
you any certificates evidencing shares of Stock to be held by you hereunder and
any additions and substitutions to said shares as referred to in the Agreement.
Shareholder does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and complete any transaction herein contemplated,
including but not limited to any appropriate filing with state or government
officials or bank officials. Subject to the provisions of this paragraph 3,
Shareholder shall exercise all rights and privileges of a shareholder of the
Corporation while the Stock is held by you.
4. This escrow shall terminate upon the exercise in full or expiration
of the Purchase Option, whichever occurs first.
1.
<PAGE> 10
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to
Shareholder, you shall deliver all of the same to Shareholder and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Shareholder while acting in good faith
and in the exercise of your own good judgment, and any act done or omitted by
you pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation shall appoint your successor as Secretary of the Corporation as
successor Escrow Agent.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
2.
<PAGE> 11
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, including
delivery by express courier, upon confirmed transmission by facsimile, or 4 days
after deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
CORPORATION: USA.NET, Inc.
102 South Tejon
Suite 220
Colorado Springs, CO 80903
SHAREHOLDER: John W. Street
P.O. Box 62028
Colorado Springs, CO 80962-2028
ESCROW AGENT: Secretary
USA.NET, Inc.
102 South Tejon
Suite 220
Colorado Springs, CO 80903
15. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, you may rely upon the advice of such counsel, and you may
pay such counsel reasonable compensation therefor. The Corporation shall be
responsible for all fees generated by such legal counsel in connection with your
obligations hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
3.
<PAGE> 12
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of Delaware, as such laws are applied
by Delaware courts to contracts made and to be performed entirely in Delaware by
residents of that state.
Very truly yours,
USA.NET, Inc.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
SHAREHOLDER
-------------------------------------
ESCROW AGENT
USA.NET, Inc.
By:
----------------------------------------
Secretary
4.
<PAGE> 1
EXHIBIT 10.8
NON-COMPETITION AGREEMENT
This Non-Competition Agreement (the "AGREEMENT") is made as of the 8th
day of April, 1997 by and between USA.NET, Inc., a Delaware corporation (the
"COMPANY") and John W. Street ("EMPLOYEE"). This is the Non-Competition
Agreement contemplated by that certain Series B Preferred Stock Purchase
Agreement, dated as of the date hereof by and between the Company and American
Express Travel Related Services, Inc. ("TRS") (the "PURCHASE AGREEMENT").
WHEREAS, the Company and TRS have entered into the Purchase Agreement
providing for the acquisition by TRS of the Shares (as defined in the Purchase
Agreement);
WHEREAS, Employee is a key management employee and stockholder of the
Company;
WHEREAS, in order to protect the value of the Shares (as defined in the
Purchase Agreement) being acquired by TRS, TRS requires that Employee agree to
certain restrictions on Employee's ability to compete with the Company in the
future;
WHEREAS, it is expected that Employee will personally benefit from the
investment of TRS in the Company;
WHEREAS, the Company, Employee and TRS desire that the transactions
contemplated by the Purchase Agreement be consummated; and
WHEREAS, pursuant to the terms and conditions of Sections 5.2 and 5.3
of the Purchase Agreement, Employee shall execute and deliver this Agreement to
the Company prior to the Closing (as defined in the Purchase Agreement).
NOW, THEREFORE, as inducement to TRS to proceed with the Closing and in
consideration of such Closing and of the mutual covenants and agreements
contained herein and in the Purchase Agreement and for other good and valuable
consideration hereby acknowledged, intending to be legally bound, the parties
hereto do hereby agree as follows:
1. NON-COMPETITION. Employee agrees that he shall not, directly or
indirectly, from the date commencing three (3) years after the date on which
Employee's employment is terminated by Employee or the Company, whether as an
owner, consultant, partner, joint venturer, stockholder, broker, agent,
principal, trustee, licensor or in any capacity whatsoever (the "RESTRICTION
PERIOD"): (a) own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise
which is competitive with the Company in the business of providing Internet
E-mail services (the "BUSINESS"), or (b) engage in any other manner, in any
business which is competitive with the Company in the Business as conducted by
the Company at the time Employee's employment relationship with the Company is
terminated; provided, however, that the acquisition or ownership of less than 5%
of the outstanding shares of any corporation engaged in the Business will not
constitute a violation of
1.
<PAGE> 2
this Agreement. Employee agrees that during the Restricted Period, Employee
shall not employ, or directly or indirectly solicit for employment or advise or
recommend to any other person that he or she employ or solicit for employment,
any person employed at that time by the Company, its parent, subsidiaries or
affiliates.
2. JUDICIAL LIMITATION. In the event that any provision of this Agreement
is more restrictive than permitted by the law of the jurisdiction in which the
Company seeks enforcement thereof, the provisions of this Agreement shall be
limited only to that extent that a judicial determination finds the same to be
unreasonable or otherwise unenforceable. Such invalidity or unenforceability
shall not affect any other terms herein but such term shall be deemed deleted,
and such deletion shall not affect the validity of the other terms hereof. In
addition, if any one or more of the terms contained in this Agreement shall for
any reason be held to be excessively broad or of an overly long duration that
term shall be construed in a manner to enable it to be enforced to the extent
compatible with applicable law. Moreover, notwithstanding any judicial
determination that any provision of this Agreement is not specifically
enforceable, the parties intend that the Company shall nonetheless be entitled
to recover monetary damages as a result of any breach hereof.
3. INJUNCTIVE RELIEF. In view of the nature of the rights in goodwill,
business reputation and prospects of the Company and the value of the Shares to
be protected under this Agreement, Employee understands and agrees that the
Company could not be reasonably or adequately compensated in damages in an
action at law for Employee's breach of its obligations hereunder. Accordingly,
Employee specifically agrees that the Company shall be entitled to temporary and
permanent injunctive relief to enforce the provisions of this Agreement and that
such relief may be granted without the necessity of proving actual damages. This
provision with respect to injunctive relief shall not, however, diminish the
right of the Company to claim and recover damages in addition to injunctive
relief.
4. WAIVER. The failure of the Company to enforce at any time any of the
provisions of this Agreement or to require at any time performance by Employee
of the provisions hereof shall in no way be construed to be a waiver of such
provisions or to affect either the validity of this Agreement, or any part
hereof, or the right of the Company thereafter to enforce each and every
provision in accordance with the terms of this Agreement.
5. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
6. ASSIGNABILITY. This Agreement shall be freely assignable by the Company
and shall inure to the benefit of its successors and assigns.
7. TERMINATION IN THE EVENT OF A CHANGE OF CONTROL. This Agreement shall
terminate in the event of (a) any consolidation or merger of the Company with or
into any other corporation or other entity or person, or any other corporate
reorganization,
2.
<PAGE> 3
in which the stockholders of the Company immediately prior to such
consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation, merger or reorganization, or
any transaction or series of related transactions in which in excess of fifty
percent (50%) of the Company's voting power is transferred (an "Acquisition");
or (b) a sale, lease or other disposition of all or substantially all of the
assets of the Company (an "Asset Transfer"); provided, however, that TRS is not
the acquiring party in such Acquisition or Asset Transfer.
8. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Colorado without regard to its conflicts-of-laws rules.
9. AMENDMENTS. This Agreement may not be amended, altered or modified
other than by a written agreement between the parties hereto.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall together constitute one and the same instrument.
[The remainder of this page is intentionally blank]
3.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
USA.NET, Inc. EMPLOYEE:
By: /s/ JOHN W. STREET /s/ JOHN W. STREET
------------------------------- --------------------------
John W. Street
Title: President, CEO
----------------------------
4.
<PAGE> 1
EXHIBIT 10.9
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________,
1999 by and between USA.NET, INC. a Delaware corporation (the "Corporation"),
and ____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
his/her capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as
______________ of the Corporation, the Corporation has determined and agreed to
enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will
of the Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from time
to time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE> 2
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of
the indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys'
fees), witness fees, damages, judgments, fines and amounts paid in settlement
and any other amounts that Agent becomes legally obligated to pay because of any
claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in the
right of the Corporation) to which Agent is, was or at any time becomes a party,
or is threatened to be made a party, by reason of the fact that Agent is, was or
at any time becomes a director, officer, employee or other agent of Corporation,
or is or was serving or at any time serves at the request of the Corporation as
a director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise;
and
(b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
Section 43 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that was knowingly
fraudulent or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a
breach of Agent's duty of loyalty to the Corporation or resulted in any personal
profit or advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a
valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this
respect, both the Corporation and Agent have been advised that the Securities
and Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the Corporation, (iii) such indemnification is
provided by the Corporation, in its sole discretion, pursuant to the powers
2.
<PAGE> 3
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of
the Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate
therein at its own expense;
(b) except as otherwise provided below, the Corporation
may, at its option and jointly with any other indemnifying party similarly
notified and electing to assume such defense, assume the defense thereof, with
counsel reasonably satisfactory to Agent. After notice from the Corporation to
Agent of its election to assume the defense thereof, the Corporation will not be
liable to Agent under this Agreement for any legal or other expenses
subsequently incurred by Agent in connection with the defense thereof except for
reasonable costs of investigation or otherwise as provided below. Agent shall
have the right to employ separate counsel in such action, suit or proceeding but
the fees and expenses of such counsel incurred after notice from the Corporation
of its assumption of the defense thereof shall be at the expense of Agent unless
(i) the employment of counsel by Agent has been authorized by the Corporation,
(ii) Agent shall have reasonably concluded that there may be a conflict of
interest between the Corporation and Agent in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of Agent's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Agent shall
have made the conclusion provided for in clause (ii) above; and
3.
<PAGE> 4
(c) the Corporation shall not be liable to indemnify
Agent under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that it
shall not settle any action or claim in any manner which would impose any
penalty or limitation on Agent without Agent's written consent, which may be
given or withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted
by this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by
this Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
<PAGE> 5
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date on
which such communication was mailed if mailed by certified or registered mail
with postage prepaid:
(a) If to Agent, at the address indicated on the
signature page hereof.
5.
<PAGE> 6
(b) If to the Corporation, to
USA.NET, Inc.
1155 Kelly Johnson Boulevard, Suite 400
Colorado Springs, CO 80920
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
USA.NET, INC.
By:
---------------------------------------
Title:
------------------------------------
AGENT
------------------------------------------
Address:
------------------------------------------
------------------------------------------
6.
<PAGE> 1
** CERTAIN CONFIDENTIAL
MATERIAL CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF
1933, AS AMENDED.
EXHIBIT 10.10
CO - MARKETING PROGRAM AGREEMENT
This Co - Marketing Agreement (the " Agreement") is entered into this 8th day of
April 1997, by and between USA.NET, Inc., a Delaware corporation ("Company"),
and American Express Travel Related Services Company, Inc., a New York
corporation ("AMEX").
WHEREAS, Company is engaged in, among other things, the business of promoting,
selling and providing consumer and other services associated with an e-mail
screening and address location; and
WHEREAS, Company and AMEX have entered into agreements with respect to a current
and future investment by AMEX in the Company;
WHEREAS, AMEX desires to have offered, and to participate with Company in the
promotion of such services with unique enhancements to certain of its current
and future holders of an American Express(R) charge, credit or debit card (each
a "Cardmember") and certain other individuals (together with Cardmembers,
"Customers") on the terms and conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual promises and covenants contained
in this Agreement, the parties hereto agree as follows:
1. THE SERVICE:
(a) Description. AMEX hereby retains Company to, and Company agrees to, provide
Customers with an opportunity to enroll in the e-mail service offered to
the Company's customers from time to time (the "Basic Service;" the Basic
Service as offered on the date hereof is more specifically described in
Exhibit A hereto), with changes and enhancements thereto as developed from
time to time specifically for AMEX and approved by AMEX in its sole
discretion (such changes and enhancements, the "Enhancements"; the Basic
Service as changed or enhanced from time to time the "Service"), all in
accordance with the terms hereof. As compared with the Basic Service, the
Service will always have features, including by way of example additional
services, reduced pricing or incentive offers, that will be exclusive to
Customers. In the marketing and promotion of the Service to Customers, AMEX
shall determine which Enhancements and features shall be included in the
Service as so marketed and promoted.
(b) Eligibility. AMEX alone shall determine the eligibility of particular
Customers for enrollment in the Service. Enrollment fees, if any, shall be
charged to the Card Account, if any, for the eligible Customer enrolled in
the Service.
2. PROMOTION OF THE SERVICE:
(a) In accordance with the terms hereof, AMEX will use its best efforts to test
and or assist Company in the definition of the promotion of Service to the
Customers by participating in
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<PAGE> 2
Programs (as defined below) in the manner and to the extent provided in
this Agreement. From time-to-time AMEX will engage in such other
solicitation activities relating to the Service, or with respect to other
products or services offered by Company, as Company and AMEX may mutually
agree.
(b) AMEX's Conditions: Prior to any participation by AMEX in a Program, (i) the
features of the Service shall be defined to AMEX's satisfaction, (ii) the
service delivery capabilities of the Company shall meet the minimum
operation standards set forth on Exhibit B hereto, and (iii) the customer
service capabilities of the Company shall meet the minimum operation
standards of AMEX set forth on Exhibit B attached hereto as amended from
time to time with Company's consent (the "Customer Service").
(c) Programs: The parties acknowledge that they intend to test market the
Service through various promotional approaches and channels. All marketing,
including initiatives thereof, of the Service shall be deemed to be a
"Program" hereunder. The parties agree that it is impractical to define now
each Program that they may pursue and therefore agree to develop mutually a
written marketing plan defining such Program which will identify the offers
of the Service contemplated hereunder and which will be mutually updated by
the parties no less frequently than once every three (3) months. All
promotional materials (including without limitation, solicitation,
fulfillment, Customer Service and retention materials) developed hereunder
is herein referred to as "Promotional Materials."
(d) Marketing Promotional Expenses and Certain Customer Service: All expenses
and costs (including without limitation marketing research, marketing
tests, public relations, list development, ad agency fees, software
development (related to the user interface of the Service to Customers) and
Customer Service limited to [**] times direct salary costs for incremental
staff for [ ** ] after launch of each program not to exceed [ ** ] for
each of the [ ** ] (the "Marketing Expenses") associated with a
Program, whether conducted by AMEX or by the Company with AMEX's prior
approval, shall be payable by the Company up to [ ** ] (the "Initial
Marketing Dollars"). The restriction on the Initial Marketing Dollars set
forth in the preceding sentence shall not extend beyond the Initial Term
hereof. If AMEX exercises its option under the Series B Preferred Stock
Purchase Agreement dated the date hereof to make the additional investment
in the Company of at least [ ** ], then the Company shall be
responsible for an additional [ ** ] (together with the Initial
Marketing Dollars, the "Marketing Dollars") for the expenses and costs
associated with such Program. The restriction on the Marketing Dollars from
the additional investment shall not extend beyond the [ ** ]
month period from the time of such investment unless the Agreement is
terminated prior thereto.
Upon reasonable notice to the Company, AMEX may make additional
expenditures for Marketing Expenses; provided that AMEX shall be entitled
to receive, and Company shall be obligated to remit to AMEX, a percentage
of the gross revenues from the use of the Service by Customers acquired
through the resulting marketing promotion. [
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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<PAGE> 3
[ **
]
(e) Promotional Materials: The Company shall prepare Promotional Materials for
all Programs offered pursuant to this Agreement at its expense (subject to
the limitations set forth in subsection (d) hereof), provided that AMEX
shall prepare Promotional Materials in connection with direct mail
marketing initiatives hereunder at Company's expense (subject to the
limitations set forth in subsection (d) hereof). Such materials shall be
designed to solicit Customers to enroll in the Service. All Promotional
Materials shall be subject to the prior written approval of AMEX. The
Company shall be solely responsible for verifying the accuracy of all
statements relating to the Service contained in the Promotional Materials.
Promotional Materials may include, in AMEX's sole discretion, (i) AMEX's
(or any of its affiliates' or licensees') brand imagery or (ii) Company's
brand imagery in a manner that is acceptable to Company; provided however
so long as the Company is the provider of the Service, AMEX will always
identify the Company as such provider. It is agreed that neither party may
use any of the other party's registered trademarks or service marks in the
Promotional Materials or otherwise in connection with the promotion of the
Service, except with the prior written consent of such other party and,
then, only in accordance with such guidelines as the other party may from
time-to-time reasonably establish concerning such use.
Neither party shall refer to the other party, its services or its customers
in any advertising, press release, marketing materials or other promotional
materials of any kind without the prior written consent of the other party.
The foregoing applies equally to materials relating to the Service and to
materials not relating to the Service.
Notwithstanding anything to the contrary herein, AMEX shall be deemed the
sole and exclusive owner of all Promotional Materials.
3. FINANCIAL ARRANGEMENT:
(a) AMEX shall be entitled to receive, and Company shall remit to AMEX, [
** ] of gross revenues from the use of the Service by Customers
except for Customers who were customers of the Company prior to the
distribution of any Promotional Materials (the "Company Customers").
Company shall remit such payments to AMEX within thirty (30) days after the
end of each calendar month, along with back-up documentation reasonably
acceptable to AMEX showing the calculation of the amount so paid. It is
understood by the parties hereto that gross revenues of the Service shall
be net of reasonable third party commissions for advertising sales directly
relating to the Services (any disagreement relating to the amount of third
party commissions shall be resolved by arbitration pursuant to Section 18)
and shall include (i) revenues generated from advertisement on the Service
as used by Customers (which advertisement shall accord with the AMEX
advertisement policy set forth on Exhibit C hereto, as amended from time to
time, (ii) fees charged to Customers for enrollment in the Service (the
"Enrollment Fees"), which Enrollment Fees shall be
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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<PAGE> 4
determined by the parties hereto, and (iii) any other fees approved by the
parties hereto from time to time. AMEX and the Company expressly
acknowledge that the financial terms stated herein may be amended as the
parties may agree in writing.
(b) The parties hereto acknowledge that the revenues generated from the use of
the Service by Company Customers that are provided the Service under the
Domain Name Alternative (defined in Section 15) shall be subject to a
revenue share between the parties hereto as the parties shall reasonably
agree.
(c) Company agrees that it will enter into an agreement ("Acceptance
Agreement") for the acceptance of the American Express cards. Company
understands that it will be responsible for paying any charges incurred in
connection with the Acceptance Agreement, including the payment of any
discount fees. (Any revenues to AMEX generated by the terms of the
Acceptance Agreement shall not be calculated as part of the gross revenues
for purposes of Section 3(a) hereto.) All Enrollment Fees and other fees
payable by Customers will be billed to the Customers' Card Account, if any.
Company shall be responsible for billing and collecting all fees (including
the Enrollment Fee) payable by Customers for use of the Service.
4. EXCLUSIVITY: During the term of this Agreement and for [ ** ] after
the expiration or termination hereof (except in the case of termination by
Company for material breach by AMEX hereunder), Company will not administer
or directly offer Service (as it may exist at the time of such expiration
or termination) or any similar service on behalf of or in conjunction with
[ ** ] without the express written consent of AMEX. For
purposes of this Section, a competitor of AMEX shall be deemed to be any
[ **
] In addition, AMEX agrees not to market the
Enhancements with any third party provider during the Initial Term (as
defined in Section 16) provided that the Company is not in material breach
hereunder.
5. INDEMNIFICATION AND HOLD HARMLESS: Each party (the "Indemnifying Party")
shall indemnify and hold harmless the other party, its respective parent,
subsidiaries and affiliates and their respective successors, assignees,
directors, officers, agents and employees (each an "Indemnitee") from and
against all third party liabilities, losses, damages, costs, expenses,
actions, claims, demands, suits, and proceedings whatsoever, including
losses incurred by them which result directly or indirectly from the
willful or negligent acts or omissions of the Indemnifying Party, its
employees, affiliates, agents or contractors in connection with the
Indemnifying Party's obligations under this Agreement, or in connection
with services performed or to be performed by such party pursuant to a
Program or in connection with the Service (each a "Claim").
Each party seeking indemnification under this Agreement shall give prompt
notice to the Indemnifying Party along with its request for
indemnification, of any Claim for which it is seeking indemnification. The
parties understand and further agree that no settlement of an indemnified
Claim shall be made by an Indemnitee without the concurrence of the
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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<PAGE> 5
Indemnifying Party. The Indemnifying Party shall control the settlement or
defense of any Claim; provided, however, that the Indemnitee may, at its
cost, engage its own attorneys. The Indemnitee will fully cooperate with
the Indemnifying Party to enable it to fulfill its obligations with respect
to such Claim. The provisions of this Section shall survive the termination
or expiration of this Agreement.
6. PUBLICITY: No party shall refer to or identify the other party, such other
party's parent, subsidiaries or affiliates, or the respective products or
services of any of them, in advertising, promotional activity or publicity
release relating to the Program without securing the prior written consent
of such other party.
7. CONFIDENTIALITY:
(a) As used herein, "Confidential Data and Information" shall mean any
information, data, or materials obtained by one party to this Agreement
(the "Receiving Party") from, or disclosed to such party by, the other
party (or, in the case of AMEX, disclosed to or by AMEX or any parent,
subsidiary, or affiliated company related to AMEX) (the "Disclosing
Party"), or the other party's customer or service establishment, which
information, data, or materials relate to the aforesaid Program and their
design and processes, or to the past, present, or future business
activities of the Disclosing Party or any of its subsidiaries, affiliates,
or clients, including methods, processes, telephone conversations,
financial data, systems, customer names, account numbers, and other
customer data, lists, apparatus, statistics, programs, and research and
development, or related information of such entities, except such
information as: (i) is previously known to the Receiving Party, free from
any obligation to keep it confidential which Receiving Party can
demonstrate through written records; (ii) is publicly disclosed either
prior to or subsequent to the Receiving Party's receipt of such
information; (iii) is lawfully obtained by the Receiving Party from a third
party who, in making such disclosure, breaches no obligation of confidence;
or (iv) is independently developed by the Receiving Party which Receiving
Party can demonstrate through written records.
(b) With respect to Company's access to customer files and related customer
data ("Files"), Company specifically acknowledges the importance of
maintaining the security and confidentiality of the Files, and agrees to
take whatever steps are necessary to prevent the unauthorized transfer,
disclosure to, or use of the Files by any person or entity not a party to
this Agreement.
(c) Neither party shall disclose, publish, release, transfer, or otherwise make
available Confidential Data and Information of the other party in any form
to, or for the use or benefit of, any person or entity without such party's
prior written consent. Each party, however, shall be permitted to disclose
relevant aspects of the other party's Confidential Data and Information
only to its officers and its employees on a need to know basis to the
extent that such disclosure is reasonably necessary for the performance of
their duties and obligations under the Agreement; provided, that such party
shall take all reasonable measures to ensure that Confidential Data and
information of the other party is not disclosed or duplicated in
contravention of the provisions of this Agreement by such officers and
employees. Company
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<PAGE> 6
agrees to ensure that the terms and conditions of this Agreement are
strictly adhered to by all of its employees and any third party
representative. The obligations shall not restrict any disclosure by either
party mandated by any applicable law, or by order of any court or
government agency (provided that the disclosing party shall give prompt
notice to the non-disclosing party of such order). In the event Company
will have direct on-line access to American Express Customer data, Company
also agrees to the terms of the AMEX Data Access Document attached hereto
as Exhibit D-1 and will ensure that each Company employee with on-line
access shall read, sign and comply with all Terminal Rules and Regulations
set forth in Exhibit D-2 attached hereto.
(d) Each party or its employees shall: (a) notify the other party promptly of
any material unauthorized possession, use or knowledge, or attempt thereof,
of the other party's Confidential Data and Information by any person or
entity which may become known to such party and encourage its employees to
do the same, (b) promptly furnish to the other party full details of the
unauthorized possession, use or knowledge, or attempt thereof, and use
reasonable efforts to investigate any unauthorized possession, use or
knowledge, or attempt thereof, of Confidential Data and Information, (c)
use reasonable efforts to cooperate with the other party in any litigation
and investigation against third parties deemed necessary by the other party
to protect its proprietary rights, and (d) promptly use all reasonable
efforts to prevent a recurrence of any such unauthorized possession, use or
knowledge of Confidential Data and Information. Each party shall bear the
cost it incurs as a result of compliance with the requirements set forth in
these paragraphs.
(e) AMEX reserves the right to monitor access to Confidential Data and
Information to prevent the improper or unauthorized use of such
Confidential Data and Information. Such monitoring may include, but is not
limited to, on-site inspection of Company's locations providing the Service
for AMEX at any time during normal business hours, and inserting decoy
names and addresses in any lists provided to Company. In addition, during
the term of this Agreement, AMEX reserves the right to visit, unannounced,
any of the locations used by Company that provides the Service for AMEX and
verify security procedures during normal business hours.
(f) Each party agrees that if there is any disclosure of the Confidential Data
and Information by its employees or the employees of any third party, it
will enforce for the other party's benefit through litigation, if
necessary, all rights provided under law to compensate the former party for
any damages arising out of such disclosure and to protect the former party
from additional disclosure.
(g) Each party agrees that if a party, its officers, employees or anyone
obtaining access to the proprietary information of the other party by,
through or under them, breached any provision of this Section, such other
party would suffer irreparable harm and the total amount of monetary
damages for any injury to such other party from any violation of this
Section would be impossible to calculate and would therefore be an
inadequate remedy. Accordingly, each party agrees that the other party
shall be entitled to temporary and permanent injunctive relief against the
breaching party, its officers or employees, and such other rights and
remedies to
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<PAGE> 7
which such other party may be entitled to at law, in equity and under this
Agreement for any violation of this Section.
(h) Unless expressly limited herein, the provisions of this Section shall
survive the termination or expiration of this Agreement.
8. CUSTOMER SERVICE:
(a) The Company shall provide a year-round Customer Service unit to support the
Service. The Customer Service shall accord with the AMEX standards set
forth on Exhibit B hereto as amended from time to time. The Company shall
train and have available at all times sufficient staff to provide adequate
Customer Service to Customers. The Company's Customer Service unit shall be
dedicated primarily to the Service for AMEX Customers and other Company
staff shall supplement this dedicated staff to handle unanticipated peaks
in the Customer Service needs. In connection with Customer Service, the
Company shall provide, at its sole cost and expense, an e-mail address
dedicated for exclusive use by Customers (the "Dedicated E-Mail Address").
(b) AMEX shall have the right, with reasonable notice, to monitor periodically
the quality of the Company's obligations under this Section. AMEX alone
shall have the right to determine whether the Company's performance
hereunder is acceptable
9. PHONE SYSTEM FOR THE SERVICE:
(a) Company shall be responsible for establishing and maintaining, at its own
expense, (i) a telephone number which is toll-free to Customers and (ii)
one or more local telephone numbers (as reasonably determined by AMEX in
consultation with Company) for Customers to use for collect calls to the
Customer Service centers; provided, however, that AMEX shall be the
customer of record for such telephone numbers and, as between AMEX and
Company, AMEX shall have all rights in and to such telephone numbers.
AMEX's status as customer of record and rights in and to all such telephone
numbers shall survive the termination or expiration of this Agreement. AMEX
shall have the right to inspect, at Company's offices during regular
business hours, any and all telephone bills relating to these numbers.
These telephone numbers shall be dedicated solely to the use by Customers
for Customer Service fulfillment. Company personnel shall answer these
telephone numbers in a manner specified by AMEX, and Company shall not
publicize or use these numbers for any purpose not related to the Service
without the express written consent of AMEX.
(b) Company agrees that it will maintain its telecommunications systems in any
manner reasonably requested by and reasonably acceptable to AMEX given that
Company agrees with the recommendations. If Company does not agree with
such recommendations, both AMEX and Company agree to review and explore
other options. Company will bear all the costs of such upgrading with the
exception of any consulting and services provided by AMEX through its
telecommunications personnel, which shall be free of charge to Company.
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<PAGE> 8
(c) AMEX shall consider any reasonable request and plan from Company to operate
the phone system for the Service in any legitimate and technically feasible
manner that takes advantage of any volume telecommunications user discounts
available to AMEX. AMEX, however, shall be under no obligation to agree to
such requests and plans, and may reject them with or without cause.
(d) Additionally, all toll-free telephone numbers obtained by AMEX or used in
connection with the performance of the Service by Company for AMEX
hereunder shall be the sole and exclusive property of AMEX. Company hereby
irrevocably assigns to AMEX all its rights, title and interest in and to
such toll-free telephone numbers and will execute any and all documents
necessary to transfer and/or evidence AMEX's ownership rights including,
but not limited to, shared used agreements for the toll-free telephone
numbers.
(e) Upon termination or expiration of this Agreement, the Company shall
transfer to AMEX the Company's rights in and to any of the telephone
numbers described herein and the Dedicated E-Mail Address, including the
rights to the use thereof, and shall assist AMEX in giving effect to such
transfer.
10. NOTICES: All notices, consents, requests, instructions, approvals, and
other communications made, required or permitted hereunder (each herein, a
"Notice") shall be given in writing and delivered to the receiving party to
its respective address set forth below (i) by personal delivery to a
responsible officer of such party, (ii) by certified or registered mail
(return receipt requested), (iii) by a nationally recognized courier
service or (iv) by facsimile transmission (such to be confirmed by mail).
The effective date of such Notice shall be deemed to be the date upon which
any such Notice is personally delivered or, if it is given by mail, courier
service or facsimile transmission, the date upon which it is received by
the addressee. Any party hereto may change its address set forth below by
written notice to the other party hereto in accordance with the terms of
this Section 10.
If to AMEX: American Express Travel Related Services Company, Inc.
3 World Financial Center
AMEX Tower
New York, NY 10285
Attn.: [ ** ]
Copy to: American Express Travel Related Services Company, Inc.
3 World Financial Center
AMEX Tower
New York, NY 10285
Attn.: [ **
]
If to Company: USA.NET, Inc.
102 South Tejon
Suite 220
Colorado Springs, CO 80903
Attention: President
Copy to: Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, Colorado 80302-6737
Attention: Carrie Schiff, Esq.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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<PAGE> 9
Each party may change its address for receiving Notices under this
Agreement by Notice pursuant to this Section.
11. USE OF LISTS OF ENROLLEES AND CUSTOMERS: The Company understands and agrees
that (a) it will not solicit Cardmembers or enrollees in the Service for
any reason other than in accordance with the terms of this Agreement or as
requested by AMEX and (b) that enrollees in the Service shall be deemed
customers of AMEX and may not be communicated with by the Company or its
designee without the prior written approval of AMEX. Notwithstanding the
foregoing, the Company can market other product and services to Cardmembers
and enrollees in the Service provided that (i) such Cardmembers and
enrollees are not identified as American Express Card holders in any such
marketing and (ii) the source of the individuals and information targeted
by the Company in such marketing is neither AMEX nor the list of enrollees
in the Service.
12. WARRANTIES: Each party represents and warrants that it is under no
obligation or restriction which would cause it to be in breach of this
Agreement. Each party to this Agreement represents and warrants to the
other party that this Agreement, when signed on behalf of a party,
constitutes the legal, valid and binding obligation of such party
enforceable in accordance with its terms.
13. TRADEMARKS. Notwithstanding any other provision of this Agreement, neither
party shall have the right to use the other party's registered or
unregistered trademarks, service marks, or trade names, or to refer to the
other party directly or indirectly, in connection with any product,
promotion or publication without the prior written approval of that party.
14. REPORTS: The Company shall provide AMEX with the following reports, at the
time and in the form and substance mutually agreed upon by the parties
hereto:
(a) With respect to both the Company's customers and AMEX's Customers, customer
reports including the number of: (i) enrolled customers, (ii) active
customers and (iii) advertisement suppression customers.
(b) With respect to both the Company and the Service, revenue report including
revenue from (i) advertisements and (ii) fees for advertisement
suppression.
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<PAGE> 10
(c) Customer Service report including: (i) number of Customers contacting
Customer Service, (ii) wait/response time for telephone and e-mail, and
(iii) length of telephone calls.
(d) Attrition report including: (i) total attrition rate for the Company, (ii)
Service attrition rate, and (iii) reasons for discontinuing of service.
15. DOMAIN NAME:
(a) The Company hereby represents that it owns the domain name USA.NET and has
registered such domain name with InterNic. The Company hereby covenants to
keep the domain name USA.NET properly and currently registered with
InterNic during the term of this Agreement and during any period that the
Company shall provide the Service to Cardmember.
(b) The Company agrees to use its best efforts to market and promote the domain
name USA.NET for so long as the Service is marketed to or used by the
Cardmembers. AMEX and the Company agree to use their best efforts to
develop and register with InterNic one additional domain name (the "Domain
Name Alternative") which will be owned solely by AMEX. AMEX may without
limitation use the Domain Name Alternative in connection with providing the
Service (i) to Cardmembers and (ii) to non-Cardmembers.
(c) Any non-Cardmembers that enroll under the domain name USA.NET will be the
customer of [ ** ] Any non-Cardmember that enrolls under the Domain
Name Alternative shall be deemed a customer of [**]. Any known Cardmember
that enrolls under either the domain name USA.NET or the Domain Name
Alternative shall be deemed customers of [**].
16. TERM AND TERMINATION:
(a) This Agreement shall take effect on the date hereof (the "Effective Date"),
and continue until the second (2nd) anniversary of the date hereof (the
"Initial Term"). Unless terminated pursuant to this Section ("Term and
Termination"), AMEX may renew this Agreement for successive one year
periods (each, a "Renewal Term"); provided that if, with respect to the
provision of the Service hereunder, the net operating margin of the Company
(the "NOM") is less than [**] at the commencement of such Renewal Term,
then the Company shall have the option to re-negotiate the financial terms
of Section 3(a) hereof to [
**
] If AMEX elects to
renew this Agreement, this Agreement shall renew in accordance with the
then current terms and conditions. If Company elects to renew this
Agreement, this Agreement shall renew in accordance with the then current
terms and conditions except as otherwise modified in accordance with the
Company's exercise of its option stated in this Section 16 (a).
(b) Termination: This Agreement shall terminate on the expiration of the
Initial Term or a Renewal Term. Notwithstanding the foregoing, this
Agreement may be earlier terminated upon a material breach as described
herein.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
10
<PAGE> 11
(c) Early Termination: Upon a material breach of any provision of this
Agreement, or as otherwise provided under this Agreement, the non-breaching
party shall give notice of such breach to the breaching party. The
breaching party shall have thirty (30) days from the receipt of said notice
to cure the breach described in the notice. If the breach is not cured
within said thirty (30) day period, the non-breaching party shall have the
right, thereafter, to terminate this Agreement by giving written notice
thereof to the breaching party.
(d) In the event (1) of a sale or distribution of all or substantially all of
the assets of Company or a sale or distribution of sufficient stock (other
than pursuant to a public offering) of Company to effect a change in
control, to any of the AMEX Competitors or (2) that Company or its
affiliates enters into the business of providing financial services or
provides a financial product or service substantially similar to any of
AMEX's financial products or services, AMEX may terminate this Agreement
immediately. In the event that AMEX terminates this Agreement pursuant to
the first sentence of this Section, Company shall reimburse AMEX for
reasonable out-of-pocket expenses incurred in transferring the Service to
another vendor or to itself. With AMEX's approval, which shall not be
unreasonably withheld, Company may negotiate transfer expenses on behalf of
AMEX with another vendor to ensure the reasonableness of the expenses. With
AMEX's approval, which shall not be unreasonably withheld, Company may
provide components of the transfer.
(e) Termination for Insolvency. Upon notice, either party may terminate this
Agreement with immediate effect: (1) upon the institution by the other
party of proceedings to be adjudicated a bankrupt or insolvent, or the
consent by the other party to institution of bankruptcy or insolvency
proceedings against it or the filing by the other party of a petition or
answer or consent seeking reorganization or release under the Federal
Bankruptcy Act, or any other applicable Federal or state law, or the
consent by the other party to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee, or other similar
official of the other party or of any substantial part of its property, or
the making by the other party of an assignment for the benefit of
creditors, or the admission in writing by the other party of an assignment
for the benefit of creditors, or the admission in writing by the other
party of its inability to pay its debts generally as they become due or the
taking of corporate action by the other party in furtherance of any such
actions; (2) if, within 60 days after the commencement of an action against
the other party seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present or future law
or regulation, such action shall not have been dismissed or all orders or
proceedings thereunder affecting the operations or the business of the
other party stayed, or if the stay of any such order or proceeding shall
thereafter be set aside; or if, within 60 days after the appointment
without the consent or acquiescence of the other party of any trustee,
receiver or liquidator or similar official of the other party, or of all or
any substantial part of the property of the other party, such appointment
shall not have been vacated. Each of the foregoing events shall constitute
a material breach to this Agreement.
(f) Termination Assistance. Upon the expiration or termination of this
Agreement, Company shall, upon AMEX's request, for up to [ ** ] (or up to
[ ** ] in the event of material
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
11
<PAGE> 12
breach by AMEX) after such expiration or termination (the "Termination
Assistance Period") (i) continue to provide the Service to the extent
requested by AMEX at the rates and performance standards for such Service
in effect under this Agreement immediately prior to such expiration or
termination and (ii) provide such assistance as required by AMEX to
transfer the Service to another vendor or to AMEX itself as set forth
herein (the "Termination Assistance Services"). Upon expiration or
termination of this Agreement for any reason, Company shall, at AMEX's
direction, use its best efforts to transfer or assign the Service to
another vendor selected by AMEX or to AMEX itself. After the expiration of
the Termination Assistance Period, Company shall (1) answer questions
regarding the Service on an as needed basis for [ ** ] (2)
deliver to AMEX any remaining AMEX-owned reports and documentation still in
Company's possession and (3) at AMEX's direction, destroy all AMEX data and
information in its possession. Company shall provide the Termination
Assistance Services [ ** ] except in the case of material
breach by AMEX in which case AMEX shall be responsible for such costs. In
the event that AMEX terminates this Agreement because of a breach by
Company which is not timely cured, Company shall reimburse AMEX for
reasonable out-of-pocket expenses incurred in connection with transferring
the Service to another vendor or to AMEX itself. With AMEX's approval,
which may not be unreasonably withheld, Company may negotiate transfer
expenses on behalf of AMEX with another entity to insure the reasonableness
of the expenses. With AMEX's approval, which may not be unreasonably
withheld, Company may provide components of the transfer.
(g) E-Mail Forwarding Obligations: The Company and AMEX acknowledge that it is
in their respective best interests to keep all customers enrolled in the
Service (or similar service) at the time of the termination or expiration
of the Agreement -- whether the customers of AMEX or the Company - assigned
to the Domain Name (such customers, the "Expiration Customers") for
provision of the e-mail service expected by the Expiration Customers. The
Company and AMEX further acknowledge that it is impracticable to attempt to
assign the Expiration Customers to a new domain name for the provision of
such service. Therefore, the Company and AMEX agree that upon the
termination or expiration of the Agreement, the Company shall forward (the
"Forwarding Function") all e-mail for Expiration Customers to an e-mail
address designated by AMEX. The Company shall provide such Forwarding
Function at a price it determines and stated in a unit charge for each
e-mail to be forwarded (the "Unit Price") which price shall be effective
for a one year period (the "Forwarding Period"). AMEX, in its sole
discretion, may choose to accept the Unit Price offer and have the Company
provide the Forwarding Function to the Expiration Customers or choose
another vendor or itself to provide such service. In the event AMEX chooses
another vendor or itself to provide the service, the Company shall [
**
] Company agrees to execute all
documentation necessary to give effect to such transfer and to deliver all
materials necessary for AMEX or its designee to operate the Domain Name and
the Alternative Domain Name and to provide the Forwarding Function to the
Expiration Customers. AMEX agrees to require such vendor or itself to
provide the Forwarding Function with respect to the e-mail of Company's
Expiration Customers to a domain name designated by the Company. In such
event, Company shall pay the Unit Price to AMEX or
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
12
<PAGE> 13
its designee in connection with the Forwarding Function. At the end of the
Forwarding Period, the party which is performing the Forwarding Function
shall determine a Unit Price for the following year, and the other party
shall have the option to accept such Unit Price or to offer the Forwarding
Function at such Unit Price. Such process shall be renewed at the end of
each renewal Forwarding Period.
17. AMEX SOFTWARE AND PROPRIETARY RIGHTS:
(a) Grant of Non-Exclusive Access: AMEX hereby grants to Company solely for the
purpose of providing the Service described herein, a non-exclusive,
non-transferable right to have access to and (1) operate (i) the AMEX Card
Member information proprietary software operated by AMEX prior to the
Effective Date (or on an interim basis, AMEX will provide Company with a
supplementary method of identification of Card Member information), and
(ii) to the extent agreed upon by the parties, any AMEX Card member
information proprietary software acquired or developed by AMEX, or on
behalf of AMEX, in AMEX's name after the execution of this Agreement for
use in connection with the Service ((i) and (ii) collectively, the "AMEX
Proprietary Software"), (2) operate (A) the software licensed or leased by
AMEX from a third party which was operated by AMEX prior to the date of
execution of this Agreement, and (B) to the extent agreed upon by the
parties, any software (other than Company Software) licensed or leased by
AMEX from a third party after the execution of this Agreement ((A) and (B)
collectively, the "AMEX Third Party Software"), and (3) use any related
documentation in AMEX's possession on or after the date of execution of
this Agreement (the "Documentation"). The AMEX Proprietary Software, the
AMEX Third Party Software and the Documentation shall be collectively
referred to as the "AMEX Software". As part of the Service, Company shall
pay all license and maintenance fees for AMEX Third Party Software that
Company elects to use to perform the Service (to the extent such fees are
disclosed to Company in writing prior to its election to use such third
party software and are deemed reasonable by Company). Company shall notify
AMEX in advance in writing if it determines not to pay such license and
maintenance fees. In the event that Company desires to use other comparable
and compatible third party software and AMEX insists that Company use AMEX
Third Party Software, AMEX shall pay the license and maintenance fees for
such AMEX Third Party Software. Upon expiration of this Agreement or
termination of this Agreement for any reason, the rights granted to Company
in this Section shall terminate and immediately revert to AMEX and Company
shall deliver to AMEX, at no cost to AMEX, a current copy of all of the
AMEX Software in the form in use as of the date of such expiration or
termination and Company shall destroy or erase all other copies of the AMEX
Software in its possession.
(b) AMEX's Rights. All inventions, methods, techniques, works of authorship,
computer software, computer upgrades, computer programs, service providers,
vendors information, training materials, telemarketing scripts, computer
screens, reports, data, any other proprietary or confidential information
made, created, developed or written and intellectual property ("Developed
Materials") shall be deemed AMEX property if paid for or developed by AMEX
(in no event shall the Marketing Dollars be used in the calculation of such
payments). Furthermore, in the event Developed Materials (i) are paid for
by AMEX such
<PAGE> 14
Developed Materials shall be deemed the sole property of AMEX or (ii) are
jointly created by Company and AMEX and not paid for by AMEX, then such
Developed Materials shall be deemed the joint property of AMEX and the
Company. AMEX acknowledges that Company has developed, and will continue to
develop during the term of this Agreement, valuable intellectual property
used by Company in connection with the Service and that Company's ownership
and protection of such property is essential to its competitive success.
Accordingly, irrespective of any other provision of this Agreement, AMEX
expressly agrees that Developed Materials paid for entirely by Company and
created solely and independently by Company (or any agent of Company) shall
be deemed the property of Company ("Company Property"). The Company
Property and Developed Materials shall be deemed Confidential Data and
Information and subject to the confidentiality provisions of this
Agreement.
18. SOURCE CODE ESCROW
On the date hereof, Company shall deliver to an independent third party
escrow agent, selected and designated by AMEX and approved by Company (such
approval not to be unreasonably withheld) ("Escrow Agent"), for deposit in
accordance with an escrow agreement among the Escrow Agent and the parties
hereto and substantially in the form attached as Exhibit E ("Escrow
Agreement"), a current and complete copy of the source code (the "Source
Code") for the Domain Name and any other materials required to operate the
Source Code (the "Escrow Materials").
Within [ ** ] of the installation of any new update to the
Service (or any other substantial modification to the Source Code, the
Domain Name or the Service) or within [ ** ] of the last deposit
hereunder, whichever is sooner, Company shall deliver to the Escrow Agent,
for deposit in accordance with such Escrow Agreement, any and all changes
to the Escrow Materials which correspond to changes, if any, made to the
corresponding Escrow Material or shall notify Escrow Agent that no changes
were made during the preceding period. All materials deposited hereunder
shall be considered "Escrow Materials" as the term is used herein.
In the event of (i) the Company's insolvency (as defined in Section 16(e))
or (ii) the Company's material breach of the terms of this Agreement
specifically because of its gross negligence or willful misconduct and such
breach is not fully remedied within thirty (30) days of AMEX's notice to
Company, then notwithstanding any other rights and remedies to which AMEX
may be entitled, AMEX shall immediately have the right to obtain a copy of
the Escrow Materials from the Escrow Agent upon written notice as provided
in the Escrow Agreement for use in continued provision of the Service.
AMEX shall have the right, at any time upon at least ten (10) days' written
notice to Company and Escrow Agent, to select and designate a new escrow
agent to replace the Escrow Agent hereunder. Upon such notice, Escrow Agent
shall completely, safely and securely transfer the Escrow Materials to the
new escrow agent (which will then become the "Escrow Agent" hereunder) and
confirm such transfer in writing to AMEX and Company.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
14
<PAGE> 15
19. PRIVACY POLICY: The Company agrees to execute and deliver to AMEX the
Privacy Policy Agreement in the form of Exhibit F hereto. Any material
breach of the terms thereunder by the Company shall constitute a breach
under this Agreement and AMEX shall be entitled to the remedies provided
hereunder without exclusion of other rights and remedies available to AMEX.
20. DATA AND REPORTS
a) Ownership of AMEX Data. All data and information submitted to Company by
AMEX and Customers in connection with the Service, including without
limitation any portion thereof (the "AMEX Data"), is and shall remain the
property of AMEX. The AMEX Data shall: (1) not be used by Company other
than in connection with providing the Service, (2) not be disclosed, sold,
assigned, leased or otherwise provided to third parties by Company; and (3)
not be commercially exploited by or on behalf of Company, its employees or
agents except as provided in this Agreement. Company shall take all
appropriate actions to safeguard the AMEX Data. The database of Customers
formerly or currently enrolled in the Service shall remain the sole
property of AMEX.
b) Return of Data. Upon request by AMEX upon the termination or expiration of
this Agreement, Company shall (1) promptly return to AMEX, in a format
agreed upon by the parties hereto and on the media reasonably requested by
AMEX, all AMEX Data and (2) erase or destroy under the supervision of AMEX,
all AMEX Data in Company possession (3) destroy all Developed Materials
notwithstanding the foregoing if this is jointly owned property containing
proprietary data belonging to one of the parties and necessary to the
party, the proprietary data can be retrieved prior to destruction with the
permission of the other party and under the following conditions: a) the
party requesting redaction of its own proprietary information can elect at
its own expense to have its proprietary data culled by an independent third
party from the joint proprietary data base ; b) the party may retain such
culled data to use as it sees fit; the culled data will be reviewed and
approved for release by the other party prior to release. Such approval
shall not be unreasonably withheld; and (4) be required to sign a
certificate of destruction form supplied by AMEX, if requested by AMEX. For
the purposes of clarity the parties agree that case histories without
identifying the Service Provider(s) or process flows maybe retained by AMEX
in accordance with this Section.
c) Database Maintenance. Company agrees to transmit information each month on
use of the Service by Customer (including, Cardmember account number and
service used), to AMEX's database maintenance facility. The mechanism for
this transmission to be agreed to by the parties.
d) Accuracy of Data. As part of the Service, Company shall be responsible for
the accuracy and completeness of the data and information submitted by
Company to AMEX and any errors in and with respect to data and information
submitted to AMEX. Company shall promptly correct any errors or
inaccuracies in the data or information prepared by Company and submitted
to AMEX.
15
<PAGE> 16
e) Corrections of Errors. As part of the Service, Company shall promptly
correct any errors or inaccuracies made known to them either through their
own sources or made known to them by AMEX in the AMEX Data. AMEX shall be
responsible for (1) the accuracy and completeness of the AMEX Data
submitted by AMEX to Company and (2) any errors in and with respect to data
obtained from Company caused by inaccurate or incomplete AMEX Data.
21. ALTERNATIVE DISPUTE RESOLUTION
(a) Negotiation. The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this agreement promptly by negotiations
between executives who have authority to settle the controversy. Any party
may give the other party written notice of any dispute not resolved in the
normal course of business. Within 20 days after delivery of said notice,
executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to
exchange relevant information and to attempt to resolve the dispute. If the
matter has not been resolved within 60 days of the disputing party's
notice, or if the parties fail to meet within 20 days, either party may
initiate mediation of the controversy or claim as provided hereinafter. If
a negotiator intends to be accompanied at a meeting by an attorney, the
other negotiator shall be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations
pursuant to this clause are confidential and shall be treated as compromise
and settlement negotiations for purposes of the Federal Rules of Evidence
and state rules of evidence.
(b) Mediation. If the dispute has not been resolved by negotiation as provided
above, the parties shall endeavor to settle the dispute by mediation under
the then current Center for Public Resources ("CPR") Model Procedure for
Mediation of Business Disputes. One neutral third party will be selected
from the CPR Panels of Neutrals to mediate the dispute. If the parties
encounter difficulty in agreeing on a neutral, they will seek the
assistance of CPR in the selection process.
(c) Arbitration. Any dispute arising out of or relating to this contract or the
breach, termination or validity thereof, which has not been resolved by
non-binding means as provided in subsection (a) and (b) hereof within 60
days of the initiation of such procedure, shall be finally settled by
arbitration conducted expeditiously in accordance with the Center for
Public Resources Rules for Non-Administered Arbitration of Business
Disputes by a sole arbitrator; provided, however, that if one party has
requested the other to participate in a non-binding procedure and the other
has failed to participate, the requesting party may initiate arbitration
before expiration of the above period. Any arbitrator not appointed by a
party shall be selected from the CPR Panels of Neutrals. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Section
1-16, and judgment upon the award rendered by the Arbitrator may be entered
by any court having jurisdiction thereof. The place of arbitration shall be
New York, N.Y. The arbitrator is not empowered to award damages in excess
16
<PAGE> 17
of compensatory damages and each party hereby irrevocably waives any
damages in excess of compensatory damages.
22. ASSIGNMENTS: This Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by either party hereto without
the prior written consent of the other party hereto, except that AMEX may
assign this Agreement to its parent, subsidiary or an affiliate company
without Company's consent, provided that (i) AMEX has provided the Company
with at least 30 days prior written notice, (ii) the assignee company has
the assets and facilities to carry out AMEX's obligations under this
Agreement and (iii) assignee is not a direct competitor of the Company.
23. NEW YORK LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
entirely made and performed within the State. Company hereby consents to
the jurisdiction of the state and federal courts sitting in the State of
New York.
24. MISCELLANEOUS:
(a) No failure or delay (in whole or in part) on the part of any party to
exercise any right or remedy, or operate as a waiver thereof, nor effect
any other right or remedy. All rights and remedies hereunder are cumulative
and are not exclusive of any other rights or remedies provided hereunder or
by law.
(b) If any provision contained in this Agreement is or becomes invalid,
illegal, or unenforceable in whole or in part, such invalidity, legality,
or unenforceability shall not affect the remaining provisions and portions
of this Agreement.
(c) This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior
contemporaneous oral or written understandings or agreements among the
parties which relate to the subject matter hereof. No modification or
amendment of this Agreement or any of its provisions shall be binding upon
any party unless made in writing and duly executed by authorized
representatives of all parties.
(d) This Agreement may be executed in any number of counterparts, each of which
shall constitute an original, but all of which together shall constitute
one instrument notwithstanding that all parties are not signatories to the
same counterparts.
17
<PAGE> 18
IN WITNESS WHEREOF, AMEX and Company, intending to be legally bound by the terms
of this Agreement, have caused this Agreement to be executed by their duly
authorized representatives.
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: [ ** ]
-------------------------------------------
Name: [ ** ]
Title: [ ** ]
[ ** ]
USA.NET, INC.
By: /s/ John W. Street
-------------------------------------------
Name: John W. Street
Title: President, CEO
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
18
<PAGE> 19
EXHIBIT A
BASIC SERVICE
It is acknowledged and agreed by the parties hereto that the foregoing list are
the Basic Services offered to USA.NET Customer.
1) SERVICE BASED E-MAIL
2) FORWARDING OF E-MAIL
3) FILTERING OF E-MAIL
4) ADVERTISING SUPPRESSION
5) STORAGE AND RETRIEVAL OF E-MAIL
6) CONSOLIDATION OF E-MAIL
7) DATED REMINDER SERVICE
19
<PAGE> 20
EXHIBIT B
OPERATIONS STANDARDS
QUALITY ASSURANCE/ACCURACY EXPECTATIONS
Company must strive for 100% accuracy for 100% of calls, enrollee submissions
and service requests handled. Quality/accuracy standards defined below will be
aggregated through weighted measurement to determine overall aggregate
quality/accuracy performance levels attained during each quarter.
To ensure the continuous attainment of quality and service delivery standards
described, Company agrees to do the following:
o Designate a quality assurance individual to measure and report weekly to
AMEX service delivery and quality results against standards in accordance
with the requirements of this Attachment B and any reports requested by
AMEX and mutually agreed upon at a later date.
o Assist AMEX in conducting customer satisfaction research via surveys and
other forms of customer monitoring.
o Dedicate to and maintain a controlled, continuous improvement process to
develop and implement improved service delivery recommendations and
solutions to problems.
TIMELINESS EXPECTATIONS
Company must strive for 100% timely response to 100% of calls, enrollee
submissions and service requests handled.
SERVICE EXPECTATIONS
Company must strive for service availability of 100% of 7 days per week, 24
hours per day. Company must train and have available sufficient staff to provide
adequate customer service to enrollees and enrolling customers. Company must
install and maintain sufficient systems to provide adequate service delivery to
enrollees and enrolling customers.
20
<PAGE> 21
[**]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
21
<PAGE> 22
[**]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
22
<PAGE> 23
[**]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
23
<PAGE> 24
EXHIBIT C
ADVERTISMENT POLICY
In order to ensure that visitors to the Service's web site and users of the
Service receive the highest value from advertisements viewed at the site or
viewed through use of the web site and Service, we have established the
following policy regarding all advertisements related to the web site and the
Service.
Advertisements will be deemed inappropriate and unacceptable if they:
1. Contain any unlawful, harmful, threatening, abusive, harassing, defamatory,
vulgar, obscene, profane, hateful, racially, ethnically or otherwise
objectionable material of any kind, including, but not limited to, any
material which encourages conduct that would constitute a criminal offense,
give rise to civil liability or otherwise violate any applicable local,
state, national, or international law.
2. Contain personal attacks on a company or individual.
3. Offer unauthorized downloads of any copyrighted or private information.
4. Purport to be from someone other than the author.
5. [ ** ]
6. [ **
]
Company will work with all advertisers and advertising agencies to ensure that
these guidelines are met.
Company agrees to provide AMEX with a monthly list of advertisers and services
offered through the web site and the Service.
AMEX reserves the right to exclude any specific advertisers and advertisements
at its sole discretion.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
24
<PAGE> 25
EXHIBIT D-1
AMEX Data Access Document
Information Security Requirements
The following are provided as minimum requirements or guidelines only. In all
instances, the recommendations resulting from all site audits, as indicated in
writing to Company, will govern.
GENERAL
Each Company employee, subcontractor, agent or representative shall sign a
Confidentiality Agreement or Non-Disclosure Agreement, as applicable, and abide
by all terms contained therein.
Company shall allow site audit visit by AMEX assigned staff during all periods
of the relationship, including unscheduled visits and reviews with 24 hours
notice. AMEX reserves the express right to make unscheduled visits to any and
all Company sites when there is a suspicion of a security breach. Company agrees
to comply with any recommendations from said audit and reviews.
Company shall ensure all regulations and laws are complied with including:
o Conflicts of Interest
o Confidential Information and Trade Secrets
o Insider Trading
o Copyrights, Trademarks, and Intellectual Property
o Money Laundering
o Political Activities
o Federal Banking Regulations
Company shall maintain an adequate level of physical security controls over the
Company Service Location including, but not limited to: appropriate alarm
systems, access controls, fire suppression, video surveillance, staff (describe
allowances for carrying out data) egress searches.
Company shall maintain an adequate level of data security controls including,
but not limited to: proper safeguarding of AMEX data, logical access controls
(e.g. password protection of AMEX applications, data files, libraries), computer
security software, a secure tape library. The controls maintained by Company
shall meet the minimum AMEX Information Security Standards (standards attached).
Company shall maintain an adequately secured computer room facility, with access
restricted to only approved Company staff.
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<PAGE> 26
Company shall provide to AMEX Information Security management copies of all
internal security policies and standards for review prior to the program
commencement. This shall include escalation procedures for non-compliance with
standards.
Company shall provide to AMEX Information Security management a copy of the most
recent third party data processing audit or review, conducted by Company's
external auditors. Company shall provide to AMEX Information Security management
copies of any related data processing audits from their internal audit team.
Company agrees to abide by the AMEX Client Privacy Rules and Practices as
adopted by AMEX for itself. Those requirements are as follows:
1. Limited Collection and Use of Consumer Information
o Collect only relevant information
o Tell Customers how information will be used
2. Consumer Choices
o Yearly list exclusions for most clients
o Individual marketing groups responsible for list exclusion
o Mailing lists screened against internal exclusion lists
o Mailing lists screened against centralized consumer lists
3. Information Quality
o Assure accuracy of our information
4. Internal Security Safeguards
o Restricted access to Customer Information
o "Data and Information Security" policies apply
5. Limited Release of Customer Information
o Limited to authorized agents or affiliates
o As authorized by customer
o Rules for legal process and governmental authorities
6. Responding to Customers
o Prompt reply to consumer queries
o Compliance with applicable laws
7. Extending Privacy Principles In Our Business Relationships
o Company briefing on Privacy Principles
o Company signature on confidentiality agreement
o Business partner briefing on Privacy Principles
o Help our business partners to develop their own privacy codes
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<PAGE> 27
o Encourage development of guidelines by industry associations
o Elimination of unnecessary questions at point of sale
8. Employee Responsibility for These Principles
o Internal audits to review compliance with these principles
o Training on Rules and Practices provided
o Employees encouraged to assist compliance
Disregard of these Standards and regulations shall be cause for termination of
the Agreement.
Company shall have an appropriate sensitive-trash disposal program at each
location.
Company shall return all magnetic media to the appropriate AMEX location within
seven business days of receipt of such magnetic media.
Government requirements should be included (check with GSA compliance).
o Gratuities
o Training on GSA rules
o Kickbacks
o Procurement
o Lobbying
o False Claims and False Statements
o Defective Costs
Company shall ensure at each site that no shared environments exist with other
businesses for all WANs, LANs, Network connections, dial-up connections, DASD,
distributed systems, and that appropriate data controls are implemented.
Company shall follow industry best practices in configuring and operating voice
systems to control fraudulent use of 800 numbers, PBX switches and other voice
networks.
CUSTOMER PRIVACY
Company employees may only access, make maintenance changes, or perform
financial adjustment on those accounts as required by their job. In addition:
1. They may not access their own personal or corporate AMEX
account(s) for any reason.
2. They may not access any AMEX employee's account, except
where it is part of their normal job responsibility.
3. They may not access another Company employee's account.
4. They may not access an account held by anyone they know
outside of work.
5. They may not access any account that they are not required
to access as part of their job responsibility.
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<PAGE> 28
EMPLOYEE RESPONSIBILITIES
Company employees are encouraged to report suspected violations of any Privacy
Rules, or violations of Information Security Standards to their management for
investigation and action.
Company employees shall never share their USERID/PASSWORD with any other person.
Company employees must sign-off when leaving their workstation for any reason.
SECURITY ADMINISTRATION AND RESPONSIBILITIES
Awareness and education of all Privacy Rules and Information Security Standards
shall be provided to all employees and users of any AMEX system.
Company management shall maintain (no delegation) security administration
privileges to grant access and authority to job functions for all Company
employees and users.
Management of user access via USERID/PASSWORD shall be:
1. Unique ownership of USERID by single user.
2. No "Generic" or group USERID's,
3. Immediate revocation or deletion for any terminated or
transferred Company employee.
Company understands that all user accesses to AMEX systems may be monitored at
will for compliance with all regulations.
Company shall document all procedures for USERID requests, transaction
authorization, and system use.
Company shall review all violation reports, and take action as necessary to
prevent unauthorized access and use of AMEX systems.
Company Security Administrators shall be authorized and approved by AMEX
Information Security.
Company shall execute background checks on all employees working on AMEX
programs including drug screening, employment, education and criminal checks as
permitted by all local, state and Federal laws.
In the event that AMEX commences an investigation of possible fraudulent
activity, or otherwise upon AMEX' reasonable request, Company shall provide to
AMEX all employee information maintained by Company for those employees working
on AMEX programs subject to all applicable laws.
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SYSTEM SECURITY
Company shall ensure all system connected terminals are equipped with access
control (password protection), time-out for non-use.
If data is to reside on any Company system, then standards and security
practices must be inserted. Including host access control, Personal Computer
access control and virus protection, LAN access controls.
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EXHIBIT D-2
- -------------------------------------------------------------------------------
[AMERICAN EXPRESS TRAVEL RELATED SERVICES LOGO]
TERMINAL RULES AND REGULATIONS
- -------------------------------------------------------------------------------
Part of our mission is to make changes and adjustments to various Cardmember
accounts. This is done through the use of our computer system. The use of this
system is extremely critical. There are a few very specific rules and
regulations that go along with working with the computer system. These rules
must be followed in detail by every employee who is involved with the computer
system. Therefore, you are being shown the rules and regulations so that you
understand how the system works. It is very important that you understand and
comply with the following operating rules and regulations.
MAINTENANCE CHANGES TO CARDMEMBER ACCOUNTS.
As part of your job, you may be making address changes, maintenance changes, or
issuing replacement cards. You may also be making financial adjustments.
THE RULE IS: You are never to make any type of maintenance changes or financial
adjustments to the following types of Card account:
1. Your own American Express Account.
2. A Card Account held by anyone you know outside of work.
3. Any Account that you are not required to access as part of your job
responsibility.
*Note - If in the normal course of business you need to make any type of
maintenance or financial adjustment on an account held by another
employee of American Express, immediately notify your Team Leader of the
employee account you have just handled and the change or adjustment you
have made.
USE OF YOUR PASSWORD AND IDENTIFICATION NUMBER
THE RULE IS: You are not to give your password to any person and you are not to
use another employee's password or identification number.
This is for your own protection. Your password identifies you to the system. The
computer system tracks all entries that are made by the person who makes them.
If your password were to be use by anyone in such a manner that results in
errors or fraud, you would be held accountable for the error or fraud.
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THE RULE IS: You are to sign off when you leave your terminal and sign back on
when you return to your terminal. This applies to time away from
your desk for breaks, lunch, meetings, etc.
MONITORING
All terminals are subject to monitoring and terminal monitoring may occur
simultaneously with telephone monitoring. In addition, you should understand
that all transactions in the system are recorded by the computer. Print-outs
listing all transactions by employee identification number and password are
monitored on a regular basis.
UNAUTHORIZED ACCESS/VIEWING OF ACCOUNTS
THE RULE IS: You are never to access or view the following types of Card
accounts:
1. Your own American Express Account.
2. A Card Account held by anyone you know outside of work.
3. Any Account that you are not required to access as part of your job
responsibility.
*Note- If in the course of business you need to access an account held by
another employee of American Express immediately notify your Team Leader
of the employee account you have just had to access. Otherwise, you are
never to access or view a Card account held by another employee.
IMPORTANCE OF THE RULES AND REGULATIONS
o These rules are extremely important.
o Any employee who willfully disregards these rules and regulations is
subject to discipline, up to and including discharge from employment.
ACKNOWLEDGMENT
I have read and understand the above regulations and agree to comply with them.
- ---------------------- -------------------------------- ------------
Employee Signature Print Name Date
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EXHIBIT E
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is made and entered into as of the ___ day
of April, 1997 (the "Effective Date"), by and among the USA.NET, Inc., a
Delaware corporation (referred to in this Agreement as the "Depositor"),
American Express Travel Related Services Company, Inc., a New York corporation
("AMEX") and Data Securities International, Inc., having an address at 101
Cambridge Street, Suite 310, Burlington, Massachusetts 01803-3741 ("Escrow
Agent").
Depositor and AMEX have entered into, inter alia, the Co-Marketing Program
Agreement, dated April ___, 1997 ("Marketing Agreement"), under which AMEX shall
market certain services (the "Service") of the Company to AMEX Customers. The
Marketing Agreement further provides for the escrow of materials relating to the
Service ("Escrow Materials") and this Agreement is entered into for the purpose
of effectuating such an escrow arrangement in connection with the Marketing
Agreement and the Services identified therein. Depositor and AMEX acknowledge
that Escrow Agent has no knowledge of the terms and conditions contained in the
Marketing Agreement and that Escrow Agent's only obligations shall be set forth
herein or in any other writing signed by Depositor, AMEX and Escrow Agent.
ARTICLE 1: Deposit of Escrow Materials; Recordkeeping
1.1 On or before the delivery of the Service to AMEX Customers, Depositor
shall deliver to the Escrow Agent, for deposit under this Agreement, a current
and complete copy of the program source code, documentation and any other
materials required to operate the same to be deposited in escrow ("Escrow
Materials"). A specific description of the Escrow Materials required is set
forth on the attached Annex A, which is incorporated and made a part of this
Agreement. The Escrow Materials shall be subject to authentication by AMEX prior
to deposit thereof with the Escrow Agent. AMEX shall submit a certificate to
Escrow Agent which shall indicate that AMEX has authenticated the Escrow
Materials. Escrow Agent shall be entitled to rely upon such certificate as to
the matters stated therein.
1.2 Within [ ** ] of the installation of any new update to the
Service (or any other substantial modification to the source code, or the
Service) or within [ ** ] of the last deposit hereunder, whichever is
sooner, Depositor shall deliver to the Escrow Agent, for deposit in accordance
with this Agreement, any and all changes to the Escrow Materials which
correspond to changes, if any, made to the Service or shall notify Escrow Agent
that no changes were made during the preceding period. All materials deposited
hereunder shall be considered "Escrow Materials" as the term is used herein and
shall be deposited with a description thereof in the format of the form attached
hereto as Annex A.
1.3 The Escrow Materials may be removed and/or exchanged only on written
instructions signed by Depositor and AMEX, or as otherwise provided in this
Agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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ARTICLE 2: Location of Escrow Materials
2.1 The Escrow Materials shall be administered by Escrow Agent from the
location specified on Annex B and shall not be moved to any other location
without the express written consent of AMEX. Escrow Agent shall notify Depositor
in writing of any change in location.
2.2 AMEX shall have the right, at any time upon at least ten (10) days'
written notice to Depositor and Escrow Agent, to select and designate a new
escrow agent to replace the Escrow Agent hereunder. Upon such notice and upon
payment of any outstanding fees due Escrow Agent, Escrow Agent shall completely,
safely and securely transfer the Escrow Materials to the new escrow agent (which
will then become the "Escrow Agent" hereunder) and confirm such transfer in
writing to AMEX and Depositor.
ARTICLE 3: Verification of Escrow Materials
3.1 When Escrow Agent receives the Escrow Materials accompanied by a
description of such materials in the form of Annex A attached hereto, Escrow
Agent will conduct a deposit inspection by visually matching the labeling of the
tangible media containing the Escrow Materials to the item descriptions and
quantity listed on Annex A.
3.2 Escrow Agent is entitled to be paid its standard fees and expenses
applicable to the services provided. Escrow Agent shall notify the party
responsible for payment of Escrow Agent's fees at least ninety (90) days prior
to any increase in fees. For any services not listed on Escrow Agent's standard
fee schedule attached hereto as Annex C, Escrow Agent will provide a quote prior
to rendering the service, if requested.
3.2.1 Escrow Agent shall not be required to perform any services unless
the payment for such services and any outstanding balances owed to
Escrow Agent are paid in full. All other fees are due payable within
thirty (30) days of receipt of invoice. If invoiced fees are not paid,
Escrow Agent may terminate this Agreement; provided, however, that any
non-payment of fees is remedied in accordance with the Material Breach
provisions herein. If there is a discrepancy in fees owed to Escrow
Agent, then the party responsible for payment and Escrow Agent shall
agree to discuss this matter on a good faith basis.
3.3 In addition and upon AMEX's request, Escrow Agent shall be authorized
to perform any additional verification services which are available from Escrow
Agent from time to time specified on the attached Annex D, including, without
limitation, services necessary to verify the completeness, accuracy and
functionality of the Escrow Materials and to ensure that the Escrow Materials
conform and correspond to the Product furnished to AMEX under the Marketing
Agreement.
3.3.1 Upon request, Escrow Agent will furnish AMEX with a current copy
of the charges for additional verification services which are available
from Escrow Agent
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<PAGE> 34
hereunder. AMEX shall be responsible for payment of any such charges
directly to Escrow Agent and Depositor shall have no responsibility for
same.
3.4 Escrow Agent shall report to AMEX in writing the results of all
verification services performed on Escrow Materials upon completion of
same and shall send a copy to Depositor.
ARTICLE 4: Release and Return of Escrow Materials
4.1 Upon receipt of a duly executed officer's certificate from AMEX
certifying that a Triggering Event (as defined below) has occurred and
requesting the release of the Escrow Materials hereunder, Escrow Agent shall
release and deliver the Escrow Materials to AMEX or its designee set forth in
the officer's certificate. Such officer's certificate shall be delivered in
person or by registered or certified mail, return receipt requested. For
purposes of this Agreement, a "Triggering Event" shall be deemed to be (i) the
Depositor's insolvency (as defined in Section 16(e) of the Marketing Agreement)
or (ii) the Depositor's material breach of the terms of the Marketing Agreement
specifically because of its gross negligence or willful misconduct and such
breach is not fully remedied within thirty (30) days of AMEX's notice to
Depositor.
4.2 Escrow Agent shall be entitled to act in reliance upon any AMEX
instructions, instrument, or signature reasonably believed to be genuine and
shall assume that any AMEX officer giving any written notice or instruction,
which is consistent with this Agreement, has been duly authorized to do so on
behalf of AMEX. Similarly, Escrow Agent shall have no duty to inquire as to
whether AMEX or Depositor is in compliance with the provisions of the Marketing
Agreement relating to the release of Escrow Materials and shall have no
liability to Depositor or AMEX for relying on AMEX's notice.
4.3 If the Marketing Agreement has expired, been terminated or canceled
and if AMEX has not notified Escrow Agent to release the Escrow Materials
hereunder as contemplated under Section 4.1 above, then Escrow Agent may return
or destroy the Escrow Materials at the request of Depositor; provided, however,
that Escrow Agent shall not return or destroy any such Escrow Materials unless
Escrow Agent has received written certification from AMEX that no event or
condition has occurred which would permit AMEX to obtain the release and
delivery of such Escrow Materials under this Agreement. Notwithstanding the
foregoing, if AMEX has not provided said written certification within thirty
(30) days from Escrow Agent's notice of termination, then at Escrow Agent's
option, Escrow Agent may return or destroy the Escrow Materials.
4.4 Each party shall designate an authorized individual as a contact for
the purposes set forth hereunder and individuals shall be specified on the
attached Annex E-1 and Annex E-2.
ARTICLE 5: Confidentiality of Escrow Materials
5.1 Escrow Agent acknowledges that Depositor considers the Escrow Materials
to be confidential and trade secrets of Depositor, and Escrow Agent agrees that
unless Escrow Agent has obtained Depositor's written consent, Escrow Agent shall
keep the Escrow Materials confidential
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<PAGE> 35
and prevent their disclosure to any person, firm or enterprise other than to
employees or representatives of Escrow Agent involved in the performance of
Escrow Agent's obligations under this Agreement, to employees and
representatives of Depositor, and to AMEX under the specific release provisions
specified in this Agreement.
5.2 Escrow Agent may copy Escrow Materials to the extent necessary to
preserve and safely store the Escrow Materials, to perform the verification
services required and permitted under this Agreement, and to provide copies to
AMEX as and when permitted hereunder. On all such copies, Escrow Agent shall
reproduce any proprietary rights and/or confidentiality notices which were on
the Escrow Materials at the time of their deposit with Escrow Agent.
ARTICLE 6: General
Payment: Escrow Agent may invoice AMEX for all fees and/or charges applicable
hereunder and AMEX agrees to pay each invoice properly rendered hereunder within
thirty (30) days after its receipt.
Liability: AMEX and Depositor agree that Escrow Agent is acting as an
independent agent and stakeholder hereunder and, except as regards the
obligations of Escrow Agent under Articles 4 and 5, shall not be held liable by
either party for the proper performance of its obligations under this Agreement.
Except as regards the obligations of the parties under Article 4 and 5, each
party shall be liable for and shall indemnify and hold each other harmless from
and against any loss or damage, including, without limitation, reasonable
attorneys' fees, other costs and/or expenses actually incurred by any other
party hereunder arising from the fault or negligence of such other party, its
officers, directors, employees, agents and/or representatives. Except as regards
liability under Article 4 and 5, none of the parties hereunder shall be liable
to any other party for any indirect, special or consequential damages arising
out of or in connection with this Agreement.
Termination: Upon the release, return, destruction or transfer of the Escrow
Materials as permitted hereunder or upon termination due to a material breach,
all further obligations and/or rights of Escrow Agent under this Agreement shall
terminate; provided, however Escrow Agent is not the party in breach.
Material Breach: In the event of any material breach of this Agreement by one
party, the other parties may (reserving cumulatively all other remedies and
rights under this Agreement and in law and in equity) terminate this Agreement,
by giving thirty (30) days' written notice thereof; provided, however, that any
such termination shall not be effective if the party in breach has cured the
breach of which it has been notified prior to the expiration of said thirty (30)
days.
Notices: Except as otherwise specifically provided, all notices shall be in
writing and delivered personally or mailed to the addresses of the parties set
forth at the beginning of this Agreement, to the attention of the undersigned at
the address(es) set forth at the beginning of this Agreement or to such other
address or addressee as any party may designate by written notice and in the
case of AMEX, to the [ ** ] American Express Travel
Related Services
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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Company, Inc., AMEX Tower, World Financial Center, New York, New York
10285-4900. Notices shall be deemed given when delivered or when placed in the
mail as specified herein.
Bankruptcy: AMEX, Depositor and Escrow Agent acknowledge that this Escrow
Agreement is an "agreement supplementary to" the Marketing Agreement as provided
in Section 365(n), Title 11 of the United States Code ("Bankruptcy Code"). If
Depositor, as a debtor in possession, or a trustee in bankruptcy appointed
pursuant to the Bankruptcy Code, rejects the Marketing Agreement or this
Agreement, then subject to any other rights AMEX may have, AMEX may elect to
retain its rights under the Marketing Agreement and this Agreement as provided
in the current Bankruptcy Code or any amendments and/or successor statutes.
Unless earlier notified by AMEX, Depositor and Escrow Agent, individually and
collectively, agree that unless they have received notice from AMEX that it does
not wish to make such election or exercise any such rights, neither Escrow Agent
nor Depositor shall interfere with the rights of AMEX in the Marketing Agreement
and/or this Agreement.
Assignment: The parties may not assign this Agreement or any of their rights and
obligations hereunder without the written consent of each of the other parties
involved in this Agreement and any such attempted assignment shall be void;
provided however, that AMEX may require the transfer of Escrow Materials to a
new escrow agent (as permitted hereunder) and/or may assign this Agreement
and/or any of its rights and/or obligations hereunder upon written notice to
Depositor and Escrow Agent, to AMEX's parent, subsidiaries or affiliated company
without the consent of Depositor or Escrow Agent, provided that (i) AMEX has
provided the Depositor and Escrow Agent with at least 30 days prior written
notice, (ii) the assignee has the assets and facilities to carry out AMEX's
obligations under this Agreement and (iii) assignee is not a direct competitor
of the Depositor.
Severability: In the event any provisions of this Agreement are held to be
invalid, illegal or unenforceable, the remaining provisions of this Agreement
shall be unimpaired.
Governing Law: In all respects this Agreement shall be governed by the
substantive laws of the State of New York without regard to conflict of law
principles.
Modification/Amendments: No modification, amendment, supplement to or waiver of
this Agreement or any of its provisions, whether by conduct or otherwise, shall
be binding unless made in writing and duly signed by the parties. A failure or
delay, by any party at any time, to enforce any of the provisions, or to
exercise any option, or to require performance, shall in no way be construed to
be a waiver or modification of this Agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates
indicated below.
AMERICAN EXPRESS TRAVEL RELATED USA.NET, INC.
SERVICES COMPANY, INC.
By: By:
------------------------- ----------------------------
Name: Name:
----------------------- --------------------------
(Type or Print) (Type or Print)
Title: Title:
---------------------- -------------------------
Date: Date:
----------------------- -------------------------
DATA SECURITIES INTERNATIONAL, INC.
By:
--------------------------------------
Name:
------------------------------------
(Type or Print)
Title:
-----------------------------------
Date:
------------------------------------
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ANNEX A
DESCRIPTION OF ESCROW MATERIALS
Full-tape backup of source and compiled code for all major components of the
Service including without limitation components of (i) Web, (ii) Mail and (iii)
Database.
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ANNEX B
LOCATION OF ESCROW MATERIALS
39
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ANNEX C
ESCROW AGENT'S
STANDARD FEE SCHEDULE
40
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ANNEX D
ADDITIONAL VERIFICATION SERVICES
41
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ANNEX E-1
AUTHORIZED REPRESENTATIVES OF THE COMPANY
NAME SPECIMEN SIGNATURE
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
42
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ANNEX E-2
AUTHORIZED REPRESENTATIVES OF AMEX
NAME SPECIMEN SIGNATURE
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
43
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EXHIBIT F
PRIVACY POLICY AGREEMENT
This Privacy Policy Agreement is made as of the _______day of April,
1997 by and between USA.NET, Inc., a Delaware corporation (the "Company") and
American Express Travel Related Services Company, Inc., a New York corporation
("AMEX").
WHEREAS, AMEX and the Company have entered into, inter alia, a Series B
Preferred Stock Purchase Agreement and a Co-Marketing Program Agreement of even
date herewith (collectively, the "Transaction Documents"); and
WHEREAS, in order to (i) preserve the goodwill and reputation of AMEX
and to induce AMEX to execute the Transaction Documents and perform its
obligations thereunder and (ii) provide the highest level of personalized
service to customers of the Company and at the same time respect each individual
customer's rights to privacy, the Company agrees to comply with the AMEX Privacy
Policy in effect as of the date hereof and attached hereto as Exhibit A (the
"Policy"), as amended from time to time by AMEX in accordance with the terms
herewith;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein the parties hereto do hereby agree as
follows:
1. (a) The Company hereby agrees to comply with the terms and provisions of
the Policy in connection with the operation of its business in order to (i)
preserve the goodwill and reputation of AMEX and to induce AMEX to execute
the Transaction Documents and perform its obligations thereunder and (ii)
provide the highest level of personalized service to customers of the
Company and at the same time respect each individual customer's rights to
privacy. (b) AMEX may amend the Policy from time to time. Company shall
comply with the terms of the Policy as so amended provided that AMEX
provides Company, when practicable, with thirty (30) days written notice
prior to the date any such amendment shall be complied with by Company.
2. The Company shall provide AMEX with the opportunity to review and approve
the Company's terms and conditions of the subscriber's use (the "Terms and
Conditions of Use") of the Service prior to any marketing of the Service to
Cardmembers. Such Terms and Conditions of Use shall clearly state that
revenues of the Service may be generated by advertisements embedded in the
e-mail forwarded to subscribers in the Service. The Terms and Conditions of
Use shall be accessible to all visitors to the web site for the Service and
those who subscribe to the Service.
3. NOTICES: All notices, consents, requests, instructions, approvals, and
other communications made, required or permitted hereunder (each herein, a
"Notice") shall be given in writing and delivered to the receiving party to
its respective address set forth below (i) by personal delivery to a
responsible officer of such party, (ii) by certified or registered mail
(return receipt requested), (iii) by a nationally recognized courier
service or (iv) by
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facsimile transmission (such to be confirmed by mail). The effective date
of such Notice shall be deemed to be the date upon which any such Notice is
personally delivered or, if it is given by mail, courier service or
facsimile transmission, the date upon which it is received by the
addressee. Any party hereto may change its address set forth below by
written notice to the other party hereto in accordance with the terms of
this Section 10.
If to AMEX: American Express Travel Related Services Company, Inc.
3 World Financial Center
AMEX Tower
New York, NY 10285
Attn.: [ ** ]
Copy to: American Express Travel Related Services Company, Inc.
3 World Financial Center
AMEX Tower
New York, NY 10285
Attn.: [ **
]
If to Company: USA.NET, Inc.
102 South Tejon
Suite 220
Colorado Springs, CO 80903
Attention: President
Copy to: Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, Colorado 80302-6737
Attention: Carrie Schiff, Esq.
Each party may change its address for receiving Notices under this
Agreement by Notice pursuant to this Section.
4. WARRANTIES: Each party represents and warrants that it is under no
obligation or restriction which would cause it to be in breach of this
Agreement. Each party to this Agreement represents and warrants to the
other party that this Agreement, when signed on behalf of a party,
constitutes the legal, valid and binding obligation of such party
enforceable in accordance with its terms.
5. TERM AND TERMINATION: This Agreement shall take effect on the date and
continue so long as AMEX shall have an equity interest in the Company.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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6. NEW YORK LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
entirely made and performed within the State. Company hereby consents to
the jurisdiction of the state and federal courts sitting in the State of
New York.
7. MISCELLANEOUS:
(a) No failure or delay (in whole or in part) on the part of any party to
exercise any right or remedy, or operate as a waiver thereof, nor effect
any other right or remedy. All rights and remedies hereunder are cumulative
and are not exclusive of any other rights or remedies provided hereunder or
by law.
(b) If any provision contained in this Agreement is or becomes invalid,
illegal, or unenforceable in whole or in part, such invalidity, legality,
or unenforceability shall not affect the remaining provisions and portions
of this Agreement.
(c) This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior
contemporaneous oral or written understandings or agreements among the
parties which relate to the subject matter hereof. No modification or
amendment of this Agreement or any of its provisions shall be binding upon
any party unless made in writing and duly executed by authorized
representatives of all parties.
(d) Company acknowledges and agrees that, in the event of a breach or
threatened breach of any of the foregoing provisions, AMEX will have no
adequate remedy in damages and, accordingly, shall be entitled to
injunctive relief against such breach or threatened breach; provided,
however, that no specification of a particular legal or equitable remedy
shall be construed as a waiver, prohibition or limitation of any legal or
equitable remedies in the event of a breach hereof.
(e) This Agreement may be executed in any number of counterparts, each of which
shall constitute an original, but all of which together shall constitute
one instrument notwithstanding that all parties are not signatories to the
same counterparts.
(f) Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed thereto in the Transaction Documents.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
USA.NET, INC. AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: By:
------------------------------ -------------------------------
Title: Title:
--------------------------- ----------------------------
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EXHIBIT A to EXHIBIT F
In order to provide the highest level of personalized service to subscribers and
at the same time respect each individual subscribers' rights to privacy, Company
agrees to the following Privacy Policy for all of its service offerings:
Personal Data
For the purposes of this Privacy Policy, Personal Data will include but not be
limited to:
a) Contact information such as name, postal and e-mail addresses
b) Billing information such as charge and credit card numbers
c) Information gathered during registration or through other correspondence
such as surveys and questionnaires initiated by Company
d) Other personal information which may be collected through use of the
Company services such as preferences, interests, purchases, and sources and
destinations of e-mail messages
o Company will not scan the body text of e-mail messages for Personal
Data unless first requested by the subscriber.
Disclosures Regarding Personal Data
VISITORS. Company will at all times provide all visitors to their site who do
not register for Company services (the "Visitors") with full disclosure of
Company capture and use of Personal Data and the opportunity to opt out of any
use of Personal Data for marketing purposes. Furthermore:
o Company will not disclose to third parties for any reason any personal
data of Visitors.
o Company will not send unsolicited e-mail messages to Visitors.
SUBSCRIBERS. Company will, upon registration by a Visitor and thereafter through
the Terms and Conditions of subscriber's use , provide all registered users of
their services (the "Subscribers") with full disclosure of Company uses of
Personal Data for marketing purposes and provided such Subscriber is given the
opportunity to opt out of the use of its Personal Data for such marketing
purposes whether used by the Company or a third party.
Furthermore:
o Company will not disclose any individual Subscriber's e-mail address
to third parties for marketing purposes.
o Company may disclose aggregate Personal Data, such as demographics of
Subscribers, to third parties for the purposes of soliciting
advertisements or other marketing offers which Company feels may be
relevant to its Subscribers.
o Company may itself use individual Subscriber Personal Data to more
effectively provide its services.
o Company may use individual Subscriber Personal Data to provide
marketing offers to Subscribers in the form of:
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a) Third-party banner advertisements viewed at its site, including
banner ad's embedded in e-mail messages that are viewed at
Company's site using Company's web e-mail reader.
b) Third-party banner advertisements embedded in e-mail messages
forwarded by Company to Subscribers.
c) Third-party marketing offers in the form of direct e-mail
solicitations which will be clearly identified as originating
from Company.
Communication
Company will clearly communicate this Privacy Policy to all Subscribers and
Visitors through the Terms and Conditions of Use, which will be readily
accessible at all times at the Company's web site.
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FIRST AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT
This FIRST AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT (the
"Amendment") is entered into this 17th day of October, 1997, by and between
USA.NET, Inc., a Delaware corporation (the "Company"), and American Express
Travel Related Services Company, Inc., a New York corporation ("AMEX").
WHEREAS, the Company and AMEX entered into a Co-Marketing Program
Agreement, dated as of April 8, 1997 (the "Main Agreement"), pursuant to which
the Company agreed to provide e-mail services to certain of AMEX's current and
future holders of American Express(R) charge, credit or debit cards and certain
other individuals, and the Company and AMEX agreed to cooperatively promote such
services;
WHEREAS, pursuant to Section 3(a) of the Main Agreement, the Company
and AMEX agreed that the financial terms of the Main Agreement could be amended
by written agreement of the parties; and
WHEREAS, the parties desire to amend the financial terms of the Main
Agreement as more fully set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. DEFINITIONS: Unless otherwise defined herein, capitalized terms shall
have the meanings set forth in the Main Agreement.
2. SECTION 1: Section 1(a) of the Main Agreement shall be amended to read
in full as follows:
(a) Description. AMEX hereby retains Company to, and Company
agrees to, provide Customers with an opportunity to enroll in
the e-mail service offered to the Company's customers from
time to time (the "Basic Service;" the Basic Service as
offered on the date hereof is more specifically described in
Exhibit A hereto), with changes and enhancements thereto as
developed from time to time specifically for AMEX and approved
by AMEX in its sole discretion, all in accordance with the
terms hereof. The changes and enhancements may include
services which are provided by AMEX or third parties, some of
which may have e-mail components and some of which may not.
These enhancements, including products which may be offered by
AMEX alone are more fully set forth in Section 3 below as
"Applications Products", "Content Products" and "AMEX
Products". The Applications Products and Content Products are
referred to collectively herein as the "Enhancements"; the
Basic Service as changed or enhanced by the Enhancements is
referred to herein as the "Service"). As compared with the
Basic Service, the Service will always have features,
including by way of example additional services, reduced
pricing or incentive offers that will
-1-
<PAGE> 51
be exclusive to Customers. In the marketing and promotion of
the Service to Customers, AMEX shall determine which
Enhancements and features shall be included in the Service as
so marketed and promoted.
3. SECTION 3: Section 3 of the Main Agreement shall be amended to read in
full as follows:
3. FINANCIAL ARRANGEMENT:
(a) The parties shall share Service Revenues (as defined below) with
respect to the following products or services as set forth below:
(i) Basic Service and Applications Products. As used herein,
"Company Customers" shall mean Customers who were customers
of the Company prior to the distribution of any Promotional
Material and "Eligible Customers" shall mean all Customers
who are not Company Customers. AMEX shall be entitled to
receive or retain [ ** ], and the Company
shall be entitled to receive or retain [ **
], of the Service Revenues from the use by Customers of
the Basic Service and any application service enhancement
which is technically integrated with the Basic Service and
which is developed and offered by the Company either alone
or jointly with a third-party (the "Applications Products").
Examples of Applications Products include e-mail based [
** ] The parties
acknowledge and agree that AMEX intends to market and
promote a joint product with Premiere Technologies, Inc. and
the Company, the Connections(TM) Calling Card, which
contains e-mail convergence features and which would be
considered an Applications Product under this Agreement.
However, the parties agree that AMEX shall be entitled to
receive or retain [ ** ] and the Company
shall be entitled to receive or retain [ ** ],
of the Service Revenues received from Eligible Customers
with respect to the e-mail component of the Service provided
by the Connections(TM) Calling Card.
(ii) Content Products. "Content Products" are enhancements which
have an ongoing e-mail service component which generates
Service Revenue and which uses the Company's technology or
platform but which is not an integrated application. AMEX
shall be entitled to receive or retain [ ** ]
of the Service Revenues received from Eligible Customers for
any Content Products which it identifies and for which it
obtains the right to market and sell as part of a Program
(an "AMEX Content Product"), and the Company shall be
entitled to receive or retain [ ** ] of the
Service Revenues received from Eligible Customers for any
AMEX Content Products. An example of an AMEX Content Product
would include InfoBeat. The Company shall be entitled to
receive or retain [ ** ] of the Service
Revenues received from Eligible Customers for any Content
Products which it identifies and for
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
-2-
<PAGE> 52
which it obtains the right to market and sell as part of a
Program (a "Company Content Product"), and AMEX shall be
entitled to receive or retain [ ** ] of the
Service Revenues received from Eligible Customers for any
Company Content Products. An example of a Company Content
Product would include Quote.com.
(b) Payment. The party (the "Collecting Party") who is billing and
collecting the Service Revenues with respect to a particular
product or service shall remit to the other party (the "Receiving
Party") its portion of the Service Revenues as set forth in
subsection (a) above. The Collecting Party shall remit any
payments due the Receiving Party within thirty (30) days after the
end of each calendar month, along with back-up documentation
reasonably acceptable to the Receiving Party showing the
calculation of the amount so paid. Each party agrees to limit any
direct commissions which it pays to a maximum of [ **
] of the Service Revenues which it receives from advertising
sales.
(c) AMEX Products. If AMEX requests that any Program include
advertisement for or promotion of products created by or on behalf
of AMEX which do not generate an ongoing Service Revenue
specifically attributable to an e-mail service component and which
do not use the Company's technology or platform (the "AMEX
Products") then AMEX shall pay the Company as follows: (i) if AMEX
advertises or promotes the AMEX Products using advertisement on
the Company's Basic Services (e.g., banner ads, direct e-mail or
other web-based or e-mail advertisements) the Company's regular
rates for such advertisement on its Basic Services, or (ii) if
AMEX advertises or promotes the AMEX Products using other e-mail
based promotion methods such as web pages or web links,
reimbursement for all of its reasonable Costs (as defined below)
associated with the sale of the AMEX Products (other than
advertising rates) plus [ ** ] of such Costs (other
than advertising rates). AMEX Products may include, without
limitation, features such as American Express Cards, travel
services, financial services, and calling cards (with the
exclusion of e-mail convergence features). AMEX shall remit any
payments due the Company pursuant to this subsection within ten
(10) days after AMEX receives from the Company an invoice and
back-up documentation reasonably acceptable to AMEX showing the
calculation of the costs incurred.
(d) Service Revenues. As used in this Section 3, "Service Revenues"
shall mean revenues generated by the use of the Service which:
(i) includes (1) revenues generated from advertisement on the
Basic Service as used by Customers (which advertisement shall
accord with the AMEX advertisement policy set forth on Exhibit
C hereto, as amended from time to time), (2) fees charged to
Customers for enrollment in the Basic Service, Applications
Products or Content Products (the "Enrollment Fees"), which
Enrollment
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
-3-
<PAGE> 53
Fees shall be determined by the parties hereto, and (3) any
other fees approved by the parties hereto from time to time;
and
(ii) excludes (1) applicable taxes, (2) fees or revenues
generated by AMEX under any AMEX card acceptance agreement,
(3) revenues from Company Customers and (4) any reasonable
commissions for advertising sales directly or indirectly
relating to the Basic Service or any Enhancement (any
disagreement relating to the amount of third party
commissions shall be resolved by arbitration pursuant to
Section 18).
(e) Costs. "Costs" shall include the costs provided in Sections 2(d)
and (e) hereof.
(f) Classification of Products, Services or Enhancements. At the
request of either party, AMEX and the Company expressly agree to
consider and negotiate in good faith the classification of any
product, service or product enhancement under this Section 3 for
purposes of determining the compensation to be paid in connection
with its promotion and sale.
(g) Amendment of Financial Terms. AMEX and the Company expressly
acknowledge that the financial terms stated herein may be amended
as the parties may agree in writing.
(h) Domain Name Alternative Service Revenues. The parties hereto
acknowledge that the Service Revenues generated from Company
Customers that are provided the Service under the Domain Name
Alternative (defined in Section 15) shall be subject to a Service
Revenue share between the parties hereto as the parties shall
reasonably agree.
(i) Acceptance Agreement. Company agrees that it will enter into an
agreement ("Acceptance Agreement") for the acceptance of American
Express(R) Cards. Company understands that it will be responsible
for paying any charges incurred in connection with the Acceptance
Agreement, including the payment of any discount fees. All
Enrollment Fees and other fees payable by Customers will be billed
to the Customers' Card Account, if any. Company shall be
responsible for billing and collecting all fees (including the
Enrollment Fee) payable by Customers for use of the Services.
4. OTHER TERMS: As modified by this Agreement hereby, the Main Agreement
shall remain in full force in accordance with the terms thereof.
-4-
<PAGE> 54
IN WITNESS WHEREOF, AMEX and the Company, intending to be legally bound
by the terms of this Amendment, have caused this Amendment to be executed by
their duly authorized representatives.
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: [ ** ]
-------------------------------------------
Name: [ ** ]
Title: [ ** ]
[ ** ]
USA.NET, INC.
By: /s/ John W. Street
-------------------------------------------
Name: John Street
Title: President, CEO
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
-5-
<PAGE> 55
SECOND AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT
This SECOND AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT (this "Second
Amendment") is entered into this _____ day of December, 1998, by and between
USA.NET, Inc., a Delaware corporation (the "Company"), and American Express
Travel Related Services Company, Inc., a New York Corporation ("AMEX").
WHEREAS, the Company and AMEX entered into a Co-Marketing Program Agreement,
dated as of April 8, 1997 (the "Main Agreement");
WHEREAS, the Main Agreement has been amended by the First Amendment to
Co-Marketing Program Agreement, dated as of October 17, 1997, by and between
Company and AMEX (together with the Main Agreement, the "Marketing Agreement");
and
WHEREAS, the parties desire to extend the term of the Initial Term of the
Marketing Agreement in accordance with the terms hereof;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
in this Second Amendment, the parties hereto agree as follows:
1. DEFINITIONS: Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed thereto in the Marketing
Agreement.
2. INITIAL TERM. The first sentence of Section 16(a) of the Marketing
Agreement is hereby amended in its entirety to read as follows:
This Agreement shall take effect on the date hereof (the
"Effective Date"), and continue until July 8, 1999 (the
"Initial Term").
3. OTHER TERMS. As modified by this Second Amendment, the Agreement shall
remain in full force and effect in accordance with the terms thereof.
IN WITNESS WHEREOF, AMEX and the Company, intending to be legally bound by the
terms of this Second Amendment, have caused this Second Amendment to be executed
by their duly authorized representatives.
AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC.
By: [ ** ]
-------------------------------------------
Name: [ ** ]
Title: [ ** ]
[ **
]
USA.NET, INC.
By: /s/ Daniel M. Winokur
-------------------------------------------
Name: Daniel M. Winokur
Title: VP, Business Development
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 1
** CERTAIN CONFIDENTIAL
MATERIAL CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF
1933, AS AMENDED.
EXHIBIT 10.11
NETCENTER SERVICES AGREEMENT
COVER SHEET
IMPORTANT NOTICE: THIS NETCENTER SERVICES AGREEMENT INCLUDING EXHIBITS HERETO
("AGREEMENT"), OF WHICH THIS PAGE IS A COVER SHEET ("COVER SHEET"), SETS FORTH
THE TERMS AND CONDITIONS FOR PARTICIPANT'S INCLUSION IN NETSCAPE'S NETCENTER.
Description of Service: A web-based email service that provides end users with
the permanence, privacy, and accessibility of a web-based email account. The
primary service will be a free (advertising supported) web-based email service.
The Service will also offer end users with an array of premium web-based email
services and advanced features set forth in Exhibit D hereof.
Participant Brand Service: Net@ddress - a web-based email service offered by
Participant at URL: http://www.netaddress.com
Territory: North America (US and Canada and Mexico)
Local Language: U.S. English, French Canadian and Spanish
Service Period: 2 years, beginning on the earlier of (i) the Launch Date or
(ii) June 1, 1998.
Addresses for Notice:
<TABLE>
<S> <C>
Participant: Netscape:
USA.NET, Inc. Netscape Communications Corporation
1155 Kelly Johnson Boulevard, Suite 400 501 East Middlefield Road, MS: MV-002
Colorado Springs, CO 80920 Mountain View, CA 94043
Fax: (719) 265-2923 Fax: (650) 528-4123
Attn: Geoffrey Lind Attn: General Counsel
PARTICIPANT:
USA.NET, Inc. NETSCAPE COMMUNICATIONS CORPORATION
a Delaware corporation a Delaware corporation
Signature: /s/ GEOFFREY E. LIND Signature: /s/ MIKE HOMER
------------------------------- -----------------------------------
Name: Geoffrey E. Lind Name: Mike Homer
------------------------------------ ----------------------------------------
Title: COO Title: EVP of Website Division
----------------------------------- ---------------------------------------
Date: April 17, 1998 Date: 4/17/98
------------------------------------ ----------------------------------------
</TABLE>
Attached Exhibits:
Exhibit A: End User Registration
Exhibit B: Payment Terms
Exhibit C: Copy of Mutual Confidential Disclosure Agreement
Exhibit D: Premium Services and Advanced Features
Exhibit E: Best-Of-Breed Service
Exhibit F: Netscape Advertising Guidelines
Exhibit G: IBD Agreement
1.
<PAGE> 2
SERVICES AGREEMENT
This Agreement entered into by and between Netscape Communications Corporation
("Netscape") and the entity ("Participant") identified on the Cover Sheet is
effective as of this _____ day of _________, 1998 (the "Effective Date").
In consideration of the mutual covenants contained herein, the parties agree as
follows:
1. DEFINITIONS
"ADVANCED FEATURES" means components of the Service that provide value in
excess of the Basic Features to the end user and are offered at no charge to
the end user under this Agreement. The initial Advanced Features are set forth
in Exhibit D, and Best of Breed expectations for Advanced Features are set
forth in Exhibit E.
"BASIC FEATURES" means components of the Service that provide value to the end
user and are offered at no charge to the end user under this Agreement. The
initial Basic Features shall mean the features offered by Participant Brand
Service as of the Effective Date.
"BEST-OF-BREED SERVICE" means the Service having the criteria set forth in
Exhibit E hereto, as amended by mutual written agreement from time to time.
"CONFIDENTIAL INFORMATION" means information deemed to be confidential in
accordance with the terms of the Mutual Confidential Disclosure Agreement
attached hereto as Exhibit C.
"CONTENT PROVIDER" means a company, which is participating in the Service by
providing to such Service content and/or a link to a content-related site.
"END USER INFORMATION" means the end user information as defined in Exhibit A.
"LAUNCH DATE" means the date on which Phase 1 of the Service as set forth in
Exhibit D is fully functional and accessible to end users.
"LOCAL LANGUAGE" means the languages specified on the Cover Sheet.
"MILESTONES" means the targets mutually agreed to by the parties as set forth
in Section 6.1.
"NETCENTER" means that area of Netscape's Web Site, which offers online
business services and shopping opportunities to end users.
"NETCENTER LOGOUT" means the process by which a user completely logs out of
Netcenter. Netscape reserves the right to change the functionality of Netcenter
Logout from time to time as outlined in Exhibit A.
"NETCENTER LOGOUT PAGE" means the page served when a user chooses to log out of
Netcenter; the content and functionality of such page will be determined by
Netscape.
"NETCENTER REGISTRATION" means the portion of the registration that is
maintained, hosted, and controlled by Netcenter and applies to multiple
services across Netcenter. Netcenter Registration includes the assignment of a
username, password, and the collection of core Netcenter user profile data
which may include: First name, Last name, Address, City, State, Country, Zip
Code. Since a Netcenter user's username will also be user's email address,
Netcenter Registration will assign all email addresses as well.
"NETSCAPE'S WEB SITE" means the collection of Local Language HTML documents
targeted at end users in the Territory and currently accessible by the public
via the Internet at the URL http://home.netscape.com and/or at such
2.
<PAGE> 3
other URL or locations as Netscape may designate. For purposes of this
Agreement, Netscape's Web Site does not include any future technologies or
future uses of existing technologies which might embody a collection of
documents (other than HTML documents) on the Internet.
"NON AFFILIATED PREMIUM SERVICES" means the premium services offered in the
Service by partners of Netscape's Netcenter other than Participant. These
services are typically offered elsewhere on the Netcenter site and are not
exclusively targeted toward users of the Service.
"PARTICIPANT BRAND SERVICE" means Participant's web-based email service
specified on the Cover Sheet.
"PARTICIPANT'S CONTENT" means Content Provider listings and other information,
materials and/or services supplied by, managed by or under the control of
Participant.
"PARTICIPANT'S WEB SITE" means Participant's primary Local Language web site
and which is accessible by the public via the Internet at the URL
http://www.netaddress.com. Participant's Web Site shall not mean any other web
site.
"PAYMENT" means the amounts specified in Exhibit B.
"PREMIUM SERVICES" means value added services targeted toward users of the
Service requiring payment of fees therefor. Fees may be monthly service fees,
packaged bundled fees, or direct fees for service used. The initial Premium
Services are set forth in Exhibit D, and Netscape and Participant shall have
the right to amend the Premium Services from time to time by mutual written
agreement.
"SERVICE" means the service described on the Cover Sheet, the operation of
which is the subject of this Agreement.
"SERVICE AD INVENTORY" means the electronic advertising inventory within the
Service and any other advertising inventory which Participant will manage as
described in this Agreement.
"SERVICE FRONT PAGE" means the page on the Internet, which is the initial point
of entry for an end user accessing the Service.
"SERVICE LOGOUT" means the process by which a user ends user's session within
the Service. The functionality of the Service Logout will be specified by
Netscape in accordance with Netcenter Registration guidelines which may change
from time to time as described in Exhibit A upon thirty (30) days notice to
Participant.
"SERVICE LOGOUT PAGE" means the page on the Internet a user is served when user
ends user's session within the Service. Ending a Service session does not
automatically log a user out of Netcenter. Netcenter will maintain control of
the Netcenter Logout process and Netcenter Logout Page described above.
"SERVICE PERIOD" means that period of time beginning on the Launch Date and
ending upon the expiration or termination of this Agreement.
"SERVICE REGISTRATION" means the portion of registration that is specific to
the Service, which collects information pertaining to the Service. The
functionality and design of the Service Registration will be determined
mutually by Netscape and Participant provided that such functionality and
design complies with Netcenter service registration guidelines as described in
Exhibit A. Service Registration cannot include data collected in the general
Netcenter Registration as defined above.
"SPONSORSHIPS" means fees paid for the right to have a listing or some form of
exposure incorporated into the Service.
"TERM" means the period of time beginning on the Effective Date and ending on
the last day of the Service Period.
3.
<PAGE> 4
"TERRITORY" means the target geographic area listed on the Cover Sheet.
2. SERVICE OVERVIEW
2.1 THE SERVICE. Netscape shall include Netcenter as part of
Netscape's Web Site. The Service will be included within Netcenter. The Service
shall be offered in the Local Language and targeted toward end users in the
Territory. The Service shall be Best-of-Breed Service, modeled after, yet
differentiated from, Participant Brand Service, in accordance with applicable
then current Netscape guidelines therefor. Netscape may revise such guidelines
therefor and the means whereby end users may access the Service, provided that
the prominence of the Service within Netcenter may not be materially reduced.
Netscape and Participant shall mutually agree upon the time frame for
implementing such changes, which time frame shall be no less than 30 days
(unless otherwise agreed by the parties). The Service shall be targeted at
users in North America who desire a free web-based email account on their own
(without a need to share) or a secondary email account for users to handle
their personal emails. During the Term, provided the Service substantially
conforms to the Best-of-Breed Service requirements, Netscape will not launch a
third party web-based email service, which is substantially similar to the
Service, targeted to customers located in the Territory in the Local Language
on Netscape's Web Site.
2.2 SERVICE FRONT PAGE. Netscape shall host the Service Front Page,
unless otherwise agreed by the parties.
2.3 SERVICE PAGES. The Service will: (i) be produced and managed by
Participant; (ii) have a "Netscape.com" domain name (or such other domain name
as Netscape may determine); and (iii) reside solely on Participant's servers.
All access to the Service shall be deemed to be via Netscape's Web Site, and
therefore shall be Netscape traffic. Every page of the Service shall be
co-branded by Netscape and Participant, and such co-branding shall appear above
the fold. Every page of the Service shall include navigational and branding
elements, which shall appear above the fold and offer end users navigational
controls within Netcenter. Netscape will determine, subject to Participant's
prior approval (which shall not be unreasonably withheld), the design/user
interface, promotions and links in all of the pages of Service, provided that
(i) all pages are consistent with the Netcenter look and feel; (ii) all pages
integrate key aspects of Netcenter navigation and functionality; (iii) branding
on all pages in the Service is consistent with the Netcenter branding scheme;
and (iv) all pages provide links to Netcenter including but not limited to a
Netcenter footer. Trailers (or successors thereto) at the bottom of outbound,
forwarded, POP3, and IMAP messages will also have a link to the Service,
including the full name of the Service. Any additional content for trailers (or
successors thereto) shall be mutually determined by Netscape and Participant.
2.4 PROPRIETARY RIGHTS.
2.4.1 Participant hereby grants Netscape a non-exclusive, royalty
free and fully paid up limited license under Participant's patents,
trademarks, copyrights, and trade secrets, whether presently owned or hereafter
acquired, to make, use, offer for sale, and sell products and services solely
in connection with the Service during the Term. All rights not expressly
granted to Netscape hereunder are reserved by Participant. Participant will
grant Netscape a non-exclusive, perpetual license after the end of the term to
any intellectual property in work product independently developed by
Participant for the Service at a price to be mutually determined in good faith.
Netscape acknowledges and agrees that the foregoing license grant conveys no
ownership interest and that, except for the license grant, Participant retains
all right, title and interest in its patents, trademarks, copyrights and trade
secrets.
2.4.2 Netscape hereby grants Participant a non-exclusive, royalty
free and fully paid up limited license under Netscape's patents, copyrights,
and trade secrets, whether presently owned or hereafter acquired, to make, use,
offer for sale, and sell products and services solely in connection with the
Service during the Term. All rights not expressly granted to Participant
hereunder are reserved by Netscape. Participant acknowledges and
4.
<PAGE> 5
agrees that the foregoing license grant conveys no ownership interest and that,
except for the license grant, Netscape retains all right, title and interest in
its patents, copyrights and trade secrets.
2.4.3 Participant shall not independently use the Service name
without Netscape's prior written consent unless such use occurs in connection
with Participant's advertising, sales and promotional efforts on behalf of the
Service. If the Service name includes a co-branding component that is not
generic or descriptive, Participant may not use the Service name with the
Netscape name expunged, provided that nothing in this Section is intended to
prevent Participant from using its name or any of its corporate identifiers.
2.4.4 Any intellectual property in work product resulting from
co-development efforts under this Agreement shall be owned by Netscape subject
to a fully paid up, royalty free, perpetual license to Participant to make,
use, offer for sale and sell products and services that incorporate such
intellectual property, provided that Participant shall not make, use, offer for
sale or sell any products incorporating such intellectual property for a period
of 18 months after the termination or expiration of the Agreement (the
"Prohibition"), and such license shall survive termination of this Agreement.
For the purposes of this Agreement, "co-development" shall consist of (a) work,
even if performed solely by Participant, that primarily involves integration of
features and functionality with Netcenter functions and resources (such as the
member directory), unless such work consists of conforming to a published
Netscape API or specification; or (b) all other work where employees of each
party meet the statutory requirements under U.S. patent and copyright law (35
U.S.C. ss.16 and 17 U.S.C. ss.101 and ss.201, respectively) to be deemed
co-inventors or co-authors (including any work product consisting of conforming
to published Netscape APIs or specifications). Participant hereby assigns to
Netscape any and all of its rights, title and interests in any co-developed
work, and shall promptly deliver to Netscape all such co-developed work,
including but not limited to source code and all available documentation
therefor, in a form and manner to be specified by Netscape. Participant shall
cooperate with Netscape at Netscape's expense in perfecting any such rights,
including executing any necessary documentation.
2.4.5 Neither party shall have the right to sublicense any of the
other party's intellectual property, except that each party may sublicense any
intellectual property in work product that has been co-developed subject to
Section 2.4.4 and further provided that Participant complies with the
Prohibition in Section 2.4.4 above.
2.4.6 In the event that third party license fees, royalties, or
other payments are required for any technology in the Service, the parties
agree to negotiate in good faith a mutually acceptable sharing of such third
party payments.
2.4.7 The parties agree that in the event of any alleged
infringement of third party proprietary rights by any component of the Service,
each party shall have the right, in its reasonable judgment, with no liability
to the other party, to suspend or discontinue or cause such suspension or
discontinuance of such allegedly infringing component, including the Service or
a portion thereof, until the alleged infringement claim is resolved.
3. SERVICE IMPLEMENTATION
3.1 PRODUCTION, TECHNOLOGY AND CONTENT DEVELOPMENT. Participant shall
be responsible for developing, producing and implementing the design, user
interface, promotions, links and functionality as determined by Netscape and
approved by Participant pursuant to Section 2.3. The parties agree that the
user interface may change on a fairly regular basis and Participant agrees that
it will respond to such changes within the time frame mutually agreed by the
parties. Participant shall use commercially reasonable efforts to employ
Netscape's technology in the Service, if available, rather than a technology,
which might compete with Netscape products or services, provided that such use
of Netscape's technology does not unduly burden the performance or production
of the Service. If Netscape commercially releases a client-server webmail
solution deemed by Netscape to be optimal for the Service, at Netscape's
request, Participant agrees to use such solution in the Service provided
5.
<PAGE> 6
that the parties are able to agree on pricing therefor and further provided
that such solution is a "best of breed" solution (i.e., contains all of the
features and functionality of, and is of the same or superior quality to, other
available solutions).
On the Launch Date, the Service will consist of a free web-email service,
including Basic Features, and the Premium Services and Advanced Features
identified under Phase 1 in Exhibit D. Following the Launch Date and with
Netscape's prior approval, Participant will deploy the Premium Services and
Advanced Features identified under Phase 2 and Phase 3 in Exhibit D as set
forth therein, or as otherwise mutually agreed by the parties. Notwithstanding
Exhibit D, nothing in this Agreement obligates Netscape to approve any Advanced
Feature or Premium Service for inclusion in the Service; provided, however that
Netscape will not withhold its approval unreasonably.
3.1.1 Netscape acknowledges and agrees that Participant's pre-existing
obligations to American Express Travel Related Services ("AMEX") requires that
Participant offer AMEX's customers any Advanced Features and Premium Services
available in the Participant Brand Services. Netscape further acknowledges and
agrees that Participant's obligations to AMEX require that Participant provide
AMEX's customers for the OEM service provided by Participant at URL:
www.amexmail.com. with at least one unique service or feature to distinguish
such AMEX service from others, provided that Participant does not unreasonably
withhold a service or feature deemed by Netscape to be critical to the Service.
Participant shall cooperate with Netscape to take all possible steps to prevent
any service or feature deemed by Netscape to be critical to the Service from
being excluded from the Service because of such pre-existing commitment. To
ensure Best-of-Breed Service, Participant will use commercially reasonable
efforts to develop or pursue third party relationships to provide new Advanced
Features and Premium Services which Participant will present to Netscape at
least on a quarterly basis. Participant agrees to offer such available new
Advanced Features and Premium Services to Netscape for implementation in the
Service for a period of 60 days (or such longer period if Netscape and
Participant so agree) in advance of offering such available new Advanced
Features and/or Premium Services to any Participant OEM partner other than
AMEX.
3.1.2 Netscape must approve all functionalities, features,
enhancements and premium services before addition to the Service; provided,
however, Netscape will not withhold its approval unreasonably. With the
exception of fax services, Netscape grants Participant the right to provide all
Premium Services in Exhibit D. Netscape and Participant agree to review the
components of the Service to determine whether any functions, features,
enhancements or Premium Services should be added, removed, or replaced
considering changes in the general design or infrastructure of Netcenter,
technical feasibility, both parties' industry experience, cost of the Service
or Netcenter, impact on the Service's or Netcenter's performance, and both
parties' revenue generating opportunities. Participant will use best efforts to
integrate other Netcenter services, Netcenter control functionality, or Non
Affiliated Premium Services into the Service at Netscape's request in order to
provide a more consistent user experience for Netcenter members across the
Netcenter website, provided that these requests do not unreasonably and
materially adversely affect the Participant's costs or revenue generation
opportunities.
3.1.3 Unless otherwise mutually agreed, the parties agree that
promotions and links in the Service shall be allocated as follows:
(a) [**] of total ad banner inventory will be reserved for use at
Netscape's sole discretion to promote other Netcenter services or for
mutually-agreed barter ads of third party partners willing to promote the
Service;
(b) Pop-up ads will be mutually agreed upon, with the initial
allocation of [**] to promote other Netcenter services and [**] to promote
Premium Services, collect additional information, or user surveys;
(c) Advertising on Service Logout Pages will be sold and managed
by Participant;
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
6.
<PAGE> 7
(d) New promotional opportunities will be mutually agreed upon;
and
(e) Advertising portals on the vertical navigational frame on the
left hand side will be mutually agreed upon, with the initial allocation of [**
] for promotions of Premium Services and [ ** ] for advertising revenue
managed by Participant.
3.1.4 Participant will manage, run, and sell slots in a direct
marketing content distribution program to be included in the Service sign-up
process. The direct marketing program will consist of two sections: (a) special
one-time promotions, which are not a subscription to a service or product and
(b) In-Box Direct for web email as it relates to the Service. The parties will
mutually agree on the quantity of (a) and (b). In addition, both (a) and (b)
shall be subject to Netscape's then-current privacy policy and general terms
and conditions of the In-Box Direct agreement, as such agreement may be amended
by Netscape from time to time upon 30 days prior notice to Participant. All use
and collection of End User Information shall be in compliance with Netscape's
privacy policy published at URL:
http://home.netscape.com/netcenter/privacy.html. With respect to (b), no
sponsors other than In-Box Direct partners may participate therein, and
Participant shall not distribute any ongoing email subscription content other
than In-Box Direct without Netscape's prior approval which approval will not be
unreasonably withheld. Netscape reserves the right to add, free of charge,
Netscape content or mutually selected partner content in the direct marketing
program. Participant will transmit to Netscape all end user data for In-Box
Direct per the format specified in the In-Box Direct agreement. Participant
will use commercially reasonable efforts to perform development work required
to ensure that web email subscription data is in sync with the standard In-Box
Direct program on a real time basis. All end user subscription management will
be handled through the In-Box Direct program unless mutually agreed otherwise.
Participant shall use commercially reasonable efforts to improve the process by
which end users of the Service receive In-Box Direct subscriptions. A link to
In-Box Direct shall be at the end of the sign-up process as well as in the user
interface for the Service. Both parties agree that the integration of In-Box
Direct with the Service may be postponed by mutual agreement.
3.1.5 In addition, unless Best-of-Breed Service is breached, or the
parties mutually agree otherwise, Netscape agrees that:
(a) At the Launch Date, the Service will have a link under the
Community section of the Netcenter homepage of Netscape's Web Site or
equivalent promotion if such page is redesigned;
(b) At the Launch Date, the Service will have a link under the
Community section of Netcenter on the Netcenter index page or equivalent
promotion if such page is redesigned;
(c) At the Launch Date, a listing will be given to the Service on
the Netcenter premium services page. This listing will most likely link to a
page in the Service, which describes the Premium Services. Netscape reserves
the right to change this listing or remove it in the future due to changes in
format or positioning of the Netcenter premium services page, provided that an
equivalent promotion is provided;
(d) Netscape will include a one-time story on the Service in a
Netcenter newsletter;
(e) During the first 2 weeks after the Launch Date, Netscape will
allocate [**] of remnant ad space on Netscape's Web Site, if any, to promote the
Service. For 6 weeks thereafter, Netscape will allocate [**] of remnant ad space
on Netscape's Web Site, if any, to the Service;
(f) Netscape will run JavaScript messages targeted toward
Netcenter and non-Netcenter members to promote the Service on the home page of
Netscape's Web Site during the first 2 weeks after the Launch Date;
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
7.
<PAGE> 8
(g) Within the first 3 months after the Launch Date, Netscape will
also provide one to two weeks of exposure for the Service in the Netscape
newsticker on the home page of Netscape's Web Site as well as flashes on the
corresponding newspage;
(h) Netscape will promote the Service in the Netcenter flash
section of the home page of Netscape's Web Site at least once a week during the
6 weeks after the Launch Date;
(i) Netscape will continue to promote the Service through the
remainder of the Term;
(j) Within 6 months of the Launch Date, and subject to compliance
with all applicable laws relating to Netcenter contests and without Netscape
incurring additional compliance costs for such contests under this subsection,
Netscape will use commercially reasonable efforts to integrate new subscribers
of the Service into such contests in a manner that will incentivize users to
sign up for the Service and/or use the Service;
(k) Netscape will use commercially reasonable efforts to offer a
Netcenter free email button to all In-Box Direct partners for inclusion in
outbound email newsletters at such partners' discretion. The In-Box Direct
program guidelines (which currently require a tag line at the top of the
mailing explaining to users who have mistakenly subscribed to In-Box Direct how
to unsubscribe) will be modified to require the In-Box Direct email messages to
contain language in the tag line to promote the Service;
(l) Within 30 days after the Launch Date, the Service will replace
the current free email program available from In-Box Direct. A link to the
Service will appear on the welcome/what's new page of In-Box Direct. Netscape
reserves the right to discontinue this link if the format of the what's new
page or In-Box Direct changes. In such event, Netscape will replace the link
with another link in an equally prominent position elsewhere in Netcenter. A
link to the Service will also appear on the instructions and user FAQ page of
In-Box Direct. Some level of promotion will be given to the Service on the
thank-you page of the In-Box Direct sign up;
(m) Netscape will promote the Service in pop-up promotions
[ ** ] impressions during the first 6 months following the Launch
Date unless Netscape discontinues pop-ups throughout Netcenter or as otherwise
agreed by the parties;
(n) Within 6 months after the Launch Date, Netscape will include a
button for the Service on the personal toolbar in Netscape Communicator version
4.05, U.S. English language, upon general release on Netscape's Web Site.
Netscape will use commercially reasonable efforts to include an embedded email
message promoting the Service in a future release of the Netscape Communicator,
which message is visible to users after a new email profile is set up. If such
is not commercially reasonable, Netscape will provide an equivalent promotion;
(o) Netscape may promote the Service in other avenues where
possible and appropriate;
(p) Netscape will provide a program manager to work with
Participant to: establish development priorities; specify Advanced Features and
Premium Service offerings; evaluate performance and revenue generating
opportunities; set strategic direction; manage integration of the Service with
other Netcenter services; and develop and implement an advertising and
promotions plan. Netscape will also provide a production resource to assist in
the integration of Participant's email registration with Netcenter as well as
to provide direction on design and user interface functionality at least until
60 days after the Launch Date;
(q) Users registering for Netcenter under Registration 2.0 will
automatically be assigned a Netcenter email address. These users must come to
the Service to "activate" the account by completing
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
8.
<PAGE> 9
the Service Registration. Netscape reserves the right to (i) change this
Service Registration process in future versions of Universal Registration; and
(ii) terminate the automatic assignment of Netcenter email addresses, provided
that Netscape will provide Participant 30 days advance notice of any material
change; and
(r) Notwithstanding the foregoing subsections of this Section
3.1.5, Netscape reserves the unilateral right to change any of these
allocations due to redesign of the home page of the Netscape Web Site or
changes in program allocation methodology provided that such promotions are
replaced with an equivalent promotion elsewhere on Netcenter.
3.1.6 In addition, Participant agrees that:
(a) Participant will dedicate a program manager to overall
program management of the Service. The program manager will be Participant's
central contact person to coordinate activities for Netscape. The program
manager will produce monthly reports/presentations to Netscape with
recommendations on how to improve revenue maximization, service performance,
customer service, and differentiate the Service. The presentation should also
include analyses of performance to date and competitive offerings. The program
manager will write and design content for the what's new page/section of the
Service subject to approval by Netscape. Participant will develop and implement
a Premium Service infrastructure and marketing plan to promote Premium Services
and Advanced Features, including but not limited to a what's new newsletter and
the what's new page. Participant will produce, manage, host and maintain the
Service as Best-of-Breed Service. This includes having sufficient staff and
managing creative, technical, and business staff to produce and operate the
Service as Best-of-Breed Service, including but not limited to advertising
sales/management, engineering, production, design, customer service, and
business development;
(b) Participant will dedicate resources to ensure that the
Service is Best-of-Breed Service, and that the Basic Features, Advanced
Features and Premium Services approved by Netscape are developed and
implemented in a mutually agreed time frame. Participant will also ensure that
Netcenter services, Netcenter functionality, and Non Affiliated Premium
Services as described in Section 3.1.2 are integrated into the Service in a
mutually agreed time frame. Participant will allocate development resources,
which are sufficient to satisfy its obligations under this Agreement.
Participant will dedicate a quality assurance manager to develop, test and
monitor the Service to ensure that the Service is Best-of-Breed Service.
Netscape hereby grants Participant a right and license to use, solely for such
integration, the technology under Netscape's control that is necessary to
integrate any Non Affiliated Premium Service. In the event Netscape chooses a
vendor other than Participant or a Participant partner to provide a particular
Non Affiliated Premium Service, Netscape will pay Participant for the
reasonable cost of integration thereof with the Service provided such cost is
pre-approved by Netscape. The parties will discuss and mutually agree on the
revenue sharing for any Non Affiliated Premium Service as set forth in Exhibit
B. The parties acknowledge that providing a link in the web email interface
does not constitute "integration." "Integration" shall be mutually agreed by
the parties and generally applies to more resource intensive activities on the
part of Participant;
(c) Participant will use commercially reasonable efforts to
support any Netscape initiatives to integrate the Service with current and
future releases of Netscape client software and the Netcenter Web site. If
Participant enters into a Netscape license agreement for the Netscape
Communicator source code and modifies such source code to better integrate the
Service into the Netscape Communicator user interface, Participant shall
promptly deliver such modified source code to Netscape so that Netscape may
promote these modifications or incorporate such changes into a future version
of the Netscape Communicator release by Netscape;
(d) Upon Netscape's request, Participant will, at no additional
charge, commit the resources necessary to work with Netscape to complete a
feasibility/scoping study that looks at web email product improvement in a
long-term co-development of a scaleable full featured web email product. If the
parties agree to move forward following such feasibility study, the parties
agree to conduct further discussions detailing, under separate agreement, the
terms and conditions of the co-development effort therefor;
9.
<PAGE> 10
(e) Where not prohibited by an agreement in existence as of the
Effective Date between Participant and a third party, Netscape shall receive
more prominent (i.e. larger display, higher on page) promotion and positioning
with respect to any other directly competitive Internet client software
companies or online service companies similarly situated on the page;
(f) Participant will offer to Netscape any functionality,
feature or enhancement integrated into the Participant's Brand Service within a
mutually agreed time frame;
(g) Participant shall be responsible for the operations of the
Basic Features, Advanced Features, Premium Services offerings, allowing end
users to easily configure any Basic Features, Advanced Features, Premium
Service and/or Non Affiliated Premium Services, or manage their email account;
(h) Participant shall promptly respond and resolve any spam
issues on the Service, including but not limited to using commercially
reasonable efforts to block spam; and
(i) Netscape may develop additional Netcenter features and
programs to help promote sales and customer loyalty, and Participant shall
implement such services and features when they are developed, provided such
implementation is reasonable and standard for participants in Netcenter.
3.2 ADVERTISING. Participant shall be responsible for selling
advertising and any other promotions within the Service Ad Inventory, subject
to Netscape's guidelines for advertising attached as Exhibit F. Participant
will consult with Netscape regarding the use of an external advertising sales
force in order to give Netscape the opportunity to assist Participant. If more
than [**] of the total Service Ad Inventory is sold via an external source, the
parties will mutually re-assess the advertising sales strategy. Advertising
services which Participant shall provide include site auditing, traffic
analysis, functionality and other advertising services. Participant will commit
resources to manage the advertising programs and sell the advertising inventory
in accordance with this Section 3.2. Ad management will include innovative
approaches to advertising in order to maximize revenue, track trial program
performances, and respond accordingly in a timely manner. Participant must be
able to serve targeted advertising to users of the Service. Participant shall
track, analyze, and report on ad performance on a monthly basis. Participant
shall design and develop banner ads subject to Netscape's approval, which
approval will not be unreasonably withheld, to promote the Service. The cost of
such promotion will be considered part of the cost of sales in calculating any
revenue sharing under this Agreement. The foregoing applies equally to the
development, management and sales of the direct marketing program described in
Section 3.1.4 above.
3.3 CONTENT PROVIDER PARTICIPATION IN THE SERVICE. Participant shall
determine the guidelines by which Content Providers may participate in the
Service provided such guidelines comply with applicable then current Netscape
guidelines. Participant will be responsible for administering the Content
Provider application and complying with such Netscape guidelines. If a Content
Provider fails to come into compliance after receipt of notification, Netscape
shall direct Participant to reduce or remove the listing of a non-complying
Content Provider.
3.4 TECHNICAL AND CUSTOMER SUPPORT BY PARTICIPANT. During the Term
and at no additional charge, Participant shall provide technical support
services for the Service to Netscape on a timely basis, appoint a technical
contact to whom Netscape may address all technical questions relating to the
Service, and use its best efforts to promptly remedy any material
malfunctioning of the Service in accordance with Best-of-Breed Service.
Participant shall be responsible for the maintenance and support of end users
of the Service in accordance with the Best-of-Breed Service. Participant shall
be solely responsible for the purchase, implementation, maintenance and support
of all software and hardware required to fulfill its obligations under the
Agreement. In addition, Participant shall make commercially reasonable efforts
to support Non Affiliated Premium Services for a mutually agreed fee or other
form of consideration.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
10.
<PAGE> 11
4. END USER REGISTRATION
End users who wish to engage in certain activities in the Service will have to
register with the Service as described in Exhibit A, as such Exhibit may be
revised by Netscape from time to time. The user registration page will be
linked to the Netcenter front page as well as all other appropriate pages in
the Service as Netscape shall determine. Any and all information regarding end
users that is obtained by Participant through, or in connection with, the
Service will be subject to the terms and conditions of Exhibit A.
Participant shall integrate the Service user interface with the Netscape
membership directory. No other directory service shall be included in the
Service Registration Process. The parties may mutually agree to offer users
other directory services in other portions of the Service.
5. NETSCAPE PRODUCTS AND TECHNOLOGY
5.1 OPTIMIZE FOR NETSCAPE TECHNOLOGY. In consideration of Participant
participating as an integral service partner within a core area of Netcenter
and in order to optimize the efficiency of the Service, during the Term:
5.1.1 Within all aspects of the Service, Participant shall use
commercially reasonable efforts to maintain compatibility with the client
software used by Netcenter members;
5.1.2 Subject to Section 3.1, Participant shall consider the use
of at least one current version of Netscape core Web server software product
(currently Netscape Enterprise Server) to maintain Participant's Web Sites;
5.1.3 Where not prohibited by an agreement in existence as of
the Effective Date between Participant and a third party, Participant shall
display the "Netscape Now" button (or any successor button) prominently on the
home page of Participant's Web Site, and on any page on Participant's Web Site
which contains a virtual button or other text or graphic for any third party
Internet client or server software, software provider or online service. On any
page on which the Netscape Now button is displayed, the Netscape Now button
shall be at least equal in size and prominence to the virtual button, text or
graphic for any third party Internet client or server software, software
provider or online service. Netscape hereby grants Participant a nonexclusive
and nontransferable license to perform and display the Netscape Now button
directly in connection with fulfilling the foregoing obligation. Participant's
use of the Netscape Now button shall be in accordance with the guidelines of
the Netscape Now Program currently published at the URL
http://home.netscape.com/comprod/mirror/netscape_now_guidelines.html;
5.1.4 Participant shall ensure that all web pages that are
located in the Service not endorse any third party client or server software or
online service that is directly competitive with Netscape's over Netscape's or
treat the provider of any such competitive software or online service as
preferred by Participant over Netscape, and use commercially reasonable efforts
to ensure that all web pages that are located one click away from any part of
the Service accord Netscape's products and services a position of prominence,
overall as well as on an element by element basis, at least as great as the
positioning accorded any third-party Internet client or server software or
online service; and
5.1.5 Participant's course of dealing with respect to other
services it may operate shall be governed by the terms of Section 5.2.
5.2 COURSE OF DEALING. In consideration of (i) the use of the
netscape.com domain name for the Service, and (ii)the treatment of the Service
as a fundamental part of the Netcenter service, until such time as Microsoft
fully publicly documents and makes available its operating systems programming
interfaces sufficiently to enable Netscape to make use of all of the facilities
and resources of those operating systems on a basis equal to that of Microsoft,
Participant shall:
11.
<PAGE> 12
5.2.1 Within Participant's publicly accessible Web sites, other
services (including co-branded and OEM services to the extent Participant can
influence the third parties involved) and marketing materials, accord
Netscape's products and services a position of preference and prominence,
overall as well as on an element by element basis, at least as great as that
accorded any third-party Internet client or server software, software provider
or online service; and
5.2.2 Not make content available solely to users of client
software or services other than Netscape's, or disfavor or disadvantage users
of Netscape client software or services in any way relative to users of other
Internet client software or services.
6. RESEARCH AND REPORTING
6.1 QUARTERLY REVIEWS OF THE SERVICE. Netscape and Participant agree
to establish a committee for quarterly reviews of the Service to evaluate the
success of the Service and agree to modifications and improvements to the
Service. The current Milestones for the Service are set forth below:
6.1.1 BUSINESS/DEVELOPMENT PLAN. Netscape and Participant will
mutually review and develop a quarterly business/development plan for the
Service. Both parties will meet on a regular basis (to be determined by the
parties) to review and prioritize development efforts, track progress against
plan, and map out the implementation and communication of enhancements.
6.1.2 MONTHLY REVIEWS. Netscape and Participant agree to
establish monthly reviews of the Service with the intent to review the
performance and development of the Service and agree to modifications and
improvements to the Service.
6.1.3 TWELVE-MONTH REVIEW. Netscape and Participant agree to
review the business plan after 12 months of operation after the Launch Date for
the purpose of mutually agreeing to revised subscriber and revenue targets.
6.1.4 QUARTERLY REVIEW FOLLOWING YEAR ONE. Netscape and
Participant agree to revise Milestones for future periods during the Term at
each quarterly review of the Service after the first year of the Term. If the
parties cannot mutually agree to revised Milestones, then the Milestones in
place at the time shall remain in effect.
6.1.5 END-OF-TERM REVIEW. Netscape and Participant agree to
review the revised business plan targets three months prior to the end of the
Term for the purpose of (a) discussing the performance of the Service and the
desirability of extending the term of the Agreement, and (b) mutually agreeing
to revised business plan targets for the renewal.
6.2 REPORTING AND USE OF REPORT INFORMATION. (i) On a weekly basis,
Participant shall provide Netscape with a daily user access log report in
common log format describing the total number of hits and page impressions for
each of the pages in the Service, and such other tracking information as the
parties shall mutually agree, and (ii) Within 15 days after the end of each
month during the Term, Netscape shall provide Participant with a report
describing the number of redirects of traffic to the Service from Netscape's
Web Site and such other tracking information as the parties shall mutually
agree. The information contained in the reports shall be deemed the
Confidential Information of both parties, provided, however that (i) Netscape
shall have the right to use the information contained in such reports in
Netscape's private and public reporting of access to the Service or Netscape's
Web Site; and (ii) Participant shall have the right to use the information
contained in such reports solely for Participant's internal uses except as
required for legal, audit or tax purposes unless Netscape otherwise agrees.
12.
<PAGE> 13
6.3 AUDIT RIGHTS. Participant shall retain complete, clear and
accurate records regarding its activities under this Agreement. Each Netscape
fiscal quarter (as set forth in Section 2 of Exhibit B) during the Term, the
parties shall review the financial results for the Service and access logs.
Netscape shall have the right, upon no less than 15 days' prior written notice
to Participant, to cause an independent Certified Public Accountant to inspect
and audit, during Participant's normal business hours, all relevant records of
Participant upon which Participant's revenue reports are based and the access
logs. Netscape may conduct such audit once per year. The costs of such audit
shall be paid by Netscape, provided, however, that if said inspection shall
reveal an underreporting in excess of [**] in monies due to Netscape by
Participant or an underreporting in excess of [**] in traffic to the Service,
Participant shall pay for the audit plus any underpayment and make adjustments
based on the underreporting of traffic, if applicable. Netscape's audit rights
as described herein shall continue for [** ] after the expiration or
termination of this Agreement.
6.4 PRESS PLANS. Participant and Netscape agree to participate in two
joint press announcements regarding the Service which will take place after
execution of this Agreement and on or around the Launch Date. The parties shall
agree to the form and content of the joint press release. Either party may
issue its own press release, subject to the other party's prior approval of the
content within the release, which approval will not be unreasonably withheld.
With respect to major advertising and marketing deal announcements regarding
the Service, Netscape and Participant shall have 72 business hours to respond,
in writing, to any proposed announcement. In any press announcement regarding
the Service, both Participant's and Netscape's name and logo shall be included
in the press release.
6.5 RESEARCH. If either party conducts any research directly relating
to the Service, such research results shall be shared with the other on a
timely basis. If Participant or Netscape conducts a study on their respective
Web sites, then both parties will include the Service in the study where
appropriate. Participant will conduct substantially the same level and as much
research and data collection regarding the Service as Participant conducts with
respect to the Participant Brand Service.
7. PAYMENT
For the benefits provided to Participant under this Agreement, Participant
shall pay Netscape the Payment in the amount and subject to the terms set forth
in Exhibit B and Netscape shall pay Participant the amounts set forth in
Section 3.1.6 (b).
8. HARMFUL CONTENT
Each party is solely responsible for any liability arising out of or relating
to any content which such party provides or any material which may be accessed
through a link provided by such party ("Content"). Each party represents and
warrants with respect to its content that it holds the necessary rights to
permit the use of such Content by the other party for the purpose of this
Agreement; and that such party's Content and any material to which users can
directly link through such party's Content will not violate any applicable laws
or rights of any third parties of which either party is aware. If either party
is aware that the other party's Content or web site contains any material that
such party deems likely to cause the other party material harm ("Harmful
Content"), such party will inform the party who provided the Harmful Content
and may (i) not include the Harmful Content in the Service, and/or (ii)
terminate this Agreement if the party who provided the Harmful Content has not
revised it to the other party's satisfaction within five business days after
receipt of written notice (as provided in Section 14.3 below) from the other
party. Each party reserves the right not to include in the Service any Harmful
Content.
9. WARRANTIES
9.1 PERFORMANCE. Participant warrants that (i) it has the right to
perform the services set forth in this Agreement, (ii) such performance does
not infringe any third parties' proprietary or personal rights of which it is
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
13.
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aware; and (iii) other than as specifically set forth in this Agreement,
Netscape shall not be obligated to pay any fees or royalties for including the
Service in Netcenter. Participant warrants that the Service will function
substantially in accordance with the terms set forth in this Agreement and
Best-of-Breed Service. Netscape warrants that (i) it has the right to perform
the services set forth in this Agreement, (ii) such performance does not
infringe any third parties' proprietary or personal rights of which it is
aware; and (iii) Participant shall not be obligated to pay any fees or
royalties for participating in Netcenter other than as specifically set forth
in this Agreement. Netscape warrants that Netcenter will function substantially
in accordance with the terms set forth in this Agreement. In any given [** ]
period during the Term, Netcenter shall have an uptime of at least [** ] with
industry standard downtime for maintenance, provided that such downtime not
occur at peak traffic times. Netscape shall repair any malfunctions of
Netcenter within a reasonable period of time (not to exceed [** ] after
notice by any party of such condition.
9.2 DISCLAIMER. THE WARRANTIES PROVIDED BY THE PARTIES HEREIN ARE
THE ONLY WARRANTIES PROVIDED BY THE PARTIES WITH RESPECT TO THE SERVICE AND
NETCENTER. SUCH WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES BY THE PARTIES,
EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY
RIGHTS OF THIRD PARTIES WITH RESPECT TO THE SERVICE AND/OR NETCENTER.
10. INDEMNITY
10.1 PARTICIPANT INDEMNITY. Participant shall indemnify, hold
harmless, and defend Netscape from and against any and all claims, liabilities,
losses, damages, expenses and costs (including attorneys' fees and costs)
arising from third party claims arising out of or relating to the Service
(including but not limited to any spam), Participant's Content and any material
to which users can directly link through Participant's Content, other
information supplied or managed by Participant, or the negligence or
intentional wrongdoing of Participant, except to the extent that Netscape is
responsible under Section 10.2. Participant will pay resulting costs, damages
and legal fees finally awarded in such action in a court or in a settlement
which are attributable to such claim provided that: (i) Netscape promptly
notifies Participant in writing of any such claim; (ii) Participant has sole
control of the defense and all related settlement negotiations; and (iii)
Netscape cooperates with Participant, at Participant's expense, in defending or
settling such claim. The foregoing states Participant's sole obligation and
Netscape's sole remedy for third party claims of infringement or
misappropriation.
10.2 NETSCAPE INDEMNITY. Netscape shall indemnify, hold harmless, and
defend Participant from and against any and all claims, liabilities, losses,
damages, expenses and costs (including attorneys' fees and costs) arising from
any third party claims arising out of or relating to any Content provided by
Netscape to Participant for use in the Service, and any material to which users
can directly link through Netscape's Content, other information supplied or
managed by Netscape, or the negligence or intentional wrongdoing of Netscape,
except to the extent that Participant is responsible under Section 10.1.
Netscape will pay resulting costs, damages and legal fees finally awarded in
such action in a court or in a settlement which are attributable to such claim
provided that: (i) Participant promptly notifies Netscape in writing of any
such claim; (ii) Netscape has sole control of the defense and all related
settlement negotiations; and (iii) Participant cooperates with Netscape, at
Netscape's expense, in defending or settling such claim. The foregoing states
Netscape's sole obligation and Participant's sole remedy for third party claims
of infringement or misappropriation.
11. LIMITATION OF LIABILITY
EXCEPT IN CONNECTION WITH A BREACH BY EITHER PARTY OF ITS CONFIDENTIALITY
OBLIGATIONS AS DESCRIBED IN SECTION 14.1, IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER FOR LOST PROFITS OR ANY FORM OF INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER FROM ANY CAUSES OF ACTION
OF ANY KIND
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
14.
<PAGE> 15
WITH RESPECT TO THIS AGREEMENT WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE,
AND WHETHER OR NOT THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE. THE LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER
(EXCEPT FOR DAMAGES OR ALLEGED DAMAGES ARISING UNDER SECTION 14.1) WHETHER IN
CONTRACT OR TORT OR ANY OTHER LEGAL THEORY IS LIMITED TO AND SHALL NOT EXCEED,
IN THE AGGREGATE, AN AMOUNT EQUAL TO [** ].
12. TERM AND TERMINATION
12.1 TERM. Unless earlier terminated pursuant to the provisions of
Section 8, Section 12.2 or as described in Exhibit A, this Agreement shall
begin on the Effective Date and, unless otherwise terminated, end on the last
day of the Service Period. [** ] prior to the expiration of the Term, the
parties agree to negotiate in good faith the terms of a one-year renewal of the
Agreement. If no agreement is reached as to the terms of the renewal period,
the Agreement shall expire at the end of the Term.
12.2 TERMINATION FOR CAUSE. Either party shall have the right to
terminate this Agreement upon a material default by the other party of any of
its material obligations under this Agreement, unless within 30 calendar days
after written notice of such default the defaulting party remedies such
default.
12.3 RIGHTS UPON TERMINATION OR EXPIRATION.
12.3.1 Following expiration or termination of the Agreement,
either party may produce, have produced, use and offer the same or similar
services as contained in the Service, provided that neither party uses,
infringes or misappropriates any of the other party's intellectual property to
do so (except for co-developed intellectual property owned by Netscape and
licensed by Netscape to Participant pursuant to Section 2.4.4), and further
provided that only Netscape shall have the right to offer web-based email
services as replacement services to users of the Service as of the expiration
or termination date. Participant may market alternative services to persons who
may be users of the Service as of the termination or expiration date only if
Participant became aware of, or established a relationship with, such person
independently of such person's participation in the Service. Participant shall
not have the right to use, offer or produce any Non Affiliated Premium Service
following termination or expiration of the Agreement unless Participant enters
into an agreement for such right directly with the provider of such Non
Affiliated Premium Service. Netscape shall not have the right to use, offer or
produce any Premium Service following termination or expiration of the
Agreement unless Netscape enters into an agreement for such right directly with
the provider of such Premium Service.
12.3.2 If the Agreement is terminated in accordance with its
terms, or if no agreement is reached as to the terms of the renewal period, at
Netscape's option, Participant shall continue to offer and produce the Service
in accordance with the terms of this Agreement for a period [** ], or
such other mutually agreed period, following the termination or expiration
date; [**
]
Participant agrees that Netscape shall be entitled to seek injunctive relief
such as specific performance in the event Participant fails to comply with this
Section 12.3.2 without submitting such dispute to the dispute resolution
procedures set forth in Section 14.3.
12.3.3 Netscape shall solely own and use all end user data and
information obtained in connection with the Service except that Participant:
(i) shall have the right to aggregate such end user data and information and
use such aggregated data only for Participant's internal use except as required
for legal, audit or tax purposes; and (ii) shall not disclose to any third
party such end user data and information without Netscape's prior written
approval. The parties will cooperate to create guidelines for Participant's
disclosure of aggregate statistical information concerning Service demographics
and use to advertisers. Participant agrees not to market to any end
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
15.
<PAGE> 16
user email address obtained in connection with the Service. Upon any expiration
or termination of this Agreement, Participant shall promptly deliver to
Netscape any and all such end user data and information in a form and manner to
be specified by Netscape, and shall certify to Netscape that, except for the
copy delivered to Netscape, Participant has destroyed any and all such data and
information in its possession except for data required for Participant's
internal legal, tax and accounting purposes. In addition to the right to
receive amounts payable at the time of the termination or expiration of this
Agreement, Section 2.4 ("Proprietary Rights"), Section 4 ("End User
Registration"), Section 6.3 ("Audit Rights"), Section 8 ("Harmful Content"),
Section 9 ("Warranties"), Section 10 ("Indemnity"), Section 11 ("Limitation of
Liability"), Section 12.3 ("Rights Upon Termination or Expiration"), Section 13
("Right of First Refusal"), Section 14 ("General"), and provisions in Exhibits
attached hereto that provide for their survival, shall survive the termination
or expiration of this Agreement for any reason. Provisions of other Sections
which, by their nature, must remain in effect beyond the termination or
expiration of this Agreement, shall also survive termination or expiration of
this Agreement for any reason.
12.4 TERMINATION FEES. Netscape represents to Participant that it is
entering into this Agreement in reliance on Participant's representations and
agreement to implement the Service as set forth herein. In the event this
Agreement is terminated at any time during the Term by Participant due to
entering into an agreement with [** ] and such termination is not due to
Netscape's failure to cure a material default as set forth in Section 12.2,
Participant shall, within 3 business days after termination of this Agreement,
pay Netscape, by cashier's check or wire transfer, at the option of Netscape, a
termination fee of [** ] ("Netscape Termination Fee") as liquidated
damages. If some or all of the Netscape Termination Fee is not received by
Netscape within said 3-day period, Participant agrees to pay Netscape a late
fee on the unpaid portion the lesser of (a) 1% per month, or (ii) the maximum
rate allowed by law from the date the Termination Fee was required to be paid
until such unpaid portion is paid in full.
13. [** ]
[**
]
14. GENERAL
14.1 CONFIDENTIALITY. All disclosures in connection with this
Agreement as well as the contents of this Agreement and, subject to the terms
of Exhibit A, End User Information, shall be deemed Confidential Information
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
16.
<PAGE> 17
and governed by the terms of the mutual confidential disclosure agreement
between the parties effective as of December 3, 1997, a copy of which is
attached hereto as Exhibit C
14.2 INSURANCE. Participant, at its sole cost and expense, shall
secure and maintain adequate insurance coverage as is necessary, as a
reasonable prudent business person, for Participant to bear all of its
obligations under this Agreement. Maintenance of the foregoing insurance shall
in no way be interpreted as relieving Participant of any responsibility or
obligation whatsoever and Participant may acquire, at its own expense, such
additional insurance as Participant deems necessary. Participant assumes full
and complete liability for all injuries to, or death of, any person, or for any
damages to property arising from the acts or omissions of Participant.
Participant shall add Netscape as an additional insured under such coverage and
provide copies thereof within 30 days of the Effective Date or within 30 days
after any change in coverage. Participant's insurance shall be primary to any
other insurance Netscape may have.
14.3 DISPUTE RESOLUTION. Any dispute hereunder will be negotiated
between the parties commencing upon written notice from one party to the other.
Settlement discussions and materials will be confidential and inadmissible in
any subsequent proceeding without both parties' consent. If the dispute is not
resolved by negotiation within 45 days following such notice, the parties will
refer the dispute to non-binding mediation conducted by JAMS/EndDispute. The
parties will share the costs of mediation. If the dispute is not resolved after
45 days of mediation, the parties will refer the dispute to binding arbitration
by JAMS/EndDispute. The location of the arbitration will be Santa Clara County,
California in the case of an arbitration which is initiated by Participant, and
Colorado Springs, Colorado in the case of an arbitration which is initiated by
Netscape. The results of any arbitration will be final and non-appeallable,
except that either party may petition any court of competent jurisdiction to
review any decision relating to intellectual property matters (including the
scope of license rights), vacating or modifying erroneous conclusions of law or
findings of fact not supported by substantial evidence. The arbitrator may
fashion any legal or equitable remedies except punitive or exemplary damages,
which both parties waive. The arbitrator will render a written decision, which
may be entered in and enforced by any court of competent jurisdiction, but
which will have no preclusive effect in other matters involving third parties.
The losing party will pay the costs of the arbitration and the reasonable legal
fees and expenses of the prevailing party, as determined by the arbitrator. The
parties will jointly pay arbitration costs pending a final allocation by the
arbitrator. At any point in the dispute resolution process, either party may
seek injunctive relief preserving the status quo pending the outcome of that
process. Except as noted, the parties waive any right to judicial process.
California law, without regard to its conflict-of-law provisions, will govern
this Agreement. The U.S. Arbitration Act and JAMS/EndDispute rules will govern
the arbitration process. Absent fraudulent concealment, neither party may raise
a claim more than 3 years after it arises or any shorter period provided by
applicable statutes of limitations.
14.4 NOTICES. All notices required or permitted hereunder shall be
given in writing in the English language and shall be addressed to the
respective parties as set forth on the Cover Sheet and shall either be (i)
personally delivered or (ii) transmitted by internationally-recognized private
express courier and shall be deemed to have been given on the date of receipt
if delivered personally, or 2 days after deposit with express courier. Either
party may change its address for purposes hereof by written notice to the other
in accordance with the provisions of this Subsection.
14.5 MISCELLANEOUS. (a) Neither party's waiver of a breach or delay
or omission to exercise any right or remedy shall be construed as a waiver of
any subsequent breach or as a waiver of such right or remedy. (b) This
Agreement may be amended only by a writing signed by both parties. (c) [
** ]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
17.
<PAGE> 18
[
**
] (d) This Agreement creates no agency,
partnership, joint venture, or employment relationship and neither Participant
nor its agents have any authority to bind Netscape in any respect whatsoever.
(e) All rights not expressly granted by one party to the other party hereunder
shall be reserved. (f) The section headings herein are used for convenience
only and shall have no substantive meaning. (g) In the event any provision of
this Agreement is held by a court or other tribunal of competent jurisdiction
to be unenforceable, such provision shall be reformed only to the extent
necessary to make it enforceable, and the other provisions of this Agreement
will remain in full force and effect. (h) Either party shall be excused from
any delay or failure in performance hereunder, except the payment of
(undisputed) monies, caused by reason of any occurrence or contingency beyond
its reasonable control, including but not limited to, acts of nature. The
obligations and rights of the party so excused shall be extended on a
day-to-day basis for the period of time equal to that of the underlying cause
of the delay. (i) This Agreement, including the Cover Sheet and Exhibits
hereto, constitutes the entire agreement between the parties concerning the
subject matter hereof and supersedes all prior and contemporaneous agreements,
and communications, whether oral or written, between the parties relating to
the subject matter of this Agreement and all past courses of dealing or
industry custom. (j) This Agreement is written in the English language only,
which language shall be controlling in all respects. (k) This Agreement may be
executed in counterparts or by facsimile, each of which shall be deemed an
original and all of which together shall constitute one and the same agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
18.
<PAGE> 19
EXHIBIT A
END USER REGISTRATION
REGISTRATION PROCESS. End users who wish to participate in the Service must
subscribe through Netscape's Netcenter Registration and Service Registration.
Participant shall be responsible for the implementation of the Service
Registration and the integration of the Service Registration with Netcenter
Registration. The functionality, design, and, integration of the Service
Registration and Netcenter Registration will be specified by Netscape and
subject to Netscape's terms and conditions as defined in this Agreement. Such
specifications and terms and conditions may be revised by Netscape from time to
time upon 30 days prior notice to the Participant. The participant will
implement the changes within a 30 day period unless mutually agreed to
otherwise. The point of entry to the registration area (Service Front Page)
shall be hosted and controlled by Netscape unless otherwise determined by
Netscape.
REGISTRATION FEATURES. The Service Registration area shall be co-branded and
have a look and feel which is consistent with the implementation of the
registration process in other sections of Netcenter. Participant shall not
launch the Service Registration until Netscape has notified Participant in
writing that Netscape has accepted Participant's implementation. Participant
shall manage site access using Netcenter site access models, as such site
access models shall be determined by Netscape from time to time upon notice to
Participant. Netscape shall transfer to Participant all data necessary to
provide site access to registered Netcenter users. Participant will make
commercially reasonable efforts to implement such changes within a 30 day
period.
DATA COLLECTED BY PARTICIPANT DURING SERVICE REGISTRATION PROCESS. Netscape
will determine the data to be collected in the Service Registration process
considering Participant's recommendations and technical restrictions. Netscape
reserves the right to change such data requirements from time to time.
Participant will make best efforts to implement these changes within 5 working
days unless mutually agreed to otherwise. [
**
]
DATA TRANSFER. Participant shall use commercially reasonable efforts to
transfer all end user data collected during the Service Registration process as
well as data collected by any other means, to Netscape in real time data
transfer, unless otherwise agreed to by the parties. Netscape reserves the
right to request any information collected during the Service Registration to
be supplied in a Netscape specified format and timeframe. If Participant
collects information about users accessing the Service in addition to
information supplied by the users during the registration process, such
information shall be made available to Netscape in a format and timeframe as
the parties shall mutually agree.
NETCENTER CONSIDERATIONS. All third party programs including but not limited to
Premium Services and Non-Affiliated Premium Services participating in the
Service within Netcenter shall register users with Netcenter when the user
completes an order, if such user is not already registered with Netcenter. If a
user is a registered Netcenter member, Participant shall prepopulate relevant
customer data fields in the customer order form based on information in the
Netcenter database or seamlessly pass this information to the third party
provider.
UNSUBSCRIBE. All outbound communications from the Participant to end users
registered for the Service, except special one-time promotions as defined in
Section 3.1.3, must offer the end user the option of "unsubscribing" from the
outbound communication either through the Service or through Netcenter. In
addition, the Participant must offer the end user a central and consistent
interface to "unsubscribe", cancel, renew, or sign up for any Premium Services,
Non-Affiliated Premium Services, and mutually selected advanced features
offered in the Service. This central account management interface must be
mutually designed by the parties. Participant must also offer end users a
streamlined option for "unsubscribing" completely from the Service or
"de-activating" an email account and all associated Premium Services and
Non-affiliated Premium Services.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
19.
<PAGE> 20
PERSONAL DATA CONFIDENTIAL; OWNERSHIP. Netscape shall solely own and use all
end user data and information obtained in connection with the Service except
that Participant: (i) shall have the right to aggregate such end user data and
information and use such aggregated data only for Participant's internal use
except as required for legal, audit or tax purposes; (ii) shall not disclose to
any third party such end user data and information without Netscape's prior
written approval; and (iii) may use information collected about the users
during registration or from any other means ("End User Information") only for
the purpose of marketing Premium Services, Non-affiliated Premium Services,
Advanced Features, and Netcenter programs to the users. The parties will
cooperate to create guidelines for Participant's disclosure of aggregate
statistical information concerning Service demographics and use to advertisers.
Participant shall not resell or disclose such End User Information to any third
party; provided however, that Participant may sell or disclose such End User
Information to third parties upon prior notice to and consent from such end
users. If Netscape determines that Participant or third party in contract with
Participant is not complying with the terms of use of personal data published
on Netscape's Web Site at http://home.netscape.com/netcenter/index.html, or
such other URL as Netscape may determine from time to time Netscape may
terminate this Agreement upon written notice (as provided in Section 13.3) to
Participant if Participant is not in compliance within 5 days of written notice
from Netscape. End User Information shall be owned exclusively by Netscape.
After a given end user has requested to be "unsubscribed" from the Service,
Participant will terminate all Premium Service or Non-Affiliated Premium
Services unless otherwise specified by the user and discontinue any use of the
End User Information associated with the given user. After the termination or
expiration of this Agreement, Participant will transfer all data to Netscape
and destroy all copies as described in Section 12.3.3, other than data required
for Participant's internal legal, tax and accounting purposes.
20.
<PAGE> 21
EXHIBIT B
PAYMENT TERMS
1. PAYMENT: Participant shall pay Netscape the following amounts as the
Payment:
1.1 SCHEDULE FOR NET REVENUE SHARING. Except as set forth below
in Sections 1.2 and 1.3, revenue generated by the Service shall be split
between Participant and Netscape according to the schedule below. Time periods
noted below commence with the Launch Date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Time Period Netscape Split Participant Split
- -------------------------------------------------------------------------------
<S> <C> <C>
[ ** ** ** ]
- -------------------------------------------------------------------------------
[ ** ** ** ]
- -------------------------------------------------------------------------------
[ ** ** ** ]
- -------------------------------------------------------------------------------
[ ** ** ** ]
- -------------------------------------------------------------------------------
</TABLE>
DEFINITION OF "NET REVENUE." Net Revenue is defined as total gross revenues,
specifically excluding taxes, from the sum of:
(a) advertising net revenue (gross advertising revenues less
reasonable fees and commissions, including but not limited to internal
commissions, [ ** ];
(b) Sponsorships (gross sponsorship fees less commissions,
including but not limited to internal commissions, [ ** ];
(c) Premium Services; and
(d) special one-time offers net revenue (gross promotional
revenues less reasonable fees and commissions, including but not limited to
internal commissions, [ ** ];
and in the case of each of (a) - (d) above, less mutually agreed deductions
such as bad debt, returns, billing costs and/or cost of sales, provided that
the total combined deductions against such revenue [ ** ].
If it appears that the deductions for the items above [ ** ],
Participant shall consult with Netscape regarding which party should sell to
the advertiser or sponsor in question.
1.2 With respect to revenue from In-Box Direct promotions included
in the Service Registration process, the parties will split such revenue
[ ** ], after subtracting mutually agreed deductions
such as bad debt, returns, and/or cost of sales.
1.3 With respect to Non Affiliated Premium Services, the parties
shall negotiate a revenue sharing agreement prior to integrating such service.
In addition, Netscape shall reimburse Participant for the reasonable cost of
integration relating thereto as set forth under Section 3.1.6(b). The parties
agree that if Participant only includes a link in the Service to the Non
Affiliated Premium Service, Netscape will not pay any costs or share any
revenue with Participant for such Non Affiliated Premium Service. If
Participant does perform integration work as defined in Section 3.1.6(b) for a
Non Affiliated Premium Service (other than for In Box Direct, for which
Netscape shall not pay any integration costs or share revenue), Netscape will
reimburse Participant for reasonable integration costs [
** ]. If Participant performs such
integration work and
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
21.
<PAGE> 22
performs other substantial services (such as integrated billing) with respect
to a Non Affiliated premium Service, Netscape will reimburse Participant for
the reasonable costs thereof and the parties will negotiate the revenue-sharing
terms on a case-by-case basis.
1.4 The parties acknowledge that there may be additional revenue
opportunities under this Agreement, and the parties will mutually agree to the
revenue split on a case by case basis.
2. TIMING OF PAYMENT. Within [ ** ] after the end of each Netscape
fiscal quarter during the Term of this Agreement, each paying party
shall deliver to the receiving party a report describing in detail the
calculation of gross revenue actually collected and net revenue
actually collected for such fiscal quarter, and shall pay to the
receiving party such party's portion of such net revenue actually
collected calculated as described above, with no right of set-off. The
Netscape fiscal quarter shall be based on a fiscal year ending October
31.
3. POST-TERM PAYMENTS OF BAD DEBT. After termination or expiration of
this Agreement, each paying party shall pay to the receiving party all
amounts received by the paying party previously charged by the paying
party as "bad debt" ("Bad Debt Payments") and deducted from gross
revenue under Section 1 above to the extent such deducted amounts have
not already been paid to the receiving party. Within 30 days of the
receipt of any Bad Debt Payment, the paying party shall deliver such
payment to the receiving party. This Section shall survive expiration
or termination of this Agreement.
4. CURRENCY AND TAXES. All amounts payable hereunder are denominated in
U.S. Dollars, and all amounts payable hereunder shall be remitted in
U.S. Dollars. Any portion of any payment due which has not been paid
during the applicable time set forth herein shall bear interest at the
lesser of (i) 1% per month or (ii) the maximum rate allowed by law.
All payments due hereunder are exclusive of any applicable taxes. The
collecting party shall be responsible for all applicable national,
state and local taxes, value added or sales taxes, exchange, interest,
banking, collection and other charges and levies and assessments
pertaining to payments other than U.S. taxes based on Netscape's net
income. If the collecting party is required by law to make any
deduction or to withhold from any sum payable to the other party
hereunder, the collecting party shall effect such deduction or
withholding, remit such amounts to the appropriate taxing authorities
and promptly furnish the other party with tax receipts evidencing the
payments of such amounts. For every dollar for revenue sharing under
this Agreement, "collecting party" means the first of Netscape or
Participant to collect such dollar. This Exhibit shall survive
termination or expiration of this Agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
22.
<PAGE> 23
EXHIBIT C
SEE ATTACHED MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT EFFECTIVE
DECEMBER 3, 1997
23.
<PAGE> 24
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
This Mutual Confidential Disclosure Agreement ("Agreement") is entered into
between Netscape Communications Corporation ("Netscape") and USA.Net
("Company"), and is effective as of the date of execution by Netscape
("Effective Date"). Each party (the "Receiving Party") understands that the
other party (the "Disclosing Party") may disclose certain Confidential
Information (as defined in Section 1 below) under this Agreement. Netscape and
Company agree as follows:
1. DEFINITION. "Confidential Information" shall mean (i) all information
disclosed in tangible form by the Disclosing Party and marked
"confidential" or "proprietary", and (ii) all information disclosed
orally or otherwise in intangible form by the Disclosing Party and
designated as confidential or proprietary at the time of disclosure.
Confidential Information may include, without limitation, computer
programs, code, algorithms, names and expertise of employees and
consultants, know-how, formulas, processes, ideas, inventions (whether
patentable or not), schematics and other technical, business, financial
and product development plans, forecasts, strategies and information.
2. PURPOSE. The Receiving Party shall use the Confidential Information
only for the following purposes:
a) To evaluate whether to enter into a contemplated business
transaction; and
b) if Netscape and Company enter into such contemplated business
transaction, to fulfill each party's commitments under the
agreement for such business transaction.
3. CONFIDENTIALITY OBLIGATION. The Receiving Party agrees to protect the
Confidential Information by using the same degree of care, but not less
than a reasonable degree of care, to prevent the unauthorized use,
dissemination or publication of the Confidential Information as the
Receiving Party uses to protect its own confidential or proprietary
information of a like nature. The Receiving Party shall limit the use
of and access to the Disclosing Party's Confidential Information to the
Receiving Party's employees or independent contractors who need to know
such Confidential Information for the purposes set forth in Section 2
above and who have entered into binding obligations of confidentiality
substantially similar to the obligations set forth herein.
4. TERM. The Receiving Party's obligations to protect Confidential
Information hereunder shall expire 3 years from the date of each such
disclosure of Confidential Information, except when such Confidential
Information disclosed by the Disclosing Party is source code, in which
case the Receiving Party's obligations to protect such Confidential
Information shall be perpetual.
5. EXCLUSIONS. Confidential Information as defined in Section 1 above
shall not include Confidential Information that: (i) is or becomes a
matter of public knowledge through no fault of the Receiving Party; or
(ii) was in the Receiving Party's possession or known by it prior to
receipt from the Disclosing Party; or (iii) was rightfully disclosed to
the Receiving Party by another person
24.
<PAGE> 25
without restriction; or (iv) is independently developed by the
Receiving Party without access to such Confidential Information. The
Receiving Party may disclose Confidential Information pursuant to any
statutory or regulatory authority or court order, provided the
Disclosing Party is given prompt written notice of such requirement and
the scope of such disclosure is limited to the extent possible.
6. INDEPENDENT DEVELOPMENT. The terms of confidentiality under this
Agreement shall not be construed to limit either party's right to
independently develop or acquire products without use of the other
party's Confidential Information. Further, Confidential Information as
defined in Section 1 above shall not include the Residuals resulting
from access to such Confidential Information. The term "Residuals"
means information in intangible form which may be retained in the
unaided memories of Receiving Party's employees or independent
contractors who have had access to the information. An employee's or
contractor's memory will be considered to be unaided if the employee
has not intentionally memorized the Confidential Information for the
purpose of retaining and subsequently using or disclosing it. Neither
party shall have any obligation to limit or restrict the assignment of
such persons or to pay royalties for any work resulting from the use of
Residuals. However, the foregoing shall not be deemed to grant to
either party a license under the other party's copyrights or patents.
7. RETURN OF CONFIDENTIAL INFORMATION. Upon written request by the
Disclosing Party at any time, the Receiving Party shall: (i) turn over
to the Disclosing Party all Confidential Information of the Disclosing
Party, all documents or media containing the Confidential Information,
and any and all copies or extracts thereof, or (ii) destroy the
Confidential Information, and any and all copies or extracts thereof,
and provide the Disclosing Party with written certification of such
destruction signed by an authorized representative of the Receiving
Party.
8. EQUITABLE RELIEF. The Receiving Party acknowledges and agrees that due
to the unique nature of the Disclosing Party's Confidential
Information, there may be no adequate remedy at law for any breach of
its obligations. The Receiving Party further acknowledges that any such
breach may allow the Receiving Party or third parties to unfairly
compete with the Disclosing Party resulting in irreparable harm to the
Disclosing Party and, therefore, that upon any such breach or any
threat thereof, the Disclosing Party shall be entitled to seek
appropriate equitable relief in addition to whatever remedies it may
have at law. The Receiving Party will notify the Disclosing Party in
writing immediately upon the occurrence of any such unauthorized
release or other breach.
9. INTELLECTUAL PROPERTY RIGHTS. Neither party acquires any intellectual
property rights or any other rights under this Agreement or through any
disclosure hereunder, except the limited right to use the Confidential
Information in accordance with this Agreement.
10. WARRANTY. The Confidential Information disclosed under this Agreement
is delivered "AS IS," and all representations or warranties, whether
express or implied, including warranties or conditions for fitness for
a particular purpose, merchantability, title and noninfringement, are
hereby disclaimed.
11. NETSCAPE SUBSIDIARIES. Netscape's wholly owned subsidiaries, by signing
this Agreement on behalf of Netscape and returning a fully executed
original or copy to the Netscape Legal Department, shall be entitled to
disclose Netscape's Confidential Information and receive Company's
Confidential Information on behalf of Netscape under this Agreement,
provided such subsidiaries comply with the terms and conditions of this
Agreement and further provided such disclosures or receipt of
Confidential Information are governed by the terms and conditions of
this Agreement.
25.
<PAGE> 26
12. GENERAL. This Agreement supersedes all prior discussions and writings
with respect to the subject matter hereof, and constitutes the entire
agreement between the parties with respect to the subject matter
hereof. No waiver or modification of this Agreement will be binding
upon either party unless made in writing and signed by a duly
authorized representative of each party and no failure or delay in
enforcing any right will be deemed a waiver. The parties understand
that nothing herein requires either party to proceed with any proposed
transaction or relationship in connection with which Confidential
Information may be disclosed. In the event that any of the provisions
of this Agreement shall be held by a court or other tribunal of
competent jurisdiction to be unenforceable, the remaining portions
hereof shall remain in full force and effect. This Agreement shall be
governed by the laws of the State of California without regard to
conflicts of laws provisions thereof and each party submits to the
jurisdiction and venue of any California State or federal court
generally serving the Santa Clara county area with respect to the
subject matter of this Agreement. The headings to the Sections of this
Agreement are included merely for reference and shall not affect the
meaning of the language included therein. This Agreement is written in
the English language only, which language shall be controlling in all
respects. Les parties aux presentes confirment leur volonte que cette
convention de meme que tous les documents y compris tout avis qui s'y
rattache, soient rediges en langue anglaise (translation: "The parties
confirm that this Agreement and all related documentation is and will
be in the English language.") .
NETSCAPE COMMUNICATIONS COMPANY
CORPORATION
By: /s/ Ken Rutsky By: /s/ David J. Fuino, Jr.
------------------------------- ---------------------------------
Signature Signature
Name: Ken Rutsky Name: David J. Fuino, Jr.
---------------------------- -------------------------------
Print or Type Print or Type
Title: Grp Prgm Mgr Title: VP, Business Development
---------------------------- ------------------------------
Date: 12/3/97 Date: 12/3/97
Address: Address:
501 East Middlefield Road 102 S. Tejon, Suite 220
Mountain View, CA 94043 Colorado Springs, CO 80903
26.
<PAGE> 27
EXHIBIT D
PREMIUM SERVICES AND ADVANCED FEATURES
Phase 1 (April 30, 1998 Launch Date) will consist of the Basic Features with
selected Advanced Features and Premium Services as described under Phase 1
below and integration from a content perspective into Netcenter indexes, home
page of Netscape's Web Site, and registration.
Phase 2 (not later than [ ** ] will expand the Advanced Features as well as
Premium Services, implement a more integrated solution for the user
name/password issue, and integrate a highlights section of In-Box Direct into
the sign up process for the Service.
Phase 3 (not later than [ ** ] will continue to expand the Advanced Features
as well as Premium Services, completely resolve the site access/user
validation user name/password issue, and integrate the Service more thoroughly
into other Netcenter services.
Both parties acknowledge that the above dates may change due to Universal
Registration integration issues. Advanced Features/Premium Services are still
expected to be available per the dates currently reflected for each phase.
Consequently, if the phase dates are delayed, it is expected that the Advanced
Features/Premium Services would be revised accordingly by mutual agreement.
Notwithstanding the foregoing, the Launch Date shall not be more than [ ** ]
beyond April 30, 1998. If the event the Launch Date fails to occur during said
[ ** ] period and such failure is not as a result of Section 12.4 of the
Agreement, either party shall have the right to terminate this Agreement
immediately with no obligation to either party.
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
27.
<PAGE> 28
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
28.
<PAGE> 29
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
29.
<PAGE> 30
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
30.
<PAGE> 31
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
31.
<PAGE> 32
[ ** ]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
32.
<PAGE> 33
EXHIBIT E
BEST-OF-BREED SERVICE
[ ** ]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
33.
<PAGE> 34
[**]
EXHIBIT F
NETSCAPE ADVERTISING GUIDELINES
Subject to the other terms and conditions of the Agreement, Participant shall
not publish any advertisements or other promotional text and/or graphics
containing content that may be unlawful, inappropriate or otherwise harmful to
Netscape, including but not limited to any advertisement of third party products
and/or services directly competitive with Netscape's software products and
online services or any advertising by mutually agreed competitors. Inappropriate
content shall also include but not be limited to content pertaining to tobacco,
alcohol, gambling, pornography and other adult content.
Netscape has the right to refuse to publish, or direct Participant to refuse to
publish, any advertisement which Netscape deems inappropriate for any reason at
any time (no ads for competitive products).
Netscape has the right to request that any advertisement or other promotional
text and/or graphic be removed from the Service if it is deemed by Netscape to
be inappropriate. Participant will use commercially reasonable efforts to
remove the inappropriate content within a 24 hour period.
Netscape reserves the right to change the Netscape Advertising Guidelines from
time to time provided that notice is given to the Participant within a time
period to be mutually agreed by Netscape and the Participant.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
34.
<PAGE> 35
[ ** ]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
35.
<PAGE> 36
[**]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
36.
<PAGE> 37
EXHIBIT G
SEE ATTACHED IN BOX DIRECT AGREEMENT
1.
<PAGE> 38
NETSCAPE IN-BOX DIRECT PROGRAM GUIDELINES AND APPLICATION
YOU MUST SUBMIT AN APPLICATION AND COMPLY WITH THE FOLLOWING GUIDELINES TO BE
ELIGIBLE TO BECOME A PARTICIPANT IN NETSCAPE'S IN-BOX DIRECT PROGRAM. NETSCAPE
WILL NOTIFY YOU OF NETSCAPE'S ACCEPTANCE OF YOUR APPLICATION.
GUIDELINES
I. PROGRAM INPUTS
You will send the In-Box Direct (IBD) program manager an email and hard copy of
all inputs listed below by the push deadline as communicated by the In-Box
Direct program manager. To avoid delay, at the time you submit the inputs, you
should have already tested the inputs to ensure that they have been completed to
the listed specifications. If you are currently participating in the IBD
program, you need to ensure you revise your offerings to comply with the Program
Guidelines as outlined below.
A. NAME OF THE SERVICE
1. The title of the service that you would like to have listed on the IBD page.
B. DESCRIPTION OF THE SERVICE
1. A 30-40 word description to be listed on the IBD page. This description is
subject to Netscape's review, and may be edited by Netscape before posting on
the IBD page.
2. The description must differentiate your service from the service of others
listed on the IBD page.
3. The description must indicate the frequency of the mailings, e.g., daily,
weekly, etc.
4. The description must indicate the languages in which the service is
available.
C. DEDICATED EMAIL ADDRESS
1. You must provide a dedicated email address to which subscriber datafeeds
can be emailed by Netscape on a daily basis. (Only datafeeds from Netscape can
arrive at this address).
2. Your system must be able to receive and process data sent from Netscape
once a day, 7 days a week, between 12 a.m. to 4 a.m. PST
D. EXAMPLE MAILING
1. At an early stage of development of the example mailing, you must review
the content and layout of the example mailing with the program manager. The
program manager must give final approval of the example mailing before it can be
included in the push.
2. Two weeks prior to the push deadline, established by the IBD Program
Manager, you must send the IBD program manager a URL which links to an example
mailing. In addition, you must send the program manager an example mailing
served off of your server as if the program manager had signed up for the
service by the push deadline.
1.
<PAGE> 39
3. All mailings must be in HTML; however, the following text must appear in the
header so that an ASCII user who subscribed can view the mailing.
HTML within open and close angle brackets
<!-
*******************************************************************
> Welcome to (your title here), a free service of ( your company,
> publication or service name here). If you can read this message,
> but the rest of the email contains strange characters, your email
> program is not capable of reading HTML mail. Use your browser to read
> the complete (your newsletter or publication) online at http://(your
> address here - full URL). However, if you would like to view this
newsletter
> in HTML, you can upgrade to Netscape Navigator version 3.0 or
Netscape
> Communicator version 4.0, both of which can be downloaded from
> http://home.netscape.com/download/client_download.html?communicator
4.03
*******************************************************************
-->
4. All mailings must provide two forms of unsubscribe functionality: 1) direct
from the mailing and 2) a link back to In-Box Direct with instructions on how to
unsubscribe. SEE SECTION II.C. for more information.
5. All mailings must include the current IBD branding GIF per Netscape's
specifications.
6. You must place the following tag line at the bottom of each mailing to
In-Box Direct subscribers: "This mailing is best viewed through Netscape
Communicator".
E. WELCOME AND/OR REGISTRATION LETTER (USED TO CUSTOMIZE THE SERVICE)
1. You must send the program manager a URL for your welcome mailing. In
addition, two weeks prior to the push deadline, you must send the program
manager a Welcome Letter served off of your server as if the program manager had
signed up for the service.
2. You do not need to include a separate Welcome Letter if its actual content
will be delivered within forty-eight hours after a user subscribes to the
service. Welcome Letters that are not in English need to include, at a minimum,
a button in English saying, "UNSUBSCRIBE".
3. All mailings must be in HTML; however, the following text must appear in
the header so that an ASCII user who subscribed can unsubscribe
HTML within open and close angle brackets
<!-
*******************************************************************
> Welcome to (your title here), a free service of (your company,
> publication or service name here). If you can read this message,
> but the rest of the email contains strange characters, your email
> program is not capable of reading HTML mail. Use your browser to
read
> the complete (your newsletter or publication) online at http:/
/(your
> address here - full URL). However, if you would like to view
this newsletter
> in HTML, you can upgrade to Netscape Navigator version 3.0 or
Netscape
> Communicator version 4.0, both of which can be downloaded from
2.
<PAGE> 40
> http://home.netscape.com/download/client_download.html?communicator
4.03
******************************************************************
-->
4. If you offer the option of customizing the service, then the Welcome Letter
will also serve as a Registration Letter. The Welcome/Registration letter must
give the user the opportunity to select customized features of the service, such
as language, frequency of delivery, topics of interest, and authors.
o You must have a default for all customized publications so that a subscriber
who fails to take action on the Welcome Letter will at least receive some
content from you.
o You may not ask IBD subscribers any questions in your Welcome/Registration
Letter which would have already been answered in the IBD registration process
and forwarded to you through the Netscape daily datafeeds.
5. All mailings must provide two ways to unsubscribe: 1) direct from the
mailing; and 2) a link back to In-Box Direct with instructions on how to
unsubscribe. SEE SECTION II.C. for more information.
6. All mailings must include the current IBD branding GIF per Netscape's
specifications as well as the Netscape Now button.
7. You must place the following tag line at the bottom of each mailing to In-Box
Direct subscribers: "This mailing is best viewed through Netscape Communicator".
F. GOODBYE/UNSUBSCRIBE MESSAGE
1. You must send the program manager a URL for your Goodbye/Unsubscribe mailing
by the push deadline.
2. The Goodbye/Unsubscribe Message serves as a confirmation to end users that
their cancellation requests have been received and processed. The
Goodbye/Unsubscribe Message must be written in HTML, but have a section in
ASCII.
3. Non-English services must include an unsubscribe confirmation in both English
as well as the language of origin.
4. You must send the Goodbye/Unsubscribe Message to all IBD users who
unsubscribe from your service. This includes users who unsubscribe direct from
the mailing, users who unsubscribe through In-Box Direct, and users who
unsubscribe by sending a special request to IBD feedback (handled by IBD
customer service).
5. You must send Goodbye/Unsubscribe Message within twenty-four hours of
receiving notification from the subscriber or Netscape.
6. It is recommended, although not required, that you include an exit survey as
part of your unsubscribe process or goodbye message. This will enable you to
better understand retention issues and revise your service accordingly. Examples
of unsubscribe surveys are available on request from the program manager.
3.
<PAGE> 41
G. SAMPLE PAGE
1. You must send the sample page URL to the program manager by the push
deadline. After the push is executed, all sample pages will be hosted by
Netscape on the Netscape site.
2. It is your responsibility to test thoroughly the sample pages and to verify
compliance with all sample page specifications. You understand that inability to
meet sample page specifications by the push deadline, may result in a delay of
at least one month in the commencement of program participation.
o The Sample Page Checker tool at the following URL will assist you in meeting
these specifications:
HTTP://HOME.NETSCAPE.COM/ESCAPES/IBD/SAMPLE_CHECK.HTML
o Sample pages must be tested on Win95, Windows 3.1, Macintosh, and UNIX. Note
that some sample pages that appear fine on a Macintosh will bleed out of the box
when viewed with Windows 95.
3. The sample page can be no more than three pages. It is suggested that you
use one page to explain the features and benefits of the service and one page to
show the users an example of an actual mailing.
4. The sample page must be sized to fit within 640 x 400 pixels. You must test
the size of the sample on a PC WINDOWS 95 system. The Sample Page Checker URL
will enable you to test the size and verify compliance with the required
dimensions.
5. If multiple pages (maximum 3) are used, all pages must be linked together.
"MORE" and "BACK" links must be implemented. "Back" links ("Back" to the
previous sample page) must be included on all pages, except the first page.
6. A "Return to In-Box Direct" button must be located in the upper right
region of each page. The preferred layout can be seen at The Sample Page Example
which can be accessed from the IN-BOX DIRECT SAMPLE PAGE GUIDELINES page at
HTTP://HOME.NETSCAPE.COM/ESCAPES/IBD/GUIDELINES.HTML.
7. On all pages, clicking on either the "Return to In-Box Direct" words or the
In-Box Direct GIF, must close the sample page window and bring the user back to
the In-Box Direct site.
o NOTE: This sample page window operation requires specific JavaScript. The
return button GIF and JavaScript are provided by Netscape. Refer to The Sample
Page Template (HTTP://HOME.NETSCAPE.COM/ESCAPES/IBD/SOURCE.TXT) which provides
the necessary HTML, GIF, and JavaScript.
8. The sample page may not contain any of the following: outside links, menu
bar, button bar, location entry field, scroll bars, or a resize handle.
9. Sample page must not exceed 25 kilobytes (this includes the HTML file and
all images).
10. Link color must change from blue to red after execution.
II. SERVICE STANDARDS/ONGOING PROVIDER RESPONSIBILITIES
You will make every reasonable effort to work with Netscape to provide the
highest quality service and experience for the end user.
4.
<PAGE> 42
A. HTML MAIL REQUIREMENTS
1. You are responsible for creating and producing a free HTML publication as
approved by the IBD Program Manager, and mailing all content directly to the
subscriber on a regular basis.
2. You must comply to the frequency standards you have established for yourself
and communicated to the subscriber in the description of the service, e.g., if
listed as a daily service in In-Box Direct, mailings must be sent out to
subscribers daily.
3. You must contact the subscribers within forty-eight hours of receiving
subscription information with either a Welcome Letter or an actual mailing.
4. You must contact the subscribers within twenty-four hours of receiving an
unsubscribe request with a written confirmation of the unsubscribe,
5. You must follow the instructions immediately below to insure that the mail
is properly displayed by Netscape Messenger or any other mail clients that read
HTML format mail.
o Include CONTENT-TYPE: TEXT/HTML as the header (first line) of the content to
be delivered. The header must be followed by one blank line.
6. To facilitate user filtering, the subject (header) field of each IBD email
sent by you must begin with a designated prefix (IBD). For example: IBD- People
Daily November 13.
This will enable IBD users to filter for IBD mail and to store such mail in a
separate email folder, thereby reducing the tendency to unsubscribe.
7. All IBD mailings must contain the following components:
o Unsubscribe functionality as defined in the Unsubscribe section in Section
II.c.
o IBD/ Netscape branding as defined in the branding section in Section III.
o IBD indicator in subject field as described above.
8. You must make every reasonable effort to facilitate the collection of user
feedback relative to your service. A hot button or an email address such as,
[email protected], must be included on all IBD mailings. Note: Customer feedback
must only be collected if you have the resources to support it.
B. DATABASE / LIST SERVER REQUIREMENTS
1. You are responsible for setting up and managing your own subscriber
database and mailing list from the data provided by Netscape.
2. Your system must be able to receive and process data sent from Netscape
once a day, 7 days a week, between 2:30 a.m. to 6:30 a.m. PST.
o Netscape provides, on a daily basis, a data feed which contains information
to CREATE new subscriptions, DELETE unsubscribes and UPDATE (changes to)
subscriptions. Your system must be able to recognize status codes (e.g., create,
update, delete), and process the record accordingly. Updates must be processed
within twenty-four hours of receipt.
5.
<PAGE> 43
o Data is always transmitted on the morning after it is collected. For
example, if today is 12/24/97, the daily feed received by 4 a.m. today, is
12/23/97's registration information. Thus, the subject field will read "IBD
Registration for 12/23/97".
3. You must structure your subscription fulfillment processes such that
duplicate email addresses are automatically caught to prevent subscribers from
receiving multiple copies of a mailing. Duplicates in the name field must be
allowed, because individuals may have the same name or individuals may choose to
subscribe from multiple email addresses, that is, office and personal email
addresses.
4. Your list servers must be configured so that subscribers on the list CANNOT
send to the list. Only you should be able to 1) send to the list, and 2) view
the members of the list.
5. You must also ensure that the reply-to and from fields in the email from
the list server point to appropriate email addresses. For example, the reply-to
might be directed to an alias for whoever is maintaining the list, so that the
maintainer of the list can respond to any queries.
6. Ideally, the list server should send one email out at a time
(personalized). If not, it must load multiple subscriber names into the BCC
field (blind carbon copy), NOT the TO or CC fields.
7. You must build a mechanism to monitor that a daily data feed from Netscape
was received. You must notify Netscape immediately if there are any problems
with the data feed. (Currently, problems can be sent to [email protected] with
a copy to [email protected]).
8. You should use a database with send mail capability or a listserve product
to distribute your HTML email. See below for a list of products, outsources, and
prices to find out more information.
o Majordomo - (freeware) at http://www.greatcircle.com/majordomo
o Listserv: http://www.lsoft.com
o UNIX send mail command
o Email Publishing, Inc. is an email broadcasting outsourcing service which
has assisted several IBD providers in the past. Email Publishing can set up and
manage the database, develop the sample page, and even create templates for
ongoing HTML mailings. If interested, contact Andrew Currie, at (303) 440-7550
or [email protected]. For a special rate, you must identify yourself as an
In-Box Direct participant.
o The names of several Internet service providers that manage mailing lists
are posted at http://www.catalog.com/vivian/mailing-list-providers.html
C. "UNSUBSCRIBE" REQUIREMENTS
1. You must support three forms of unsubscribe functionality in every outbound
mailing including the Welcome Letter, with the exception of the unsubscribe
confirmation notice. The first two options must be clearly visible in the HTML
content and communicated to the end user. The last of these options must only be
visible to ASCII users and not HTML readers.
o Option 1: Unsubscribe functionality from the outbound mailing directly to
the you.
6.
<PAGE> 44
o Option 2: A link to In-Box Direct along with an explanation of how the user
can unsubscribe by unchecking the box next to the service offering on the
selections page in In-Box Direct. (Note that this link must be separate from the
IBD branding link.)
o Option 3: Instructions for ASCII users regarding how to unsubscribe if they
have signed up for this mailing in error. The instruction message must be placed
after the /Body with open and close angle brackets and prior to close /HTML
with open and close angle brackets.
2. You must act on the Unsubscribe information received from the IBD data
feed, IBD customer service, or directly from your site, by discontinuing the
service to the subscriber, within twenty-four hours of receipt of such request.
3. Below is the wording that must appear at the bottom of each outbound
mailing:
/Body within open and close angle brackets
<!--
*******************************************************************************
If you've received this message in error or wish to cancel your subscription to
this service, you can either return to Netscape's In-Box Direct page and
`uncheck' the box next to <your service name> or you can <insert process for
unsubscribing directly with the content provider> . A cancellation confirmation
notice will follow.
*******************************************************************************
- -->
HTML within open and close angle brackets.
4. You must ask the users to provide their IBD email addresses in option 1.
The correct IBD email address is not always apparent since many users have
multiple addresses, forwarding, company extensions, etc. If you attempt to use
an incorrect email address, the user's request will not be completed and user
satisfaction will suffer.
5. Subscribers must not be required to remember a special username and a
password in order to cancel their subscription. User email address or actual
name should suffice.
6. You must send a Goodbye/Unsubscribe Message to all IBD users who
unsubscribe from your service. This Goodbye/Unsubscribe Message must be sent to
users who unsubscribe directly from the mailing, users who unsubscribe through
In-Box Direct, and users who unsubscribe by sending a special request to IBD
feedback (handled by IBD customer service).
7. You must send this Goodbye/Unsubscribe Message, within twenty-four hours of
receiving notification from the subscriber or Netscape.
8. You will make reasonable efforts to work with Netscape to improve
continually the unsubscribe process/functionality. You must promptly comply with
any new unsubscribe methodology developed by Netscape.
D. PAID SUBSCRIPTION REQUIREMENTS
1. If you wish to offer subscribers a more in-depth paid service related to
the same content as your free service, you may do so provided that you extend
the offer in the regular free mailing, and you make it clear that the subscriber
can continue to receive the free mailing. You must also continue to provide
content which complies with the Participation Guidelines and has been approved
by the IBD Program Manager to subscribers at no charge.
7.
<PAGE> 45
2. You cannot ask for credit card information up front or solicit your paid
service by telephone or email unless requested by subscriber.
III. BRANDING AND PROMOTIONS
You understand that the list below represents the minimum marketing requirements
with which you must comply. You will make every reasonable effort to work with
Netscape to carryout marketing efforts beyond those listed below to develop and
implement programs which promote your service as well as the In-Box Direct
program as a whole.
1. You will display the Netscape Now and IBD logos (with a link to Netscape's
Home page and IBD page) on your home pages. If the Internet Explorer logo is
displayed in your content, the Netscape logo must be displayed with at least
equal prominence. The logos must be in place the day your content is pushed to
the IBD site.
o The IBD logo can be obtained from:
HTTP://HOME.NETSCAPE.COM/ESCAPES/IBD/IMAGES/IBD_LOGO.GIF
o The IBD logo must link to HTTP://FORM.NETSCAPE.COM/IBD/CGI-BIN/IBD-X.CGI
o The Netscape Now logo can be obtained from the home page of the country
that is most relevant to you. The Netscape Now logo must link to the Netscape
home page of the country that is most relevant to you.
2. You must display the IBD Logo (with a link to Netscape's Home page and IBD
page) on every outbound mailing to In-Box Direct subscribers. In the event that
the IBD logo is updated, you must substitute the new GIF within thirty days of
notification. The IBD Program Manager shall receive a sample of your outbound
mailings containing the IBD and Netscape Now logos. The IBD Program Manager
should receive such sample either prior to or at the same time that the mailing
is sent to IBD subscribers.
o Until the new IBD logo is developed, you must display the mailbox GIF with
the words "To subscribe to other quality publications like this, please go to
Netscape's In-Box Direct page" (with a link to In-Box Direct -
HTTP://FORM.NETSCAPE.COM/IBD/CGI-BIN/IBD-X.CGI).
o You must not alter the GIF or text as provided by Netscape.
3. You must place the following tag line at the bottom of each mailing to
In-Box Direct subscribers: "This mailing is best viewed through Netscape
Communicator".
4. You must send a mailing to your current user-base (or include a feature in
a current mailing) advising your subscribers of your participation in In-Box
Direct and encouraging such subscribers to visit the In-Box Direct website. This
must be done within one month of your signing this agreement. IBD Program
Manager must receive and approve a copy of promotional mailing sent to your
current user base announcing your participation in the In-Box Direct program and
encouraging subscribers to visit the IBD web site. This copy must be provided at
least one week prior to the day of the mailing.
5. During the duration of this Agreement, on your primary Web site you shall
provide a minimum of two days of page impressions per month for a co-branded
banner supporting your service as well as In-Box Direct as a whole. The IBD
Program Manager must be given a schedule of when the page impressions will be on
your site no later than two weeks after signing the agreement. If you do not
offer
8.
<PAGE> 46
paid commercial advertising on your site, you must work with the IBD program
manager to design and implement a program of equivalent value.
o Netscape shall provide a template for the banner.
o You can choose to use a non co-branded Netscape In-Box Direct banner if this
is preferable.
6. During the duration of your participation in the In-Box Direct program, if
you offer the same HTML mailing as offered to In-Box Direct subscribers directly
to users on their Web site, you must include a permanent IBD link or include the
IBD half banner in a minimum of twelve of those mailings. The IBD Program
Manager must be given a schedule of your IBD promotional mailings to your HTML
service subscribers not referred by IBD no later than two weeks after signing
the agreement.
IV. FEEDBACK
1. You should make reasonable efforts to provide Netscape with ideas for
improving the In-Box Direct program including identifying any user/provider
issues that come to your attention. Comments should be sent to
[email protected]
2. You should actively participate in surveys, discussion groups, or ongoing
continuing improvement activities pertaining to In-Box Direct.
3. You should share any tips, tools, best practices developed for IBD with
Netscape and other IBD participants to improve the usefulness and effectiveness
of the In-Box Direct program.
4. You should facilitate the collection of any user feedback relative to your
service. A hot button or an email address such as [email protected] should be
included on all IBD mailings. Note: Customer feedback should only be collected
if you have the resources to support it.
5. Any trends, or issues with the overall IBD program should be forwarded to
the IBD Program Manager at [email protected]. Please include any
proposed solutions as well.
6. You have an obligation to notify Netscape of any changes in your In-Box
Direct technical or business contacts as well as company information within five
working days of the change. All changes must be sent to
[email protected] with "New Contact/Company Information" in the
headline.
9.
<PAGE> 47
NETSCAPE IN-BOX DIRECT
PROGRAM TERMS & CONDITIONS
("AGREEMENT")
Upon acceptance by Netscape, this Agreement and the program guidelines
("Guidelines") for the Netscape In-Box Direct Program ("Program") shall govern
your participation in the then-current Program. You understand and agree that
Netscape reserves the right to modify terms, conditions, and policies of the
Program and Guidelines at any time.
1. You have read and agree to provide a service to be included in the Program
which service meets the conditions stated herein and in the Guidelines. You
understand that Netscape, in its sole discretion, may determine whether to
include, or to continue including you, as a participant in the Program.
2. Netscape may, free of charge, use your company's name, trademarks, logos,
description of service, and sample pages in connection with the Program
including after termination of the Program in conjunction with end user
unsubscribing from the program. If you reasonably object to any use of your
intellectual property, you shall notify Netscape, and Netscape will use
commercially reasonable efforts to suspend such use as soon as practicable.
3. Information about the In-Box Direct subscribers, including but not limited
to name and contact information, provided by Netscape to you at any time
("Subscriber Information") is confidential information, as defined below.
Subscriber Information may only be used for the purposes and according to the
terms and conditions contained herein, and subject to Netscape's policy with
respect to personal data as set forth at
http://home.netscape.com/netcenter/privacy.html or such other URL as Netscape
may specify from time to time. You specifically agree not to:
a. sell, rent, give away, share or otherwise disclose to any third party any
Subscriber Information;
b. send advertisements or other promotional mailings, separate and apart from
the content sent pursuant to the In-Box Direct terms and conditions contained
herein, to any In-Box Direct subscriber unless explicitly and positively
requested by such subscriber and, if requested, only on topic(s) requested by
such subscriber;
c. send mailings beyond the scope of the subjects disclosed in your
description of service or sample pages at the In-Box Direct site;
d. contact any In-Box Direct subscriber in any manner, other than via
electronic mail pursuant to the terms and conditions contained herein, unless
explicitly and positively requested by such subscriber; and
e. send to In-Box Direct subscribers, or target or solicit In-Box Direct
subscribers with, any mailings containing content that may be harmful to
Netscape, including but not limited to any advertisement, link, banner,
promotional piece, or endorsement of third party products and/or services
directly competitive with Netscape's software products and on-line services or
companies which produce any such products and/or services, and any message to
the effect that the content sent to subscriber may best be viewed on such third
party's product(s). The foregoing prohibitions in this Section 3.e are not
intended to restrict in any way: (i) the advertisements contained in any
material which subscribers can view by following one link in the mailings sent
by you; or (ii) the endorsements made by you of such third party's product(s)
which subscribers can view by following two or more links from the mailings sent
by you; provided, however, that such advertisements and endorsements are
included in content sent to all your subscribers; (iii) editorial reviews of
products and services; and (iv) promotions for third party
10.
<PAGE> 48
products and/or services which are not competitive with Netscape's software
products and on-line services.
4. You acknowledge that Netscape is not currently charging you a fee to
participate in the In-Box Direct program, but that Netscape reserves the right
to do so at any time in the future.
5. You understand that your participation in the Program begins on the date
Netscape notifies you of your acceptance into the program and continues for a
period of one (1) year unless earlier discontinued or terminated as specified
below, and is automatically renewed for a period of one (1) year unless either
party provides the other party with thirty (30) days prior written notice.
Without limiting the foregoing, you understand that either you or Netscape may
terminate your participation in the Program for convenience at any time upon
thirty (30) days prior written notice. In the event of breach, the non-breaching
party may terminate its participation upon one (1) week prior written notice to
the breaching party, unless the breaching party has remedied all breaches within
such week. Upon termination of your participation in the In-Box Direct program
by you or Netscape for any reason, you may continue using the Subscriber
Information, provided that you:
a. comply with the terms and conditions of Sections 3, 7, 8, 9 and 10 herein
for a period of five (5) years following such termination,
b. continue offering subscribers the ability to unsubscribe according to the
requirements outlined in the Program Guidelines and responding promptly to
cancellation requests made by subscribers directly to you, or to Netscape and
forwarded to you by Netscape, and
c. either destroy and/or return to Netscape within five (5) days any and all
Netscape Confidential Information, excluding any Subscriber Information, in your
possession or control.
6. You acknowledge that Netscape has the right to change the format,
guidelines, and terms and conditions of participation in the Program or to
discontinue the Program at any time by notifying you by electronic mail of such
changes at least thirty (30) days before such changes become effective. You
understand that you have thirty (30) days to notify Netscape in writing of your
acceptance or rejection of such modifications and your intent to continue
participating in the program under the new format, guidelines or terms and
conditions. If Netscape receives no written response within such thirty (30)
days, you acknowledge that you will be deemed to have accepted the new format,
guidelines and/or terms and conditions of participation and must comply with the
same.
7. You understand that you are solely responsible for any legal liability
arising out of the material sent by you to the Netscape In-Box Direct
subscribers. You represent and warrant that you hold, and will continue to hold,
the necessary rights to permit the use of the material submitted by you for
receipt by the In-Box Direct subscribers and that the permitted use, display,
performance, reproduction, distribution, publication, or transmission of the
material will not violate any criminal laws, any rights of any third parties or
any local, state, national or international laws. You agree to indemnify and
hold harmless Netscape from any and all liability, loss, damages, claims, or
causes of action, including reasonable legal fees and expenses that may be
incurred by Netscape, arising out of or relating to the mailings sent by you or
your breach of any of the foregoing representations and warranties.
8. "Netscape Confidential Information" means any and all Subscriber
Information, the financial arrangements described in Section 4 above, any and
all disclosures marked by Netscape as "CONFIDENTIAL" or "PROPRIETARY" or which
you know or should have reason to know are confidential or proprietary, and the
terms and conditions contained herein. You agree to: (a) maintain the
confidentiality and secrecy of the Netscape Confidential Information, and to
cause your employees and
11.
<PAGE> 49
agents to maintain the confidentiality and secrecy of such Netscape Confidential
Information; and (b) disclose such Netscape Confidential Information only to
your employees and agents with a need to know for the purposes herein and who
are bound by written agreement to keep such information confidential. You
acknowledge that the unauthorized disclosure or use of Netscape Confidential
Information will cause irreparable harm and significant injury to Netscape that
may be difficult to ascertain. Accordingly, you agree that Netscape will have
the right to seek immediate injunctive relief in addition to any other rights
and remedies Netscape may have.
9. WARRANTY. ANY AND ALL INFORMATION AND SERVICE PROVIDED BY EITHER PARTY
UNDER THESE TERMS AND CONDITIONS, INCLUDING THE SUBSCRIBER INFORMATION AND
NETSCAPE CONFIDENTIAL INFORMATION, IS PROVIDED "AS IS" AND WITHOUT WARRANTY OF
ANY KIND INCLUDING MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10. OTHER TERMS AND CONDITIONS. (a) IN NO EVENT SHALL NETSCAPE BE LIABLE FOR
DIRECT, INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR SPECIAL DAMAGES OF ANY NATURE,
INCLUDING, WITHOUT LIMITATION, LOST BUSINESS PROFITS UNDER THIS AGREEMENT. (b)
This Agreement shall be governed by the laws of the State of California, USA,
without reference to its conflicts of law provisions. (c) Unless otherwise
agreed in writing, all disputes relating to this Agreement (excepting any
dispute relating to intellectual property rights) shall be subject to final and
binding arbitration in Santa Clara County, California, under the auspices of
JAMS/EndDispute, with the losing party paying all costs of arbitration. The
arbitration proceedings and all pleadings and written evidence shall be in
English. Any materials originally in another language shall be submitted with an
English translation. The parties waive any right to appeal under the law of the
forum of the arbitration. (d) This Agreement together with the then-current
Program Guidelines is the entire agreement between you and Netscape relating to
the Program. Any different or additional terms and conditions in any other
document are hereby expressly rejected by Netscape and shall have no force or
effect. (e) The parties hereto confirm that this Agreement and all related
documents shall be in English. (French translation: Les parties aux presentes
confirment leur volonte que cette convention de meme que tous les documents y
compris tout avis qui s'y rattache, soient rediges en langue anglaise.) (f)
Sections 3, 7, 8, 9 and 10 shall survive beyond your participation in the
Program.
Do you agree to the Program Terms and Conditions?
( ) I have read and agree to the Program Terms and Conditions.
( ) I DO NOT agree to the Program Terms and Conditions.
Name:
---------------------------------------------
On behalf of (Company Name):
----------------------
submit application clear application
12.
<PAGE> 50
ADDENDUM NO. 1 TO
NETCENTER SERVICES AGREEMENT
NO: 004241
This Addendum No. 1 (the "Addendum") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
USA.NET, Inc., a Delaware corporation located at 1155 Kelly Johnson Boulevard,
Suite 400, Colorado Springs, CO 80920 ("Participant") and is effective as of the
date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into the Netcenter Services Agreement
effective April 17, 1998 (the "Agreement"); and
WHEREAS, the parties desire to implement a similar Service on certain of
Netscape's international websites by supplementing and modifying the provisions
of the Agreement for purposes of this Addendum.
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Description of Service. The Description of Service, for purposes of
this Addendum, shall include both the Basic Features and Advanced
Features, as well as the following list of Premium Services: forward to
e-mail, extra storage, tagline suppression, virus scanning, email
language translation, greeting cards, POP3, IMAP4 server and ad
suppression. Additional Premium Services may be added by mutual written
agreement of the parties.
2. Territory. For purposes of this Addendum, the Territory shall be the
world, excluding North America and Latin America (which are covered in
the Agreement). Netscape shall notify Participant at least 90 days
prior to the scheduled launch of a localized version of Netcenter in a
new market in the Territory. Participant may choose not to provide the
Service for any markets in the world for which Netscape develops a
localized version of Netcenter by notifying Netscape within 10 calendar
days of receipt of such notice from Netscape. In the event that
Participant fails to respond or chooses not to provide the Service for
such new market, then Netscape may enter into a separate agreement with
a
<PAGE> 51
third party provider to provide the Service in such new market.
Participant hereby agrees that it will launch the Service in [
**
]
3. Local Languages. Local Languages, for purposes of this Addendum, shall
include [
** ]
4. Service Period. The Service Period shall be 2 years from the Phase I
Launch Date.
5. Launch Schedule. Participant shall provide the Service for launch in
the Territory according to the following schedule:
<TABLE>
<CAPTION>
------------------------ ----------------------------------------- ---------------------------------------
PHASE: TERRITORIES: LAUNCH DATE:
------------------------ ----------------------------------------- ---------------------------------------
<S> <C> <C>
Phase I [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
Phase II [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
Phase III [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
Phase IV [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
Phase V [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
</TABLE>
6. Project Planning Meeting. The parties agree to meet at Netscape's
offices in Mt. View, CA, on a mutually agreed upon date in the month of
November, 1998, in order to establish project, technology and strategy
guidelines for utilization by both Participant and Netscape during the
development, deployment, maintenance and support of the Service. A
formal written Project Plan ("Project Plan") will be generated by the
parties as a result of such planing meeting and the terms thereof shall
be deemed part of this Addendum.
6.1 The parties will specifically address the following 2 issues,
among others, at the project planning meeting:
(a) Addressing Scheme. The addressing scheme for the
Services will be mutually agreed upon by the parties.
(b) Registration Scheme. The registration scheme for the
Service will be determined by Netscape choosing one
of the following options: (i) the Netscape Universal
Registration scheme; (ii) the USA.NET standalone
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 52
registration; or (iii) a mutually agreed upon
registration scheme as may be determined by the
parties during the project planning meeting.
7. Netscape's Web Site. For purposes of this Addendum, the URL described
in the definition of Netscape Web Site in the Agreement shall be
replaced with the URL Netscape.com/xx
8. Localization. Participant will be responsible for the translation and
localization of the Service into the Local Languages in the Territory.
Participant may engage third parties to actually perform the
translation and localization services.
9. Quality and Timing. For purposes of this Addendum, if the Service does
not substantially meet expected quality or the Launch Date, Netscape
and Participant agree to meet (via conference call or face-to-face)
within 3 business days to resolve the issue. Both parties will make
best efforts to rectify the situation within 30 days. If the quality or
schedule problem is still not resolved within 30 days, Netscape
reserves the right to contract with a third party provider of the
Service.
10. Best of Breed.
10.1 For purposes of this Addendum, the following items shall be in
added to the Best-of-Breed Service description in Exhibit E of
the Agreement:
(a) Feature Releases. All International releases of
features and or production releases will lag no
longer than 45 days from the US releases unless
otherwise agreed to in writing by the parties.
(b) Latency. The latency of the Service for each language
will be [* *] seconds or less for [* *] of the page
views from anywhere within the primary country or
countries that such localized Service serves.
10.2 For purposes of this Addendum, Exhibit E is hereby amended so
that Participant shall only be required to provide telephone
support to end users if other competitive service providers
provide telephone support.
11. INTENTIONALLY OMITTED
12. Payment. For purposes of this Addendum, the Net Revenue generated by
the Service shall be split equally between Participant and Netscape.
13. Net Revenue. For purposes of this Addendum, the Definition of Net
Revenue shall be as follows:
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 53
DEFINITION OF "NET REVENUE." Net Revenue is defined as total gross
revenues, specifically excluding taxes, from the sum of:
(a) advertising and Sponsorships net
revenue (gross advertising revenues and/or Sponsorship fees less
reasonable fees and commissions, including but not limited to internal
commissions for buying and/or selling agencies, not to exceed [* *];
(b) Premium Services; and
(c) special one-time offers net revenue
(gross promotional revenues less reasonable fees and commissions,
including but not limited to internal commissions, not to exceed [* *];
and in the case of each of (a) though (c) above, less mutually agreed
deductions such as bad debt, returns, billing costs and/or cost of
sales, provided that the total combined deductions against such revenue
do not exceed [* *] thereof. If it appears that the deductions for the
items above may exceed the [* *] cap, Participant shall consult with
Netscape regarding which party should sell to the advertiser or sponsor
in question.
14. Payment Schedule:
<TABLE>
<CAPTION>
----------------------------------------------------------------- ----------------- --------------------------
FEES PAYMENT PAYMENT DUE DATE
AMOUNT
----------------------------------------------------------------- ----------------- --------------------------
<S> <C> <C>
[* *] [* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
</TABLE>
The Advance Payments Against Future Net Revenues will be credited
against the revenue sharing set forth in paragraph 12 above.
15. Capitalized terms defined in the Agreement shall have the same meaning
in this Addendum as in the Agreement. The modifications and additions
set forth in this Addendum shall apply only to the Territory defined in
the Addendum and do not affect the Territory defined in the Agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 54
16. Except as explicitly modified in this Addendum, all terms, conditions
and provisions of the Agreement shall continue in full force and effect
for purposes of this Addendum.
17. In the event of any inconsistency or conflict between the Agreement and
this Addendum, the terms, conditions and provisions of this Addendum
shall govern and control for purposes of this Addendum only.
18. This Addendum and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Agreement and this Addendum.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS USA.NET, Inc.
CORPORATION
By: /s/ NOREEN BERGIN By: /s/ DANIEL M. WINOKUR
------------------------------ --------------------------------
Signature Signature
Name: Noreen Bergin Name: Daniel M. Winokur
---------------------------- -------------------------------
Print or Type Print or Type
Title: SVP Finance Title: VP, Business Development
--------------------------- -------------------------------
Date: 11/2/98 Date: October 31, 1998
---------------------------- -------------------------------
<PAGE> 55
AMENDMENT NO. 1 TO
NETCENTER SERVICES AGREEMENT
NO: 004241
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
USA.NET, Inc., a Delaware corporation, with offices at 1155 Kelly Johnson
Boulevard, Suite 400, Colorado Springs, CO 80920 ("Licensee") and is effective
as of the date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into a Netcenter Services Agreement effective
April 17, 1998 (the "Agreement"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Local Languages. The Local Languages shall be modified such that
Spanish shall be changed to Mexican Spanish.
2. Territory. The Territory shall be modified such that Mexico shall be
changed to Latin America.
3. Launch Schedule. Participant shall provide the Service for launch in
the Territory according to the following schedule:
<TABLE>
<CAPTION>
--------------------------- ----------------------------------
TERRITORIES: LAUNCH DATE:
--------------------------- ----------------------------------
<S> <C>
[ ** ] [ ** ] from the Effective Date
--------------------------- ----------------------------------
[ ** ] [ ** ] from the Effective Date
--------------------------- ----------------------------------
</TABLE>
In the event that Netscape develops a new Netcenter site that is
intended to service any countries in Latin America other than Mexico,
then those countries shall be covered for all purposes by Addendum No.
1 to Netcenter Services Agreement between Netscape and Participant of
even date herewith.
4. Capitalized terms defined in the Agreement shall have the same meaning
in this Amendment as in the Agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
1
<PAGE> 56
5. Except as explicitly modified, all terms, conditions and provisions of
the Agreement shall continue in full force and effect.
6. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
7. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS USA.NET, Inc.
CORPORATION
By: /s/ NOREEN BERGIN By: /s/ DANIEL M. WINOKUR
------------------------------- -------------------------------
Signature Signature
Name: Noreen Bergin Name: Daniel M. Winokur
----------------------------- -----------------------------
Print or Type Print or Type
Title: SVP Finance Title: VP, Business Development
---------------------------- ----------------------------
Date: 11/2/98 Date: October 31, 1998
----------------------------- -----------------------------
2
<PAGE> 57
AMENDMENT NO. 1 TO
NETCENTER SERVICES AGREEMENT
ADDENDUM NO. 1
NO: 004241
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
USA.NET, Inc., a Delaware corporation, with offices at 1155 Kelly Johnson
Boulevard, Suite 400, Colorado Springs, Colorado 80920 ("Licensee") and is
effective as of the date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into Addendum No. 1 to the Netcenter Services
Agreement effective October 31, 1998 (the "Addendum"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Addendum;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Advance Payments Against Future Net Revenues. Section 14 of the
Addendum shall be modified such that the February 1, 1999 payment due
date for advanced payments against future Net Revenues is changed to
February 1, 2000.
2. Capitalized terms defined in the Addendum shall have the same meaning
in this Amendment as in the Addendum.
3. Except as explicitly modified, all terms, conditions and provisions of
the Addendum shall continue in full force and effect.
4. In the event of any inconsistency or conflict between the Addendum and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
5. This Amendment and the Addendum constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Addendum and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS USA.NET, Inc.
CORPORATION
By: /s/ NOREEN G. BERGIN By: /s/ DANIEL M. WINOKUR
---------------------------------- --------------------------------
Signature Signature
Name: Noreen G. Bergin Name: Daniel M. Winokur
-------------------------------- ------------------------------
Print or Type Print or Type
Title: Senior Vice President, Finance Title: VP, Business Development
------------------------------- -----------------------------
& Corporate Controller
-------------------------------
Date: November 10, 1998 Date: November 2, 1998
------------------------------- ------------------------------
1
<PAGE> 58
AMENDMENT NO. 2 TO
NETCENTER SERVICES AGREEMENT
NO: 004241-3
This Amendment No. 2 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
USA.NET, Inc., a Delaware corporation, with offices at 1155 Kelly Johnson
Boulevard, Suite 400, Colorado Springs, Colorado 80920 ("Licensee") and is
effective as of the date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into a Netcenter Services Agreement effective
April 17, 1998, as amended October 31, 1998 (the "Agreement"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Service Period. The Service Period for the Territories of [ ** ] and
[ ** ] shall be [ ** ] from the [ ** ] Launch Date.
2. Capitalized terms defined in the Agreement shall have the same meaning
in this Amendment as in the Agreement.
3. Except as explicitly modified, all terms, conditions and provisions of
the Agreement shall continue in full force and effect.
4. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
5. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS USA.NET, Inc.
CORPORATION
By: /s/ NOREEN G. BORGIN By: /s/ DANIEL M. WINOKUR
--------------------------------- --------------------------------
Signature Signature
Name: Noreen G. Borgin Name: Daniel M. Winokur
------------------------------- ------------------------------
Print or Type Print or Type
Senior Vice President,
Finance & Corporate
Title: Controller Title: VP, Business Development
------------------------------ -----------------------------
Date: 11/10/98 Date: November 2, 1998
------------------------------ ------------------------------
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 1
** CERTAIN CONFIDENTIAL
MATERIAL CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF
1933, AS AMENDED.
EXHIBIT 10.12
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement ("Agreement") is effective as of the 17th day
of April, 1998 ("Effective Date") and is entered into by and between Netscape
Communications Corporation ("Netscape"), a Delaware corporation located at 501
East Middlefield Road, Mountain View California 94043, and USA.NET ("Licensee"),
a Delaware corporation located at 1155 Kelly Johnson Boulevard, Suite 400,
Colorado Springs, CO 80920.
RECITALS
A. Netscape owns and uses the name and/or trademark NETSCAPE and the
registered trademarks therefor as listed on Exhibit A attached hereto
(collectively referred to as the "Marks"), in connection with its
Internet-related software products, services and technology;
B. Licensee produces Web sites and performs other Internet-related
services;
C. Licensee desires to use the trademark NETSCAPE solely in the titles set
forth in Exhibit A in connection with Internet communication services
in the languages and geographic territories set forth opposite such
titles in Exhibit A; and
D. Netscape is willing to permit such use of the Marks under the terms and
conditions set forth in this Agreement.
NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. GRANT OF LICENSE.
1.1 GRANT OF LICENSE. Netscape hereby grants to Licensee a
non-exclusive, nontransferable, license to use the Marks in the titles set forth
in Exhibit A solely in conjunction with Internet communication services in the
languages and geographic territories set forth in Exhibit A opposite such titles
(the "Communication Services") which shall, in part, promote Netscape's products
and services, may be jointly developed by Netscape and Licensee, and which
services shall reside on Licensee's web site located at http://www.usa.net,
deploying Licensee's servers. Licensee may only use the Marks as a collective
whole and shall not separately use any element or elements of the Marks.
1.2 RESERVATION OF RIGHTS. Netscape hereby reserves any and all
rights not expressly and explicitly granted in this Agreement, including
Netscape's right to authorize or license use of the Marks or any other
trademarks or names containing NETSCAPE, to any third party for use in
connection with any goods and services, including, but not limited to, Internet
communication services. Without limiting the rights reserved in the preceding
sentence, Netscape hereby reserves any and all rights to use, authorize use or
license use of the Marks or any other trademarks or names containing NETSCAPE in
any geographic territory and in any language.
1
<PAGE> 2
2. LICENSE FEE. For the rights granted to Licensee herein, Licensee shall
pay Netscape, by cashier's check or wire transfer to an account designated by
Netscape, a one-time non-refundable licensee fee of U.S. Five Million Dollars
($5,000,000) at the time of Licensee's execution of this Agreement.
3. OWNERSHIP OF MARKS. Licensee hereby acknowledges that Netscape is the
owner of the Marks, and any trademark applications and/or registrations thereto,
agrees that it will do nothing inconsistent with such ownership and agrees that
all use of the Marks by Licensee shall inure to the benefit of Netscape.
Licensee agrees that nothing in this Agreement shall give Licensee any right,
title or interest in the Marks other than the right to use the Marks in
accordance with this Agreement. Licensee agrees not to register or attempt to
register the Marks or the Logo as a trademark, service mark, Internet domain
name, trade name, or any similar trademarks or name, with any domestic or
foreign governmental or quasi-governmental authority which would be likely to
cause confusion with the Marks. Licensee may not register or use the Marks or an
abbreviation of the Marks as part of an Internet domain name. The provisions of
this paragraph shall survive the expiration or termination of this Agreement.
4. USE OF THE MARKS; PROTECTION OF THE MARKS.
4.1 PROPER USE. Licensee agrees that all use of the Marks shall
only occur in connection with the Communication Services and shall be in strict
compliance with the terms of this Agreement. Licensee may use the Marks as set
forth in Section 1.1 as well as in connection with the promotion of the
Communication Services. Licensee shall use the Marks in conformance with
Netscape's trademark guidelines ("Trademark Guidelines"), set forth in Exhibit
B, which Trademark Guidelines may be revised by Netscape from time to time.
Licensee agrees not to use any other trademark or service mark in combination
with the Marks other than as described in Section 1.1. Licensee has no right to
sublicense, transfer or assign the use of the Marks or use the Marks for any
other purpose other than the purpose described herein. Unless otherwise agreed
in writing, Licensee may not use the Mark in connection with, or for the benefit
of, any third party's products or services. Licensee further agrees not to use
the Marks on or in connection with any products or services that are or could be
deemed by Netscape, in its reasonable judgment, to be obscene, pornographic,
disparaging of Netscape or its products or products, or otherwise in poor taste,
or that are themselves unlawful or whose purpose is to encourage unlawful
activities by others.
4.2 QUALITY STANDARDS. Licensee agrees to maintain a consistent
level of quality of the Communication Services performed in connection with the
Marks substantially equal to that found in Licensee's existing Web site
services. Licensee further agrees to maintain a level of quality in connection
with its use of the Marks that is consistent with general industry standards.
4.3 MONITORING BY NETSCAPE. Licensee acknowledges that Netscape
has no further obligations under this Agreement other than the right to
periodically monitor Licensee's use of the Marks in conjunction with the
Communication Services. Upon request by Netscape, Licensee shall provide
Netscape with representative samples of each such use prior to the time the
Marks are published on the Internet or in press materials or marketing or
advertising materials. If Netscape determines that Licensee is using the Marks
improperly, and/or in connection with Communication Services which do not meet
the standards set forth in Section 4.1 or Section 4.2, Netscape shall notify
Licensee, and Licensee shall remedy the improper use within two (2) business
days following receipt of such notice from Netscape. Use of the Marks on goods
or services other than the Communication Services or the promotion of the
Communication Services, or in a manner inconsistent with the Trademark
Guidelines, shall constitute
2
<PAGE> 3
material breach of this Agreement. If such material breach has not been cured
within two (2) business days following receipt of notice from Netscape, this
Agreement shall be terminated subject to Section 7.1(a).
4.4 LEGEND; DISCLAIMER. Licensee shall include with any online
publication or publication in print of the Marks a trademark legend indicating
that the Marks are those of Netscape, used under license, and a disclaimer that
Licensee and not Netscape has produced the Communication Services and is
responsible for the content thereof.
4.5 COMMUNICATION SERVICES. If Netscape reasonably determines that
the Communication Services contain or present any material that constitutes an
infringement of Netscape's trademark, patents, copyrights or trade secrets,
Licensee's right to use the Marks pursuant to the grant described in Section 1.1
shall, upon written notice from Netscape of such determination, be suspended
until Licensee has revised, removed or removed links to such material to
Netscape's reasonable satisfaction. If such revision or removal of, or removal
of links to, such material to Netscape's reasonable satisfaction has not
occurred within thirty (30) days of the notice from Netscape described in the
preceding sentence, Netscape may immediately terminate the license grant
described in Section 1.1. If Netscape reasonably determines that the
Communication Services contains or presents any material that could reasonably
constitute an infringement of a third party's copyright, trademark, patents or
trade secrets, Netscape may immediately terminate this Agreement if Licensee has
not revised to Netscape's reasonable satisfaction that material or presentation
within one (1) business day of written notice from Netscape subject to Section
7.1(a).
4.6 LICENSEE WEB SITES. If Netscape, in its sole discretion, at
any time determines that Licensee's web sites or sites operated by Licensee on
behalf of other parties contain any material or present any material in a manner
that Netscape reasonably deems inaccurate or an improper tarnishment of
Netscape, the Netscape products or the Marks, or an infringement of Netscape's
or a third party's rights, including but not limited rights under trademark,
patent, trade secret or copyright laws, or unlawful in any country or territory,
Netscape may immediately terminate this Agreement if Licensee has not revised to
Netscape's reasonable satisfaction that material or presentation within three
(3) business days of written notice from Netscape subject to Section 7.1(a).
5. CONFIDENTIAL INFORMATION AND DISCLOSURE. Unless required by law or in
connection with the due diligence of actual or potential investors, and except
to assert its rights hereunder or for disclosures to its own employees on a
"need to know" basis, Licensee agrees not to disclose the terms of this
Agreement or matters relating thereto without the prior written consent of
Netscape, which consent shall not be unreasonably withheld.
6. INDEMNIFICATION BY LICENSEE. Licensee agrees to indemnify Netscape and
to hold Netscape harmless from any and all liability, loss, damages, claims or
causes of action, including reasonable legal fees and expenses that may be
incurred by Netscape, arising out of Licensee's use of the marks and content on
Licensee's web sites linked to or presented in conjunction with the Marks,
except for liability, loss, damages, claims or causes of action arising out of
third party claims (i) that Licensee's use of the Marks infringe that third
party's valid and subsisting U.S. trademark registration in the Marks or (ii) in
respect of any act or omission of Netscape giving rise to liability. Netscape
shall provide Licensee with prompt written notice of any claim for which
indemnification is sought and cooperating fully with and allowing Licensee to
control the defense and settlement of such claim. Netscape may not settle any
such claim without Licensee's prior written consent, which consent shall not be
unreasonably withheld. Netscape shall have the right, at its own expense, to
participate in the defense of any such claim.
3
<PAGE> 4
7. TERMINATION
7.1 TERM AND TERMINATION. This Agreement and the term of the
license granted herein shall be perpetual unless terminated as provided in
Section 4.3, Section 4.5 or this Section 7.1. Netscape shall have the right to
terminate this Agreement upon the occurrence of one or more of the following:
(a) any material breach by Licensee of its obligations under this Agreement
which remains uncured for thirty (30) days or more following written notice of
such breach from Netscape, (b) use of the Marks by Licensee in a manner which is
disparaging of Netscape or its products and services and which remains uncured
for two (2) days following notice from Netscape, (c) Licensee decides not to
develop and launch the Communication Services, or (d) the Communication Services
are discontinued.
7.2 EFFECT OF TERMINATION. Upon termination of the Agreement,
Licensee agrees it shall immediately cease any and all use of the Marks.
8. GENERAL
8.1 GOVERNING LAW. This Agreement shall be subject to and governed
in all respects by the statutes and laws of the State of California without
regard to the conflicts of laws principles thereof. The Superior Court of Santa
Clara County and/or the United States District Court for the Northern District
of California shall have exclusive jurisdiction and venue over all controversies
in connection herewith, and each party hereby consents to such exclusive and
personal jurisdiction and venue.
8.2 ENTIRE AGREEMENT. This Agreement, including Exhibit A and
Exhibit B attached hereto, constitutes the entire Agreement and understanding
between the parties and integrates all prior discussions between them related to
its subject matter. No modification of any of the terms of this Agreement shall
be valid unless in writing and signed by an authorized representative of each
party.
8.3 ASSIGNMENT. Licensee may not assign any of its rights or
delegate any of its duties under this Agreement, or otherwise transfer this
Agreement (by merger, operation of law or otherwise) without the prior written
consent of Netscape. Any attempted assignment, delegation or transfer in
derogation hereof shall be null and void.
8.4 NOTICES. All notices required or permitted hereunder shall be
given in writing addressed to the respective parties as set forth below and
shall either be (a) personally delivered or (b) transmitted by
nationally-recognized private express courier, and shall be deemed to have been
given on the date of receipt if delivered personally, or two (2) days after
deposit with such express courier. Either party may change its address for
purposes hereof by written notice to the other in accordance with the provisions
of this Subsection. The addresses for the parties are as follows:
LICENSEE: NETSCAPE:
USA.NET Netscape Communications Corporation
1155 Kelly Johnson Boulevard, Suite 400 501 East Middlefield Road, MV-002
Colorado Springs, CO 80920 Mountain View, CA 94043
Fax: (719) 265-2923 Fax: (415) 528-4123
Attn: Geoffrey Lind Attn: General Counsel
<PAGE> 5
8.5 FORCE MAJEURE. Neither party will be responsible for any
failure to perform its obligations under this Agreement due to causes beyond its
reasonable control, including but not limited to acts of God, war, riot,
embargoes, acts of civil or military authorities, fire, floods or accidents.
8.6 WAIVER. Any waiver, either expressed or implied, by either
party of any default by the other in the observance and performance of any of
the conditions, covenants of duties set forth herein shall not constitute or be
construed as a waiver of any subsequent or other default.
8.7 HEADINGS. The headings to the Sections and Subsections of this
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
8.8 INDEPENDENT CONTRACTORS. The parties acknowledge and agree
that they are dealing with each other hereunder as independent contractors.
Nothing contained in the Agreement shall be interpreted as constituting either
party the joint venture or partner of the other party or as conferring upon
either party the power of authority to bind the other party in any transaction
with third parties.
8.9 SURVIVAL. The provisions of Section 1.2 (Reservation of
Rights), 3 (Ownership of Marks), 4.4 (Legend; Disclaimer), 5 (Confidential
Information and Disclosure), 6 (Indemnification by Licensee), 7.2 (Effect of
Termination) and 8 (General) will survive any termination of this Agreement.
8.10 EQUITABLE RELIEF. Licensee recognizes and acknowledges that a
breach by Licensee of this Agreement will cause Netscape irreparable damage
which cannot be readily remedied in monetary damages in an action at law, and
may, in addition thereto, constitute an infringement of the Marks. In the event
of any default or breach by Licensee that could result in irreparable harm to
Netscape or cause some loss or dilution of Netscape's goodwill, reputation, or
rights in the Marks, Netscape shall be entitled to immediate injunctive relief
to prevent such irreparable harm, loss, or dilution in addition to any other
remedies available.
8.11 SEVERABILITY. Except as otherwise set forth in this Agreement,
the provisions of this Agreement are severable, and if any one or more such
provisions shall be determined to be invalid, illegal or unenforceable, in whole
or in part, the validity, legality and enforceability of any of the remaining
provisions or portions thereof shall not in any way be affected thereby and
shall nevertheless be binding between the parties hereto. Any such invalid,
illegal or unenforceable provision or portion thereof shall be changed and
interpreted so as to best accomplish the objectives of such provision or portion
thereof within the limits of applicable law.
8.12 ATTORNEY'S FEES. In the event of any action, suit, or
proceeding brought by either party to enforce the terms of this Agreement, the
prevailing party shall be entitled to receive its costs, expert witness fees,
and reasonable attorneys fees and expenses, including costs and fees on appeal.
8.13 LIMITATION OF LIABILITY. EXCEPT FOR A BREACH BY LICENSEE OF
ITS CONFIDENTIALITY OBLIGATIONS AS DESCRIBED IN SECTION 5, IN NO EVENT WILL
EITHER PARTY BE LIABLE TO THE OTHER FOR LOST PROFITS OR ANY FORM OF INDIRECT,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER FROM ANY CAUSES
OF ACTION OF ANY KIND WITH RESPECT TO THIS AGREEMENT WHETHER BASED ON CONTRACT,
TORT, OR OTHERWISE, AND WHETHER OR NOT THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE. THE LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED
DAMAGES HEREUNDER (EXCEPT FOR DAMAGES OR ALLEGED DAMAGES ARISING UNDER SECTION
5) WHETHER IN CONTRACT OR TORT OR ANY OTHER LEGAL THEORY IS LIMITED TO AND SHALL
NOT EXCEED, IN THE AGGREGATE, AN AMOUNT EQUAL TO [ ** ].
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
LICENSEE NETSCAPE COMMUNICATIONS
CORPORATION
By: /s/ GEOFFREY E. LIND By: /s/ MIKE HOMER
--------------------------- -------------------------------
Name: Geoffrey E. Lind Name: Mike Homer
------------------------ -----------------------------
Title: COO Title: EVP of Website Division
----------------------- ----------------------------
Date: April 17, 1998 Date: April 17, 1998
------------------------ -----------------------------
Exhibit A: Titles; Target Language and Geographic Combinations
Exhibit B: Trademark Guidelines
6
<PAGE> 7
EXHIBIT A
TITLES; TARGET LANGUAGE AND GEOGRAPHIC COMBINATIONS
Title Target Language Geographic Territory
NETSCAPE U.S. English U.S., [ ** ]
NETCENTER U.S. English U.S., [ ** ]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
1
<PAGE> 8
EXHIBIT B
TRADEMARK USE GUIDELINES
Netscape's Trademark Guidelines are published at the following URL:
http://home.netscape.com/misc/trademarks.html#trademarks
1
<PAGE> 9
AMENDMENT NO. 1 TO
TRADEMARK LICENSE AGREEMENT
NO: 004025
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
USA.NET, Inc., a Delaware corporation, with offices at 1155 Kelly Johnson
Boulevard, Suite 400, Colorado Springs, CO 80920 ("Licensee") and is effective
as of the date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into a Trademark License Agreement effective
April 17, 1998 (the "Agreement"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Target Languages. The following Target Languages shall be added to
Exhibit A: [ **
]
2. Geographic Territory. The Geographic Territory described in Exhibit A
shall be amended to read "Worldwide".
3. License Fee. For the additional target language and geographic
territory rights granted herein, Licensee shall pay Netscape, by
cashier's check or wire transfer to an account designated by Netscape,
a one-time non-refundable license fee of U.S. One Million Five Hundred
Thousand Dollars (US$1,500,000) within 2 business days of the Effective
Date.
4. Capitalized terms defined in the Agreement shall have the same meaning
in this Amendment as in the Agreement.
5. Except as explicitly modified, all terms, conditions and provisions of
the Agreement shall continue in full force and effect.
6. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
7. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS CORPORATION USA.NET, Inc.
By: /s/ NOREEN G. BERGIN By: /s/ DANIEL M. WINOKUR
--------------------------------- --------------------------------
Signature Signature
Name: Noreen G. Bergin Name: Daniel M. Winokur
------------------------------- ------------------------------
Print or Type Print or Type
Title: SVP Finance Title: VP Business Development
------------------------------ -----------------------------
Date: November 2, 1998 Date: October 31, 1998
------------------------------ ------------------------------
1
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 1
** CERTAIN CONFIDENTIAL
MATERIAL CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF
1933, AS AMENDED.
EXHIBIT 10.13
USA.NET, INC. AND REGISTER.COM
PARTNERSHIP AGREEMENT
Set forth below are the terms and conditions upon which USA.NET, Inc., a
Delaware corporation with offices at 1155 Kelly Johnson Blvd, Suite 400,
Colorado Springs, Colorado 80920 ("USA.NET") will provide Email Services to
Forman Interactive Corp., a New York corporation with offices at 134 Fifth
Avenue, 3rd Floor, New York NY 10011 ("REGISTER.COM") for resale to authorized
customers of Register.com's services ("CUSTOMERS"). This Agreement (the
"AGREEMENT") is effective this 1st day of March, 1999 (the "EFFECTIVE DATE").
1. DEFINITIONS. "ACCOUNT," as used herein, shall mean a "post office" set up
on USA.NET's server for Customer's use of the Email Services, containing (i) a
Seat for use by the Postmaster (as defined below) and (ii) the number of Seats
for use by End Users, all as purchased by Customer from Register.com. "SEAT" as
used herein shall mean a mailbox created within an Account for use of the Email
Services by the Postmaster or an end user ("END-USER"), as the case may be.
"SOFTWARE" as used herein means the computer software programs developed or
licensed by USA.NET for use in connection with the provision of Email Services.
"EMAIL SERVICES" as used herein means the PostOffice.Net branded web-based email
services provided by USA.NET, including email hosting, server and network
maintenance, Account setup and technical support via email during USA.NET's
normal business hours. "DOMAIN REGISTRATION SERVICES" as used herein means
domain name registration services available through the Web site currently
located at http://www.register.com and do not include any other domain name
registration services provided by Forman Interactive Corp.
2. APPOINTMENT; RELATIONSHIP. USA.NET hereby appoints Register.com as a
nonexclusive reseller of USA.NET's Email Services, specifically PostOffice.Net.
Register.com is an independent contractor; the relationship between USA.NET and
Register.com or Register.com's agents shall not be construed as an agency of any
kind. Neither Register.com nor its agents shall have authority to make any
agreement or incur any liability on behalf of USA.NET, except as set forth in
this Agreement.
3. REGISTER.COM'S OBLIGATIONS.
(a) CUSTOMER INFORMATION; TERMS AND CONDITIONS OF SERVICE. Register.com
agrees (i) to provide USA.NET with the Customer information required by Exhibit
A upon the resale of Email Services to a Customer, and to keep USA.NET informed
of any changes to such information; provided, however, that except as permitted
by the Terms and Conditions and Sections 9(b) and 17 below, USA.NET shall not
use such Customer information to contact Customers for the purpose of selling or
marketing any services including, but not limited to, Email Services to them
directly and (ii) to require each Customer to agree to be bound, and to cause
its End-Users to be bound, by USA.NET's terms and conditions attached hereto as
Exhibit B, as amended from time to time by USA.NET in its sole discretion
("TERMS AND CONDITIONS").
4. TERMS OF USE.
(a) ACCOUNT SETUP. Register.com may create an Account for each Customer,
containing the number of End User Seats purchased by such Customer plus one
Postmaster Seat. Each Account will be provided with a postmaster Seat which will
allow Customer to designate one person from time to time (the "POSTMASTER") who
shall have authority to (i) control the creation and deletion of End User Seats,
(ii) manage changes to the End User Seat information (such as changes to
End-User name or password) and (iii) customize the Email Services as set forth
in Section 4(b) below. Notwithstanding the foregoing, USA.NET may make such
changes to a Customer's Account and the Seats contained therein as it deems
necessary or appropriate for the functioning of the Email Services; provided
that, with respect to any material change, USA.NET shall use commercially
reasonable efforts to provide advance notice to Register.com prior to
implementing such changes.
(b) CUSTOMIZATION. The Software permits Customer to customize certain
aspects of the Email Services. Within the parameters of the Software, which may
be modified from time to time as USA.NET deems necessary or appropriate, the
Postmaster will have control over the selection of options for those aspects. If
the
1.
<PAGE> 2
Postmaster does not customize an option, the Software shall default to USA.NET's
standard template, which template may be modified by Register.com within the
parameters set by USA.NET.
(c) TECHNICAL SUPPORT. Except as set forth below, USA.NET shall have first
line responsibility for responding to and resolving technical support inquiries
from Customers; provided, however, that USA.NET's obligation under this Section
4(c) shall be limited to providing such technical support (i) in English, (ii)
via email and (iii) during USA.NET's normal business hours (Monday through
Friday, 8:00 a.m. until 6:00 p.m. M.T.). In the event that a Customer requires
technical support in a language other than English, Register.com acknowledges
that (i) Register.com shall have first line responsibility for providing
technical support to such Customer, in English, and (ii) USA.NET will provide
second line technical support to Register.com.
(d) POSTMASTER TRAINING. Each Customer shall be provided with Postmaster
and End User manuals, both of which may be downloaded by the Postmaster through
the Postmaster's "Help/Feedback" section. In addition, Customers who purchase
Accounts with [ ** ] Seats or more shall be eligible for Postmaster training
provided by USA.NET over the telephone at [ ** ]; provided,
however, that USA.NET shall determine the times for the Postmaster training.
(e) MAINTENANCE. Register.com acknowledges that USA.NET's servers go down
periodically for maintenance. USA.NET shall use commercially reasonable efforts
to schedule such maintenance during off-peak periods and no more frequently than
once per month.
(f) STORAGE SPACE. Each Customer will be allotted a maximum of five (5)
megabytes of storage space per Seat on USA.NET's servers. Customers may purchase
additional storage space as further set forth on Exhibit C. In the event a
Customer exceeds its maximum permitted storage space, USA.NET reserves the right
to delete any and all Email messages from the Seats within such Customer's
Account who have exceeded their maximum storage space in order to bring the
storage space of such Seats back within their permitted range; provided that
USA.NET will provide the Customer with reasonable advance notice to reduce the
amount of storage space being used. If USA.NET reasonably determines in good
faith that a Customer's excess storage use is an immediate threat to USA.NET's
systems or operations, then USA.NET may immediately delete any and all Email
messages from the Seats within such Customer's Account without prior notice to
the Customer.
(g) MODIFICATIONS. USA.NET reserves the right to modify or discontinue any
feature or functionality of the Email Services at any time; provided, however,
that USA.NET shall use commercially reasonable efforts to provide notice to
Register.com within a reasonable time prior to any modification or
discontinuance.
(h) VIOLATION OF TERMS AND CONDITIONS. If USA.NET believes conduct by a
Customer or a Customer's End-Users violates the Terms and Conditions, or is
otherwise harmful to USA.NET or its customers, USA.NET may restrict, suspend or
terminate the provision of Email Services to such Customer. USA.NET shall use
commercially reasonable efforts to provide notice to Register.com prior to
implementing such actions.
(i) CUSTOMER BILLING. During the term of this Agreement, Register.com shall
be solely responsible for billing and collecting Customer payments. Register.com
hereby acknowledges and affirms that Register.com's payment obligations to
USA.NET must be satisfied in full, irrespective of Register.com's billing or
collection status with any Customer.
5. FEES; BILLING; TAXES.
(a) FEES. For each Customer Account ordered by Register.com and setup by
USA.NET, Register.com agrees to pay both (i) monthly wholesale service fees and
(ii) as applicable, Account adjustment fees (collectively, the "Fees").
USA.NET's current fee structure is set forth on the fee schedule attached hereto
as Exhibit C (the "FEE SCHEDULE"). USA.NET reserves the right to amend the Fee
Schedule at any time, in its sole discretion, with a sixty (60) day advance
notice to Register.com. Register.com may provide each individual Customer with
[ ** ] Account containing up to [ ** ] of Seats for an initial
thirty (30) day period at [ ** ] to Register.com.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
2.
<PAGE> 3
(b) BILLING; PAYMENT. USA.NET shall invoice Register.com monthly for all
Fees due, less [ ** ] Accounts as provided in Section 5a.
Register.com shall pay USA.NET the amount invoiced net thirty (30) days after
receipt thereof. Any unpaid balances shall accrue interest at the prime rate,
from the due date until paid, and shall include USA.NET's reasonable cost of
collection. Each invoice will be accompanied by a report setting forth (i) the
number of Seats ordered by Register.com during the month, (ii) the number of
Seats which remained active through the end of the month, (iii) the number of
Seats cancelled during the month, (iv) Account adjustments made during the month
and (v) the type and amount of additional services ordered by Register.com on
behalf of Customers during the month.
(c) TAXES. The Fees are exclusive of all federal, state, municipal or other
government excise, sales, use, occupational, or like taxes. Any such tax, fee,
or charge of any nature whatsoever imposed by any governmental authority on, or
measured by, the transactions between USA.NET and Register.com (exclusive of
taxes based on USA.NET's net income) shall be paid by Register.com in addition
to the Fees invoiced. All payments to USA.NET shall be made free and clear of,
and without reduction for, any withholding taxes.
6. CO-OP MARKETING FUNDS. USA.NET will accrue and reserve [ ** ]
of each payment it receives from Register.com (the "FUNDS") which USA.NET will
use to reimburse Register.com for joint promotions of the Email Services
identified by Register.com in accordance with the license granted pursuant to
Sections 10 and 11 below and subject to the limits set forth herein. The Funds
must be used by Register.com within one (1) year of the date of accrual and the
expenditure must be approved in writing by USA.NET in accordance with USA.NET
policy.
7. CO-MARKETING AGREEMENT. USA.NET and Register.com shall each use
commercially reasonable efforts to promote and market each other's products and
services during the term of this Agreement, which may include the promotional
efforts specified on Exhibit D attached hereto, as amended from time to time by
written agreement of the parties.
8. MINIMUM SALES. In order to continue their rights hereunder, Register.com
shall pay USA.NET a minimum of [ ** ] in Fees per
month (the "MINIMUM MONTHLY FEE"), which minimum obligation shall commence [
** ] after USA.NET implements the Application
Programming Interface ("API") for the Email Services. In the event Register.com
fails to either (i) order a sufficient number of Accounts to satisfy the Minimum
Monthly Fee requirement, or (ii) pay USA.NET the shortfall in the Minimum
Monthly Fee, USA.NET shall have the right, but not the obligation, to terminate,
or otherwise renegotiate, the co-marketing agreement specified in Section 7
above. Minimum Monthly Fees shall be paid with the Fees as set forth in Section
5(a) above.
9. USA.NET'S OBLIGATIONS.
(a) SERVICES. USA.NET shall, in accordance with the terms and conditions
set forth herein, use commercially reasonable efforts to provide the Email
Services to the Customers.
(b) CUSTOMER NAMES. USA.NET shall not sell or distribute the names of the
Customers to any third parties or use the Customers' names for USA.NET's own
marketing purposes (other than the distribution of the Customers' names to
USA.NET's suppliers as necessary to provide the Email Services pursuant to this
Agreement and as set forth in the Terms and Conditions and Section 17 below),
without the prior written consent of Register.com. USA.NET shall be able to use
information relating to the aggregate number of Customers (without any reference
to Customer names) subscribing to the Email Services for its own marketing
purposes.
10. USA.NET LICENSE GRANT. USA.NET hereby grants Register.com a revocable,
nonexclusive, nontransferable license to use USA.NET's trademarks and trade
names (the "USA.NET MARKS"), in promotional materials distributed by
Register.com during the term of this Agreement solely for the purpose of (i)
soliciting sales of the Email Services from Customers; or (ii) jointly promoting
USA.NET and Register.com. Register.com shall submit all promotional and other
materials containing USA.NET Marks to, and obtain written approval from,
USA.NET's Marketing Department, at the address specified in the preamble hereto,
prior to the distribution or use thereof. USA.NET reserves the right to revoke
the license granted hereunder as to any use of the USA.NET Marks it finds
objectionable, and Register.com shall cease using the USA.NET Marks in such
objectionable manner within
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
3.
<PAGE> 4
fifteen (15) days after the date of USA.NET's written notice thereof. The
license set forth in this Section 10 shall expire immediately upon the
expiration or termination of this Agreement. Register.com's use of the license
granted herein, and any goodwill arising therefrom, shall inure to the sole
benefit of USA.NET. Register.com shall not promote the Email Services under any
trademark or trade name other than the USA.NET Marks, except as expressly
permitted by USA.NET. USA.NET will monitor the quality of the services for which
Register.com will be using the USA.NET Marks to ensure that they conform to the
standards of quality of USA.NET's other services. Register.com agrees not to
adopt or use any other trademarks, words, symbols, letters, designs or marks in
combination with the USA.NET Marks in a manner that would create combination
marks or that would be confusingly similar to the USA.NET Marks. Register.com
shall not seek or obtain any trademark or trade name registration embodying the
USA.NET Marks, nor register or cause to be registered any USA.NET Marks in
Register.com's own name. In addition, Register.com will not seek to challenge
the validity of the USA.NET Marks.
11. REGISTER.COM LICENSE GRANT. Register.com hereby grants USA.NET a revocable,
nonexclusive, nontransferable license to use Register.com's trademarks and trade
names (the "REGISTER.COM MARKS"), during the term of this Agreement solely for
the purpose of promoting Register.com as set forth herein in Section 7.
Register.com reserves the right to revoke the license granted hereunder as to
any use of the Register.com Marks it finds objectionable, and USA.NET shall
cease using the Register.com Marks in such objectionable manner within fifteen
(15) days after the date of Register.com's written notice thereof. The license
set forth in this Section 11 shall expire immediately upon the expiration or
termination of this Agreement. USA.NET's use of the license granted herein, and
any goodwill arising therefrom, shall inure to the sole benefit of Register.com.
Register.com will monitor the quality of the services for which USA.NET will be
using the Register.com Marks to ensure that they conform to the standards of
quality of Register.com's other services. USA.NET agrees not to adopt or use any
other trademarks, words, symbols, letters, designs or marks in combination with
the Register.com Marks in a manner that would create combination marks or that
would be confusingly similar to the Register.com Marks. USA.NET shall not seek
or obtain any trademark or trade name registration embodying the Register.com
Marks, nor register or cause to be registered any Register.com Marks in
USA.NET's own name. In addition, USA.NET will not seek to challenge the validity
of the Register.com Marks.
12. TERM. This Agreement shall have a term of one (1) year commencing on the
Effective Date, unless terminated earlier pursuant to Section 13 or Section 14
below (the "INITIAL TERM") and shall be automatically renewed for successive one
year terms (each a "SUBSEQUENT TERM").
13. TERMINATION FOR CONVENIENCE. During the Initial Term, either party may
terminate this Agreement for any reason upon at least six (6) months written
notice. During any Subsequent Term, either party may terminate this Agreement
for any reason upon at least sixty (60) days written notice.
14. TERMINATION FOR CAUSE. Either party may terminate this Agreement upon
thirty (30) days written notice to the other party upon (i) a material breach of
the terms of this Agreement, including, but not limited to, any default in
payment obligations which have not been cured or addressed within thirty (30)
days of notice of breach or (ii) the liquidation of the other party's assets.
15. TERMINATION BY REGISTER.COM. Register.com may terminate this Agreement, at
their sole discretion, on thirty (30) days written notice to USA.NET, if USA.NET
sells advertisements in any particular month on any USA.NET branded Email
Services site, including NET@DDRESS and PostOffice.Net, to [ ** ] which
exceeds the prior monthly average of advertising sales to [ ** ]. USA.NET
agrees to notify Register.com in writing prior to such an increase taking
effect. Notwithstanding the foregoing, the termination obligations set forth
herein shall not include any privately branded USA.NET Email Services, including
but not limited to AmExMail and Netscape WebMail. USA.NET acknowledges that
[ ** ] is the only current advertiser that [ **
] on any USA.NET branded Email Services site, including
NET@DDRESS and PostOffice.Net.
16. EFFECT OF TERMINATION.
(a) Upon termination of this Agreement, whether for convenience or for
cause, each party shall immediately cease all efforts to promote and market the
products and services of the other. In addition, USA.NET
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
4.
<PAGE> 5
shall not be obligated to continue to provide the Email Services to the
Customers unless USA.NET receives an assignment of the Customers as provided in
Section 17.
(b) Immediately upon the expiration or termination of this Agreement, (i)
Register.com shall cease all use of the USA.NET Marks, (ii) USA.NET shall cease
all use of the Register.com Marks, and (iii) Register.com shall return all
USA.NET property in Register.com's possession or control.
(c) Neither party shall incur any liability whatsoever for any damage, loss
or expenses of any kind suffered or incurred by the other because of the act of
termination or the expiration of this Agreement, in either case in a manner
which complies with the terms of this Agreement. Without limiting the foregoing,
neither party shall be entitled to any damages on account of prospective profits
or anticipated sales. Register.com waives the benefit of any law or regulation
providing compensation to Register.com arising from the termination of or
failure to renew this Agreement and Register.com represents and warrants that
such waiver is irrevocable and enforceable by USA.NET. However, all payments
normally due to one party by the other party shall be paid in full immediately
upon termination or expiration of this Agreement.
17. ASSIGNMENT OF CUSTOMERS. In the event that this Agreement is terminated for
any reason whatsoever, other than termination by USA.NET for cause pursuant to
Section 14 above, Register.com may require that USA.NET pay to effect a transfer
of all rights to contact the Customers as follows: (i) USA.NET shall pay
Register.com an amount equal to [ ** ] times the Fees Register.com
received from the Customers in the last full month immediately preceding the
effective date of termination and (ii) Register.com shall be automatically
deemed to have immediately transferred and assigned to USA.NET all rights to
contact the Customers for the purpose of offering, marketing and selling the
Email Services to the Customers directly. In the event this Agreement is
terminated by USA.NET for cause pursuant to Section 14 above, Register.com, at
no charge to USA.NET, shall be automatically deemed to have immediately
transferred and assigned to USA.NET the right to contact the Customers for the
purpose of offering, marketing and selling the Email Services to the Customers
directly. Upon any such transfer, USA.NET will assume full responsibility for
billing and collecting payments from any Customers who accept such offer and may
immediately cancel Email Services for all Customers who decline such offer. In
the event that USA.NET acquires an assignment of the Customers as provided in
this Section 17, then Register.com agrees that it will not, directly or
indirectly, for a period of [ ** ) years after the effective date of such
assignment, solicit, market or promote to, sell or distribute any services which
are competitive with the Email Services to any Customers; provided however, that
Register.com may advertise and promote any competitive services to the Customers
in connection with general advertisements and promotions so long as the
advertisements and promotions are not directed at the Customers and so long as
Register.com does not use the Customer names in any way for the sale or
marketing of any services which are competitive with the Email Services.
18. WARRANTY DISCLAIMERS AND LIMITATION OF LIABILITY.
(a) MUTUAL WARRANTIES. Each party represents and warrants to the other that
neither this Agreement (or any term hereof) nor the performance of, or exercise
of rights under, this Agreement, is restricted by, contrary to, in conflict
with, ineffective under, requires registration, approval or tax withholding
under, or will require any compulsory licensing under, any law, regulation or
written contract to which it is subject.
(b) USA.NET WARRANTY DISCLAIMER. THE EMAIL SERVICES ARE PROVIDED ON AN "AS
IS" AND "AS AVAILABLE" BASIS. USA.NET EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY
KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT. USA.NET MAKES NO WARRANTY AS TO THE RESULTS THAT MAY BE
OBTAINED THROUGH THE EMAIL SERVICES OR THAT ANY DEFECTS IN THE SOFTWARE WILL BE
CORRECTED. USA.NET WILL NOT BE RESPONSIBLE FOR ANY DAMAGE TO ANY COMPUTER SYSTEM
OR LOSS OF DATA THAT RESULTS FROM ANY MATERIAL AND/OR DATA DOWNLOADED OR
OTHERWISE OBTAINED THROUGH THE USE OF THE EMAIL SERVICE, NOTWITHSTANDING ANY
PURCHASE OF VIRUS PROTECTION FROM USA.NET. USA.NET MAKES NO WARRANTY REGARDING
ANY GOODS OR SERVICES PURCHASED OR OBTAINED THROUGH THE EMAIL SERVICES OR ANY
TRANSACTIONS ENTERED INTO THROUGH THE EMAIL SERVICES. NO ADVICE OR INFORMATION,
WHETHER ORAL OR WRITTEN, OBTAINED
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
5.
<PAGE> 6
FROM USA.NET OR THROUGH THE EMAIL SERVICES SHALL CREATE ANY WARRANTY NOT
EXPRESSLY MADE HEREIN.
(c) REGISTER.COM WARRANTY DISCLAIMER. THE REGISTER.COM SERVICES ARE
PROVIDED ON AN "AS IS" AND "AS AVAILABLE" BASIS. REGISTER.COM EXPRESSLY
DISCLAIMS ALL WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT. REGISTER.COM MAKES NO WARRANTY THAT THE
REGISTRATION SERVICES WILL BE UNINTERRUPTED, TIMELY, SECURE, OR ERROR FREE; NOR
DOES REGISTER.COM MAKE ANY WARRANTY AS TO THE RESULTS THAT MAY BE OBTAINED
THROUGH THE REGISTRATION SERVICES OR THAT ANY DEFECTS IN THE SOFTWARE WILL BE
CORRECTED. REGISTER.COM WILL NOT BE RESPONSIBLE FOR ANY DAMAGE TO ANY COMPUTER
SYSTEM OR LOSS OF DATA THAT RESULTS FROM ANY MATERIAL AND/OR DATA DOWNLOADED OR
OTHERWISE OBTAINED THROUGH THE USE OF THE REGISTRATION SERVICE. NOTWITHSTANDING
THE PURCHASE OF VIRUS PROTECTION FROM REGISTER.COM, REGISTER.COM MAKES NO
WARRANTY REGARDING ANY GOODS OR SERVICES PURCHASED OR OBTAINED THROUGH THE
REGISTRATION SERVICES OR ANY TRANSACTIONS ENTERED INTO THROUGH THE REGISTRATION
SERVICES. NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED FROM
REGISTER.COM OR THROUGH THE REGISTRATION SERVICES SHALL CREATE ANY WARRANTY NOT
EXPRESSLY MADE HEREIN.
(d) NO WARRANTY PASS-THROUGH. Register.com shall not pass through to the
Customers or any third party the warranties made by USA.NET under this
Agreement. Register.com shall not make any representations to the Customers or
any third party on behalf of USA.NET, and, except as set forth in Section 4(c)
above,Register.com shall expressly indicate that the Customers and third parties
must look solely to Register.com in connection with any problems, warranty claim
or other matters concerning the Email Services. No warranty, representation, or
agreement herein shall be deemed to be made for the benefit of any Customer or
any third party.
(e) LIMITATION OF LIABILITY. IN NO EVENT SHALL USA.NET OR ITS SUPPLIERS BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
INCLUDING, WITHOUT LIMITATION, ANY LOSS OF PROFITS, REVENUE, EXPENDITURES, DATA,
INVESTMENTS OR COMMITMENTS, INCURRED BY REGISTER.COM OR ANY CUSTOMER OR ANY
THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON ANY WARRANTY,
EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. USA.NET'S LIABILITY FOR ANY DAMAGES UNDER THIS AGREEMENT SHALL
IN NO. EVENT EXCEED THE AMOUNTS RECEIVED BY USA.NET UNDER THIS AGREEMENT IN THE
TWELVE (12) MONTHS PRIOR TO THE ACTION GIVING RISE TO LIABILITY.
19. OWNERSHIP. Each party shall retain all right, title and interest in and to
all of such party's copyrights, trademarks, trade secrets (including, but not
limited to, customer lists, which lists shall include, but not be limited to,
lists of Customers hereunder), patents, mask works and all other intellectual
property embodied in the Email Services or the USA.NET Marks and Register.com
Marks, respectively, including any improvements thereto or goodwill associated
therewith, respectively.
20. NON-SOLICITATION OF EMPLOYEES. During the term of this Agreement and for
one (1) year following its termination or expiration, neither party nor its
agents shall induce any employee of the other party to leave such party's
employment.
21. CONFIDENTIALITY. During the term of this Agreement and for five (5) years
following its expiration or termination each party shall maintain the
Confidential Information of the other party in strict confidence; provided,
however, that each party may disclose Confidential Information (i) to the extent
required by law or (ii) on a "need-to-know" basis under an obligation of
confidentiality to its legal counsel, accountants or employees. "CONFIDENTIAL
INFORMATION" includes customer lists, (including, but not limited to, lists of
Customers hereunder), source codes, software tools, designs, schematics, plans
or any other information relating to any project, work in process, future
6.
<PAGE> 7
development, marketing or business plan, or financial or personnel matter
relating to a party, its present or future products, services, sales, suppliers,
customers, employees, investors or business, including whether or not identified
by such party as confidential. "CONFIDENTIAL INFORMATION" does not include
information which (i) is or becomes generally known or available through no act
or failure to act by the receiving party or (ii) is independently developed by
the receiving party without access to the Confidential Information, as shown by
the receiving party's competent written records.
22. PUBLICITY. Neither party shall publicize the terms and conditions of this
Agreement or the existence or details of the relationship between the parties
without the other's prior written consent, unless it is required to be disclosed
by law or a governmental authority. Notwithstanding the foregoing the parties
shall issue a joint press release upon execution of this Agreement.
23. INDEMNIFICATION
(a) INDEMNIFICATION BY REGISTER.COM. Register.com shall indemnify and hold
harmless USA.NET, and all officers, directors, employees or agents thereof and
their successors and assigns (collectively, "USA.NET INDEMNITEES") against, and
hold the USA.NET Indemnitees harmless from, any third party losses or damages,
costs and expenses (including reasonable attorneys' fees) arising out of, or
incurred in connection with (i) Register.com's or any Customer's use of the
Email Services, including any claim of libel, defamation, violation of rights of
privacy or publicity, loss of service by other subscribers and infringement of
intellectual property or other rights, (ii) any breach by Register.com of any of
its obligations under this Agreement or any violation by a Customer of the Terms
and Conditions and (iii) any unauthorized representation, warranty, agreement or
the like, express or implied, made by Register.com or any of its agents.
(b) INDEMNIFICATION BY USA.NET. USA.NET shall indemnify and hold harmless
Register.com, and all officers, directors, employees or agents thereof and their
successors and assigns (collectively, "REGISTER.COM INDEMNITEES") against, and
hold the Register.com Indemnitees harmless from, any third party losses or
damages, costs and expenses (including reasonable attorneys' fees) arising out
of, or incurred in connection with (i) any claim by a Customer related to use of
the Email Services involving a breach by USA.NET of any of its obligations under
this Agreement, (ii) the grossly negligent or willful act or omissions of
USA.NET, its officers, directors, employees, or agents and (iii) any
unauthorized representation, warranty, agreement or the like, express or
implied, made by USA.NET or any of its agents.
24. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement, including all Exhibits attached
hereto and the Terms and Conditions, constitutes the entire agreement between
the parties with respect to the subject matter hereof.
(b) GOVERNING LAW; VENUE. This Agreement shall be governed in all respects
by the laws of the State of New York as applied to agreements entered into
solely between residents of, and to be performed entirely within, such state.
The parties expressly exclude the application of the 1980 United Nations
Convention on Contracts for the International Sale of Goods, if applicable. For
any action brought by Register.com, Register.com irrevocably submits to the
jurisdiction of the courts of the State of Colorado and the United States
District Court located in the City of Denver, Colorado, and irrevocably waives
any objection that it may have at any time to the venue or convenience of forum
of any suit, action or proceeding arising out of this Agreement brought in any
such court. For any action brought by USA.NET, USA.NET irrevocably submits to
the jurisdiction of the courts of the State of New York and the United States
District Court located in the City of New York, New York, and irrevocably waives
any objection that it may have at any time to the venue or convenience of forum
of any suit, action or proceeding arising out of this Agreement brought in any
such court.
(c) LANGUAGE. The official text of this Agreement (and any Exhibit hereof
or notice submitted hereunder) shall be in English. In the event of any dispute
concerning the construction or meaning of this Agreement, reference shall be
made only to this Agreement (or such exhibits or notices) as written in English
and not to any translation into another language.
7.
<PAGE> 8
(d) FOREIGN CORRUPT PRACTICES ACT. Each party shall comply with the U.S.
Foreign Corrupt Practices Act and shall not make any payments to third parties
which would cause USA.NET or Register.com to violate such laws.
(e) LICENSES AND PERMITS. Each party shall obtain any required non-U.S.
governmental authorizations, including without limitation any import licenses
and foreign exchange permits, and, if applicable, shall file or register this
Agreement with the appropriate authorities. Each party shall provide proof of
compliance with required non-U.S. governmental authorization to the other party
upon request.
(f) NO FRANCHISE. Each party expressly agrees that it is not a franchisee
of the other party. Each party waives the benefit of any law or regulation
regarding franchises and each party represents and warrants that such waiver is
irrevocable and enforceable by the other party.
(g) COMPLIANCE WITH LAWS. At its own expense, each party shall comply with
all applicable laws, regulations, rules, ordinances and orders regarding its
activities related to this Agreement.
(h) EXPORT CONTROL. The Email Services to be resold by the Register.com
under this Agreement may be subject to U.S. export control laws and export or
import regulations in other countries. Register.com agrees to comply strictly
with all such laws and regulations and acknowledges that it has the
responsibility to obtain such licenses to export, re-export or import as may be
required.
(i) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument.
(j) SEVERABILITY. If any provision of this Agreement is declared invalid or
unenforceable by a court of competent jurisdiction, the remaining provisions of
this Agreement will remain in full force. The parties shall use their best
efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.
(k) WAIVER. Any express waiver or failure to exercise promptly any right
under this Agreement will not create a continuing waiver or any expectation of
non-enforcement.
8.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be signed and delivered as of the date set forth below.
USA.NET, INC.: REGISTER.COM:
/s/ JOHN W. STREET /s/ RICHARD D. FORMAN
- ------------------------------ ------------------------------
Authorized Signature Authorized Signature
John W. Street Richard D. Forman
- ------------------------------ ------------------------------
Printed Name Printed Name
President, CEO President
- ------------------------------ ------------------------------
Title Title
3/2/99 2/25/99
- ------------------------------ ------------------------------
Date Date
9.
<PAGE> 10
EXHIBIT A
CUSTOMER SETUP INFORMATION
Except as set forth in the Agreement, and during the term of this Agreement,
this information is confidential and only to be used for the benefit of
Register.com or support of the Customers. Register.com agrees to prepare and
submit to USA.NET the following information for each Customer Account sold by
Register.com:
1. PARTNER INFORMATION:
o Partner Name
o Partner Code
o Sales Representative Name and Phone Number
2. CUSTOMER INFORMATION:
o Contact Name, Company Name, Address, City, State, Zip Code, Country and
Phone Number
3. SALES INFORMATION:
o Purchase Date
o Whether the Sale is a First Purchase, Account Adjustment or an Account
Cancellation
o Number of Accounts Purchased
o Number of Seats Purchased per Account
o Additional Services Purchased per Account and Amount (i.e. storage, etc.)
4. DOMAIN INFORMATION:
o Whether the Type of Domain is a New Domain, Current Domain, or Sub-Domain
o Domain Name
1.
<PAGE> 11
EXHIBIT B
USA.NET, INC.
CUSTOMER TERMS AND CONDITIONS
1. SPAMMING, REDISTRIBUTION PROHIBITED. Spamming and bulk mail, as determined
by USA.NET in its sole discretion, is strictly prohibited. This includes, but is
not limited to, the transmission of any message or bulk mail that can be
interpreted as "junk" mail, mail generated via mass-mailer distribution list, or
mail which the recipient would not reasonably expect to receive. In addition,
reselling, redistribution, or repackaging of any email services provided by
USA.NET is strictly prohibited, except as otherwise expressly permitted by
USA.NET in writing.
2. USER CONTENT. USA.NET acts as a passive conduit for the distribution of
data and the User is solely responsible for content. User represents and
warrants that the content provided to USA.NET (or its servers) (a) does not
infringe on any third party's copyright, patent, trademark, trade secret or
other intellectual property or proprietary rights or rights of publicity or
privacy; (b) does not violate any law, statute, ordinance, or regulation
(including without limitation the laws and regulations governing export
control); (c) is not defamatory, trade libelous, pornographic, obscene,
unlawfully threatening or unlawfully harassing; (d) does not violate any laws
regarding unfair competition, anti-discrimination or false advertising, and (e)
does not contain viruses, trojan horses, worms, time bombs, cancelbots or other
similarly harmful or deleterious programming routines that are intended to
damage, detrimentally interfere with, surreptitiously intercept or expropriate
any system, data or personal information. The term "User" as used herein shall
include the customer which purchased the account and such customer's end-users.
3. SERVICE LEVELS. USA.NET will provide the email service at the level
purchased at account initiation or as a result of subsequent email service
upgrades. Email service levels are determined by the number of seats, amount of
storage and additional services purchased. Each email service level has
pre-determined seat, storage, and additional service thresholds.
4. TERM AND TERMINATION. Email services provided by USA.NET shall commence on
the day of account initiation, and shall continue until cancelled by Customer or
USA.NET or until User is deemed non-compliant with the terms or conditions set
forth herein, as determined by USA.NET in its sole discretion.
5. DISCLAIMER OF WARRANTIES. THE EMAIL SERVICES ARE PROVIDED ON AN "AS IS"
AND "AS AVAILABLE" BASIS. USA.NET EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY
KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT. USA.NET MAKES NO WARRANTY THAT THE EMAIL SERVICES WILL BE
UNINTERRUPTED, TIMELY, SECURE, OR ERROR FREE; NOR DOES USA.NET MAKE ANY WARRANTY
AS TO THE RESULTS THAT MAY BE OBTAINED THROUGH THE EMAIL SERVICES OR THAT ANY
DEFECTS IN THE SOFTWARE WILL BE CORRECTED. USA.NET WILL NOT BE RESPONSIBLE FOR
ANY DAMAGE TO ANY COMPUTER SYSTEM OR LOSS OF DATA THAT RESULTS FROM ANY MATERIAL
AND/OR DATA DOWNLOADED OR OTHERWISE OBTAINED THROUGH THE USE OF THE EMAIL
SERVICE OR THE SYSTEM, NOTWITHSTANDING THE PURCHASE OF VIRUS PROTECTION FROM
USA.NET. USA.NET MAKES NO WARRANTY REGARDING ANY GOODS OR SERVICES PURCHASED OR
OBTAINED THROUGH THE EMAIL SERVICES OR ANY TRANSACTIONS ENTERED INTO THROUGH THE
EMAIL SERVICES. NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED FROM
USA.NET OR THROUGH THE EMAIL SERVICES SHALL CREATE ANY WARRANTY NOT EXPRESSLY
MADE HEREIN.
2.
<PAGE> 12
6. LIMITATION OF LIABILITY. USA.NET SHALL NOT BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OR FOR INTERRUPTED COMMUNICATIONS,
LOST DATA OR LOST PROFITS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT,
EVEN IF USA.NET HAS BEEN ADVISED OF THE POSSIBILITY OF DAMAGES.
7. GOVERNING LAW. Any dispute arising out of the provision of email services
by USA.NET will be governed by and construed in accordance with the laws of the
State of Colorado without giving effect to principles of conflict of laws. If
any provision of these terms and conditions is held to be invalid or
unenforceable, such provision shall be struck and the remaining provisions shall
be enforced. USA.NET's failure to act with respect to a breach by User or others
does not waive its right to act with respect to subsequent or similar breaches.
8. CONTENT REMOVAL/RETENTION. Upon the termination of User's account, USA.NET
may remove some or all of the User content from its servers or may elect to
retain such content, at USA.NET's sole discretion.
9. PRIVACY. Although privacy issues are very important to USA.NET, given the
current regulatory and technical environment User should not have an expectation
of privacy in its account. By way of example (without limiting the foregoing),
USA.NET may be forced to disclose email to the government or third parties under
certain circumstances, or third parties may unlawfully intercept User's private
communications. USA.NET cannot ensure that all private email or information
associated with User's account will remain private.
10. ACCESS TO CONTENT OF OTHERS. Through User's account, USA.NET provides User
with unfiltered access to other people's content. USA.NET cannot, nor does it
try to, control the content that User will receive. By its very nature, other
people's content may be offensive, harmful or inaccurate, and in some cases
content will be mislabeled or deceptively labeled. USA.NET expects that User
will use caution--and common sense--when using its account. Furthermore, User
shall comply with all applicable laws regarding User's access to its account.
11. AMENDMENT. User acknowledges and agrees that (i) USA.NET may amend these
Terms and Conditions at any time in its sole discretion (ii) the Terms and
Conditions, as amended from time to time may be accessed and viewed by User at
any time by clicking on the "Terms and Conditions" link located at the bottom of
each page of User's personalized postoffice.net site, (iii) providing access to
the Terms and Conditions, as amended from time to time through such links shall
be adequate notice to User of any such amendment and (iv) User will be deemed to
have accepted the amended Terms and Conditions if User continues to use its
account after such Terms and Conditions have been made available for viewing
through such links. Except as set forth in this Section 11, the Terms and
Conditions may not be amended except in a writing signed by both parties.
3.
<PAGE> 13
EXHIBIT C
FEE SCHEDULE
A. BASIC SERVICES SCHEDULE
Set forth below are the terms upon which USA.NET shall provide Email
Services to Register.com for resale to Customers, including USA.NET's Domestic
and International wholesale price lists, effective as of December 30, 1998 (all
prices are listed in United States Dollars). Notwithstanding the prices set
forth herein, Register.com may resell the Email Services to its Customers at
such prices as Register.com may determine in its sole discretion.
1. STORAGE SPACE: Each Seat sold by Register.com to a Customer shall be
entitled to a maximum of 5 Mb of storage.
2. DOMESTIC WHOLESALE SERVICE FEES: ("DOMESTIC" means sales involving any
corporation or other business entity formed under the laws of any state of
the United States or having its principal place of business within the
United States): [ **] per Seat per month.
3. INTERNATIONAL WHOLESALE SERVICE FEES: ("INTERNATIONAL" means sales
involving all entities other than "DOMESTIC" entities, as defined above):
[ **] per Seat per month.
4. VOLUME DISCOUNTS. Notwithstanding the foregoing, for each month that
Register.com has the following number of Active Seats, the annual Domestic
and International Wholesale Service Fees shall be as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Monthly Number of Active Seats Monthly Wholesale Price Per Seat
------------------------------------------------------------------------
<S> <C>
[ ** ] [ **]
------------------------------------------------------------------------
[ ** ] [ **]
------------------------------------------------------------------------
[ ** ] [ **]
------------------------------------------------------------------------
[ ** ] [ **]
------------------------------------------------------------------------
</TABLE>
For example, assume Register.com has 50,000 Active Seats during January,
the monthly service fees for January would be [ **
]
5. [
**
]
B. ADDITIONAL SERVICES
Set forth below is USA.NET's Wholesale Price List for the specified
Additional Services (all prices are listed in United States Dollars):
o ADDITIONAL STORAGE WHOLESALE PRICE: [ **] per 1 Mb of additional
storage per year over the initial 5 Mb, with a 5 Mb minimum increase
to be billed monthly. For example, assume one Customer purchased the
minimum 5 Mb increase in January. The monthly service fee billed to
Register.com for one (1) year for the additional storage would be
[ ** ]
C. GENERAL
o USA.NET RETAIL LIST PRICE. A copy of USA.NET's current retail price
list is available upon request.
o PAYMENT. All fees are payable upon Register.com's subscription for
service on behalf of a Customer and shall be paid in United States
Dollars, as further set forth in the Agreement.
o INVOICES. All invoices and billing inquires for Register.com should be
directed to the following:
4.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 14
Name: Cathi Sullivan, USA.NET Accounts Receivable
Address: 1155 Kelly Johnson Blvd., Suite 400
City, State, Zip: Colorado Springs, CO 80920
Phone No.: 719-265-2930
5.
<PAGE> 15
EXHIBIT D.
CO-MARKETING AGREEMENT
The co-marketing activities as set forth in this Exhibit D shall be subject
to a [ ** ] trial period (the "TRIAL PERIOD") following
the date of API implementation, and shall begin immediately upon execution of
the Agreement. Prior to the termination of the Trial Period, each party shall
give the other party written notice that the co-marketing activities are
acceptable. In addition to the termination rights set forth in Sections 13 and
14 of the Agreement, and during the Trial Period only, either party may
terminate the Agreement upon thirty (30) days prior written notice to the other
in the event that the co-marketing activities are unacceptable to either party.
1. USA.NET AGREES TO PROMOTE REGISTER.COM AS FOLLOWS:
o Net@ddress SPONSORSHIP:
USA.NET shall promote Register.com on the navigation bar of NET@DDRESS,
which is displayed throughout the site upon subscriber login. Register.com will
receive a button with continuous presence on the navigation bar (current
specifications are 90x40 gif image with a file size maximum of 8K) which will
link to a co-branded Web page designed and approved by both Register.com and
USA.NET. [ ** ] of the time the button will
be above the fold and [ ** ] of the time the
button will be below the fold.
o PARTNER ON THE USA.NET PARTNERSHIPS PAGE:
USA.NET will promote Register.com as a partner on the USA.NET
Partnerships Page (http://www.usa.net/partners.html), with a Register.com logo.
o PARTNER ON THE POSTOFFICE.NET PARTNERS PAGE:
USA.NET will promote Register.com as a partner on the PostOffice.Net
Partnerships Page (http://www.postoffice.net/tpl/Page/Ab_partners), with a
Register.com logo .
2. EXCLUSIVITY AS DOMAIN NAME REGISTRAR FOR ALL NEW USA.NET BRANDED EMAIL
SERVICE CUSTOMERS
Except where precluded by a previous or existing agreement which is in
effect as of the Effective Date, or a previous or existing advertising
agreement, or an extension of an existing advertising agreement, to which
USA.NET is a party or by which it is bound (each a "Third Party Agreement"),
USA.NET (i) will promote Register.com as the exclusive domain name registration
service to all current and future USA.NET branded Email Services direct
customers, including NET@DDRESS and PostOffice.Net customers, and (ii) will not
knowingly promote the domain registration services of any third party other than
Register.com to current and future USA.NET branded Email Services customers,
including NET@DDRESS and PostOffice.Net customers in any form, including
banners, emails, text mentions, buttons or promotional materials.
Notwithstanding the foregoing, the exclusivity obligations set forth herein
shall not include any co-branded or private-label version of the branded USA.NET
Email Service customers, including but not limited to AmExMail and Netscape
WebMail customers. USA.NET shall notify Register.com of the existence of any
Third Party Agreement as soon as reasonably practicable. USA.NET shall not amend
any Third Party Agreement, except any previous or existing advertising
agreement, after the Effective Date in a manner which would conflict with the
terms of this agreement without the written consent of Register.com.
During the term of this Agreement, Register.com shall supply to USA.NET
a primary and secondary contact name and phone number for any service issues
arising from USA.NET's use of the domain registration services. Register.com
shall use commercially reasonable efforts to provide same business day responses
to all service issue inquires.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
1.
<PAGE> 16
3. EXCLUSIVITY AS EMAIL PROVIDER FOR ALL NEW REGISTER.COM BRANDED EMAIL
SERVICE CUSTOMERS
Except where precluded by a previous or existing agreement, or a co-branded
or private label version of the Domain Registration Services, to which Forman
Interactive Corp. is a party or by which it is bound and which is in effect as
of the Effective Date (each a "Third Party Agreement"), during the term of this
Agreement Register.com agrees that it will not, directly or indirectly, market
or promote, distribute or sell any services which are competitive with the Email
Services through its Register.com branded domain name registration service. This
restriction and clause is limited solely to the domain name registration
services available to direct customers of Register.com branded domain
registration services from the web site currently located at
http://www.register.com. Register.com shall notify USA.NET of the existence of
any Third Party Agreement as soon as reasonably practicable. Register.com shall
not amend any such Third Party Agreement after the Effective Date in a manner
which would conflict with the terms of this Agreement without the prior written
consent of USA.NET.
4. INCLUSION OF REGISTER.COM IN ALL FUTURE POSTOFFICE.NET PROMOTIONS
Except where precluded by a previous or existing agreement which is in
effect as of the Effective Date, to which USA.NET is a party, USA.NET will
include Register.com in all future PostOffice.Net promotional activities.
5. CO-BRAND ALL NEW ACCOUNTS
USA.NET will co-brand all new PostOffice.Net accounts signed up through
Register.com with both a USA.NET logo as well as a Register.com logo.
6. POSTOFFICE.NET CUSTOMER OPT-IN:
USA.NET agrees to allow Register.com to promote Register.com's services
to all PostOffice.Net customers that "opt in" to receive marketing materials
when this ability becomes available. PostOffice.Net customers "opt-in" during
the PostOffice.Net subscription process.
7. NET@DDRESS CUSTOMER OPT-IN:
USA.NET agrees to allow Register.com to promote Register.com's services
to all NET@DDRESS customers that "opt in" to receive marketing materials when
this ability becomes available. NET@DRESS customers "opt-in" during the
NET@DDRESS subscription process. This will be a general "opt in" to receive
marketing materials, versus information on Register.com specifically.
8. REGISTER.COM AGREES TO PROMOTE USA.NET AS FOLLOWS:
o Register.com will include USA.NET in the form of a co-branded page whenever
a customer of Register.com links via text or button to "Email Services".
o Register.com will advertise the Email Services via a link named "Email
Services", or the like, via a link on every page of Register.com (in the
re-launch of the product expected to be completed March 1999). The link
will connect to a co-branded registration page designed and approved by
both Register.com and USA.NET.
o Register.com will offer domain based email services on the last page of the
registration process, once a customer has confirmed their domain name
registration.
2.
<PAGE> 17
o Registration.com will include USA.NET in the small business resources
(re-launch of site and introduction of this service March 1999).
o Register.com will include email services, which include the co-branded
version of USA.NET and Register.com off of the "futuresite" page. This page
is created for each customer that registers and "parks" a domain name, and
can be found at http://futuresite.register.com.
In the event USA.NET substantially changes its look, feel and/or user interface,
it will use commercially reasonable efforts to provide Register.com with
substantially similar promotion and representation as indicated in this Exhibit
D; provided that Register.com shall have the right to approve, in its sole
discretion, such altered promotion and representation.
3.
<PAGE> 1
EXHIBIT 10.14
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- -------------- ---------- ---------- ------- ---- ---------- ------- ------- --------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 01-16-1998 01-16-1999 1014868 0004 9, 14 JGJ
- -------------- ---------- ---------- ------- ---- ---------- ------- ------- --------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
BORROWER: USA.NET, INC. LENDER: STATE BANK AND TRUST OF
102 SOUTH TEJON, SUITE 220 COLORADO SPRINGS
COLORADO SPRINGS, CO 80903 111 SOUTH TEJON
P.O. BOX 2077
COLORADO SPRINGS, CO 80901
================================================================================
THIS BUSINESS LOAN AGREEMENT BETWEEN USA.NET, INC. (REFERRED TO IN THIS
AGREEMENT INDIVIDUALLY AND COLLECTIVELY AS "BORROWER") AND STATE BANK AND TRUST
OF COLORADO SPRINGS ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND
CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS
APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL
ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR
SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This Agreement shall be effective as of JANUARY 16, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means individually and collectively USA.NET,
INC. and all other persons and entities signing Borrowers' Note.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means STATE BANK AND TRUST OF COLORADO SPRINGS,
its successors and assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's and
any cosigners' promissory note or notes, if any, evidencing Borrower's Loan
obligations in favor of Lender, as well as any substitute, replacement or
refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
<PAGE> 2
01-16-1998 BUSINESS LOAN AGREEMENT PAGE 2
LOAN NO 1014868 (Continued)
================================================================================
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel, including without limitation
any guaranties described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
MULTIPLE BORROWERS. Although the Note has been executed by multiple Borrowers,
this Agreement has been executed only by USA.NET, INC.. With the exception of
the specific representations, warranties and covenants set forth in the sections
of this Agreement titled "REPRESENTATIONS AND WARRANTIES," "AFFIRMATIVE
COVENANTS" AND NEGATIVE COVENANTS," the word "Borrower" as used herein shall
include all Borrowers. Borrower understands and agrees that, with or without
notice to Borrower, Lender may with respect to any other Borrower (a) make one
or more additional secured or unsecured loans or otherwise extend additional
credit; (b) alter, compromise, renew, extend, accelerate, or otherwise change
one or more times the time for payment or other terms any indebtedness,
including increases and decreases of the rate of interest on the indebtedness;
(c) exchange, enforce, waive, subordinate, fail or decide not to perfect, and
release any security, with or without the substitution of new collateral; (d)
release, substitute, agree not to sue, or deal with any one or more of
Borrower's sureties, endorsers, or other guarantors on any terms or in any
manner Lender may choose; (e) determine how, when and what application of
payments and credits shall be made on any indebtedness; (f) apply such security
and direct the order or manner of sale thereof, including without limitation,
any nonjudicial sale permitted by the terms of the controlling security
agreement or deed of trust, as Lender in its discretion may determine; (g) sell,
transfer, assign, or grant participations in all or any part of the
indebtedness; (h) exercise or refrain from exercising any rights against
Borrower or others, or otherwise act or refrain from acting; (i) settle or
compromise any indebtedness; and (j) subordinate the payment of all or any part
of any indebtedness of Borrower to Lender to the payment of any liabilities
which may be due Lender or others.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Colorado and
is validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security
<PAGE> 3
01-16-1998 BUSINESS LOAN AGREEMENT PAGE 3
LOAN NO 1014868 (Continued)
================================================================================
documents or financing statements relating to such properties. All of
Borrower's properties are titled in Borrower's legal name, and Borrower has
not used, or filed a financing statement under, any other name for at least
the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the properties
by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the properties shall use,
generate, manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from any of the properties; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of
this section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring
prior to Borrower's ownership or interest in the properties, whether or not
the same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration
of this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 102 South Tejon, Suite 220, Colorado Springs, CO
80903. Unless Borrower has designated otherwise in writing this location is
also the office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in making the above referenced Loan to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. The reference to "Borrower" in this "AFFIRMATIVE
COVENANTS" section of this Agreement means USA.NET, INC. only and does not apply
to any other co-borrower. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
<PAGE> 4
01-16-1998 BUSINESS LOAN AGREEMENT PAGE 4
LOAN NO 1014868 (Continued)
================================================================================
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, compiled
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than thirty (30) days after the end of
each fiscal quarter, Borrower's balance sheet and profit and loss statement
for the period ended, prepared and certified as correct to the best
knowledge and belief by Borrower's chief financial officer or other officer
or person acceptable to Lender. All financial reports required to be
provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantor named
below, on Lender's forms, and in the amount and under the conditions
spelled out in those guaranties.
GUARANTOR AMOUNT
--------- ------
JOHN W. STREET $2,000,000.00
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part of on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
<PAGE> 5
01-16-1998 BUSINESS LOAN AGREEMENT PAGE 5
LOAN NO 1014868 (Continued)
================================================================================
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, and assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
<PAGE> 6
01-16-1998 BUSINESS LOAN AGREEMENT PAGE 6
LOAN NO 1014868 (Continued)
================================================================================
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF COLORADO. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF EL
PASO COUNTY, THE STATE OF COLORADO. LENDER AND BORROWER HEREBY WAIVE THE
RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT
BY EITHER LENDER OR BORROWER AGAINST THE OTHER. (INITIAL HERE __________)
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF COLORADO.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in
<PAGE> 7
01-16-1998 BUSINESS LOAN AGREEMENT PAGE 7
LOAN NO 1014868 (CONTINUED)
================================================================================
subsequent instances where such consent is required, and in all cases such
consent may be granted or withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
JANUARY 16, 1998.
BORROWER:
USA.NET, INC.
BY: /s/ JOHN W. STREET
---------------------------------------
JOHN W. STREET, PRESIDENT, CEO
LENDER:
STATE BANK AND TRUST OF COLORADO SPRINGS
BY: /s/ JOHN G. JACKSON
---------------------------------------
AUTHORIZED OFFICER
<PAGE> 8
PROMISSORY NOTE
<TABLE>
<CAPTION>
- -------------- ----------- ---------- ------- ---- ---------- ------- ------- --------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 01-16-1998 01-16-1999 1014868 0004 9, 14 JGJ
- -------------- ----------- ---------- ------- ---- ---------- ------- ------- --------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
BORROWER: USA.NET, INC. LENDER: STATE BANK AND TRUST OF COLORADO
102 SOUTH TEJON, SUITE 220 SPRINGS
COLORADO SPRINGS, CO 80903 111 SOUTH TEJON
P.O. BOX 2077
COLORADO SPRINGS, CO 80901
================================================================================
PRINCIPAL AMOUNT: $2,000,000.00 DATE OF NOTE: JANUARY 16, 1998
PROMISE TO PAY. USA.NET, INC. AND ALL COSIGNERS SIGNING THIS NOTE (REFERRED TO
IN THIS NOTE INDIVIDUALLY AND COLLECTIVELY AS "BORROWER") JOINTLY AND SEVERALLY
PROMISE TO PAY TO STATE BANK AND TRUST OF COLORADO SPRINGS ("LENDER"), OR ORDER,
IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF TWO
MILLION & 00/100 DOLLARS ($2,000,000.00), TOGETHER WITH INTEREST ON THE UNPAID
PRINCIPAL BALANCE FROM JANUARY 16, 1998, UNTIL PAID IN FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ACCORDANCE
WITH THE FOLLOWING PAYMENT SCHEDULE:
2 CONSECUTIVE MONTHLY INTEREST PAYMENTS, BEGINNING FEBRUARY 15,
1998, WITH INTEREST CALCULATED ON THE UNPAID PRINCIPAL BALANCES AT
AN INTEREST RATE OF 0.00 PERCENTAGE POINTS OVER THE INDEX
DESCRIBED BELOW; 10 CONSECUTIVE MONTHLY PRINCIPAL AND INTEREST
PAYMENTS IN THE INITIAL AMOUNT OF $41,000.00 EACH, BEGINNING APRIL
15, 1998, WITH INTEREST CALCULATED ON THE UNPAID PRINCIPAL
BALANCES AT AN INTEREST RATE OF 0.00 PERCENTAGE POINTS OVER THE
INDEX DESCRIBED BELOW; AND 1 PRINCIPAL AND INTEREST PAYMENT IN THE
INITIAL AMOUNT OF $1,726,106.98 ON JANUARY 16, 1999, WITH INTEREST
CALCULATED ON THE UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE OF
0.00 PERCENTAGE POINTS OVER THE INDEX DESCRIBED BELOW. THIS
ESTIMATED FINAL PAYMENT IS BASED ON THE ASSUMPTION THAT ALL
PAYMENTS WILL BE MADE EXACTLY AS SCHEDULED AND THAT THE INDEX DOES
NOT CHANGE; THE ACTUAL FINAL PAYMENT WILL BE FOR ALL PRINCIPAL AND
ACCRUED INTEREST NOT YET PAID, TOGETHER WITH ANY OTHER UNPAID
AMOUNTS UNDER THIS NOTE.
The annual interest rate for this Note is computed on a 365/360 basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to any unpaid collection costs and any late charges, then to any
unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the Prime rate as
published in the Wall Street Journal. When a range of rates has been published,
the lower of the rates will be used (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each day. THE INDEX CURRENTLY IS 8.500% PER ANNUM. THE INTEREST RATE OR RATES TO
BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE THE RATE OR
RATES SET FORTH ABOVE IN THE "PAYMENT" SECTION. NOTICE: Under no circumstances
will the interest rate on this Note be more than the maximum rate allowed by
applicable law. Whenever increases occur in the interest rate, Lender, at its
option, may do one or more of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date, (b)
increase Borrower's payments to cover accruing interest, (c) increase the number
of Borrower's payments, and (d) continue Borrower's payments at the same amount
and increase Borrower's final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a MINIMUM INTEREST
CHARGE OF $40.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $50.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
<PAGE> 9
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 24.000% per
annum. The interest rate will not exceed the maximum rate permitted by
applicable law. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. If not prohibited by applicable law, Borrower
also will pay any court costs, in addition to
<PAGE> 10
all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND
ACCEPTED BY LENDER IN THE STATE OF COLORADO. IF THERE IS A LAWSUIT, BORROWER
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF EL
PASO COUNTY, THE STATE OF COLORADO. LENDER AND BORROWER HEREBY WAIVE THE RIGHT
TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER
LENDER OR BORROWER AGAINST THE OTHER. (INITIAL HERE _________) THIS NOTE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
COLORADO.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $17.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made. The obligations under this Note are joint
and several.
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THE NOTE.
BORROWER:
USA.NET, INC.
BY: /s/ JOHN W. STREET
-------------------------------------
JOHN W. STREET, PRESIDENT, CEO
X /s/ JOHN W. STREET
---------------------------------------
JOHN W. STREET, COSIGNER
LENDER:
STATE BANK AND TRUST OF COLORADO SPRINGS
BY: /s/ JOHN W. STREET
-------------------------------------
AUTHORIZED OFFICER
<PAGE> 11
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$2,000,000.00 01-16-1998 01-16-1999 1014868 0004 9, 14 JGJ
- -----------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of
this document to any particular loan or item.
- -----------------------------------------------------------------------------------------------
BORROWER: USA.NET, INC. LENDER: STATE BANK AND TRUST OF COLORADO SPRINGS
102 SOUTH TEJON, SUITE 220 111 SOUTH TEJON
COLORADO SPRINGS, CO 80903 P.O. BOX 2077
COLORADO SPRINGS, CO 80901
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN USA.NET, INC.
(REFERRED TO BELOW AS "GRANTOR"); AND STATE BANK AND TRUST OF COLORADO SPRINGS
(REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT
TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL ACCOUNTS AND EQUIPMENT, TOGETHER WITH THE FOLLOWING SPECIFICALLY
DESCRIBED PROPERTY: ACCOUNTS RECEIVABLE, MACHINERY AND EQUIPMENT
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means USA.NET, INC., its successors and assigns
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means STATE BANK AND TRUST OF COLORADO SPRINGS,
its successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated January 16,
1998, in the principal amount of $2,000,000.00 from USA.NET, INC. to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the
<PAGE> 12
01-16-1998 COMMERCIAL SECURITY AGREEMENT Page 2
Loan No 1014868 (Continued)
prior written consent of Lender. To the extent that the Collateral consists
of vehicles, or other titled property, Grantor shall not take or permit any
action which would require application for certificates of title for the
vehicles outside the State of Colorado, without the prior written consent
of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
Grantor shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes security
interests even if junior in right to the security interests granted under
this Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for Lender
and shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts, Grantor shall deliver to
Lender schedules of such Collateral, including such information as Lender
may require, including without limitation names and addresses of account
debtors and agings of accounts. Insofar as the Collateral consists of
equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
In no event shall the insurance be in an amount less than the amount agreed
upon in the Agreement to Provide Insurance. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement, Lender
may (but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance," which
will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness.
<PAGE> 13
01-16-1998 COMMERCIAL SECURITY AGREEMENT Page 3
Loan No 1014868 (Continued)
If Lender at any time has possession of any Collateral, whether before or after
an Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Colorado Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid. The receiver may be appointed by a court of competent jurisdiction
upon ex parte application and without notice, notice being expressly
waived.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit
<PAGE> 14
01-16-1998 COMMERCIAL SECURITY AGREEMENT Page 4
Loan No 1014868 (Continued)
of any other remedy, and an election to make expenditures or to take action
to perform an obligation of Grantor under this Agreement, after Grantor's
failure to perform, shall not affect Lender's right to declare a default
and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Colorado. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of the State
of Colorado. Lender and Grantor hereby waive the right to any jury trial in
any action, proceeding, or counterclaim brought by either Lender or Grantor
against the other. (INITIAL HERE ) This Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 16,
1998.
GRANTOR:
USA.NET, INC.
BY: /s/ JOHN W. STREET
------------------------------------------
JOHN W. STREET, PRESIDENT, CEO
<PAGE> 15
CHANGE IN TERMS AGREEMENT
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$2,000,000.00 01-16-2000 1014868 0004 9, 14 JGJ
- ---------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- ---------------------------------------------------------------------------------------------------------
BORROWER: USA.NET, INC. LENDER: VECTRA BANK COLORADO, N.A. DBA STATE BANK AND
1155 KELLY JOHNSON BLVD., SUITE 400 TRUST OF COLORADO SPRINGS
COLORADO SPRINGS, CO 80920 111 SOUTH TEJON
P.O. BOX 2077
COLORADO SPRINGS, CO 80901
=========================================================================================================
PRINCIPAL AMOUNT: $2,000,000.00 DATE OF AGREEMENT: JANUARY 19, 1999
</TABLE>
DESCRIPTION OF EXISTING INDEBTEDNESS. The Promissory Note dated January 16,
1998, in the original principal amount of $2,000,000.00.
DESCRIPTION OF COLLATERAL. Accounts Receivable, Machinery/Equipment, and
Furniture/Fixtures.
DESCRIPTION OF CHANGE IN TERMS. The original maturity date of January 16, 1999,
has been changed to reflect an extended maturity date of January 16, 2000.
PROMISE TO PAY. USA.NET, INC. AND ALL COSIGNERS SIGNING THIS AGREEMENT (REFERRED
TO IN THIS AGREEMENT INDIVIDUALLY AND COLLECTIVELY AS "BORROWER") JOINTLY AND
SEVERALLY PROMISE TO PAY TO VECTRA BANK OF COLORADO, N.A. DBA STATE BANK AND
TRUST OF COLORADO SPRINGS ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED
STATES OF AMERICA, THE PRINCIPAL AMOUNT OF TWO MILLION & 00/100 DOLLARS
($2,000,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE
UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON JANUARY
16, 2000. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED
UNPAID INTEREST BEGINNING FEBRUARY 16, 1999, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. The annual interest
rate for this Agreement is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to any unpaid collection costs and any late charges, then to any unpaid
interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to change
from time to time based on changes in an independent index which is the Prime
rate as published in the Wall Street Journal. When a range of rates has been
published, the lower of the rates will be used (the "Index"). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index becomes
unavailable during the term of this loan, Lender may designate a substitute
Index after notice to Borrower. Lender will tell Borrower the current Index rate
upon Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often than
each day. THE INDEX CURRENTLY IS 7.750% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS AGREEMENT WILL BE AT A RATE
EQUAL TO THE INDEX, RESULTING IN AN INITIAL RATE OF 7.750% PER ANNUM. NOTICE:
Under no circumstances will the interest rate on this Agreement be more than the
maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Agreement, Borrower understands that Lender is entitled to a MINIMUM
INTEREST CHARGE OF $40.00. Other than Borrower's obligation to pay any minimum
interest charge, Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by Lender
in writing, relieve Borrower of Borrower's obligation to continue to make
payments of accrued unpaid interest. Rather, they will reduce the principal
balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $50.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other agreement
or loan Borrower has with Lender. (c) Borrower defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any
other agreement, in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's ability to repay this Note or
perform Borrower's obligations under this Note or any of the Related Documents.
(d) Any representation or statement made or furnished to Lender by Borrower or
on Borrower's behalf is false or misleading in any material respect either now
or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Agreement. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on this
Agreement to 24.000% per annum. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Agreement if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS AGREEMENT HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF COLORADO. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF EL PASO COUNTY, THE STATE OF COLORADO. LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. (INITIAL HERE__________)
SUBJECT TO THE PROVISIONS ON ARBITRATION, THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $17.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Agreement against any and all such accounts.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances
under this Agreement, as well as directions for payment from Borrower's
accounts, may be requested orally or in writing by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed in
writing. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: JOHN W. STREET,
PRESIDENT, CEO. Borrower agrees to be liable for all sums either: (a) advanced
in accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing on
this Agreement at any time may be evidenced by endorsements on this Agreement or
by Lender's internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Agreement if: (a) Borrower or any
guarantor is in default under the terms of this Agreement or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Agreement; (b) Borrower or any guarantor
ceases doing business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of this
Agreement or any other loan with Lender; (d) Borrower has applied funds provided
pursuant to this Agreement for purposes other than those authorized by Lender;
or (e) Lender in good faith deems itself insecure under this Agreement or any
other agreement between Lender and Borrower.
<PAGE> 16
01-19-1999 CHANGE IN TERMS AGREEMENT PAGE 2
LOAN NO 1014868 (CONTINUED)
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ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS BY NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION CONTRACT
AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act to take or dispose
of any collateral securing this Agreement shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining an injunction or a temporary restraining
order; invoking a power of sale under any deed of trust or mortgage; obtaining a
writ of attachment or imposition of a receiver; or exercising any rights
relating to personal property, including taking or disposing of such property
with or without judicial process pursuant to Article 9 of the Uniform Commercial
Code. Any disputes, claims, or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right, concerning any collateral
securing this Agreement, including any claim to rescind, reform, or otherwise
modify any agreement relating to the collateral securing this Agreement, shall
also be arbitrated, provided however that no arbitrator shall have the right or
the power to enjoin or restrain any act of any party. Judgment upon any award
rendered by any arbitrator may be entered in any court having jurisdiction.
Nothing in this Agreement shall preclude any party from seeking equitable relief
from a court of competent jurisdiction. The statute of limitations, estoppel,
waiver, laches, and similar doctrines which would otherwise by applicable in an
action brought by a party shall be applicable in any arbitration proceeding, and
the commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration provision.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
THIRTY-DAY ZERO BALANCE PROVISION. For one consecutive thirty-day period during
the term of this renewal, the outstanding principal balance of this revolving
line of credit must remain at $0.00.
MISCELLANEOUS PROVISIONS. This Agreement is payable on demand. The inclusion of
specific default provisions or rights of Lender shall not preclude Lender's
right to declare payment of this Agreement on its demand. Lender may delay or
forgo enforcing any of its rights or remedies under this Agreement without
losing them. Borrower and any other person who signs, guarantees or endorses
this Agreement, to the extent allowed by law, waive presentment, demand for
payment, protest and notice of dishonor. Upon any change in the terms of this
Agreement, and unless otherwise expressly stated in writing, no party who signs
this Agreement, whether as maker, guarantor, accommodation maker or endorser,
shall be released from liability. All such parties agree that Lender may renew
or extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made. The obligations
under this Agreement are joint and several.
PRIOR TO SIGNING THIS AGREEMENT, EACH BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
EACH BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF THE AGREEMENT.
BORROWER:
USA.NET, INC.
BY: /s/ JOHN W. STREET
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JOHN W. STREET, PRESIDENT, CEO
X /s/ JOHN W. STREET
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JOHN W. STREET, COSIGNER
LENDER:
VECTRA BANK COLORADO, N.A. DBA STATE BANK AND TRUST OF COLORAD SPRINGS
BY: /s/ JOHN G. JACKSON
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AUTHORIZED OFFICER
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<PAGE> 1
EXHIBIT 10.15
OFFICE LEASE AGREEMENT
BETWEEN
THE CHAPEL HILLS OFFICE BUILDING, A JOINT VENTURE
REFERRED TO AS THE "LANDLORD"
AND
USA NET, INC.
1155 KELLY JOHNSON BLVD., SUITE 400
COLORADO SPRINGS, CO 80920
REFERRED TO AS THE "TENANT"
<PAGE> 2
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into as of the 11th day of
September, 1997, by and between THE CHAPEL HILLS OFFICE BUILDING, A COLORADO
JOINT VENTURE (hereinafter referred to as the "LANDLORD"), and USA.NET, INC.
(hereinafter referred to as the "TENANT").
W I T N E S S E T H:
IN CONSIDERATION of the mutual promises and covenants contained herein,
the parties hereto agree as follows:
1. PREMISES. LANDLORD hereby leases to TENANT and TENANT hereby rents
from LANDLORD, the space (hereinafter called the "Leased Premises" in an office
building located at 1155 Kelly Johnson Boulevard, in the City of Colorado
Springs, State of Colorado (hereinafter called the "Project") situated as shown
on Exhibit A attached hereto and made a part hereof. Any measurements specified
on Exhibit A are from the exterior of the outside walls of the Project and to
the center of the interior walls provided however included in Tenant's space is
that area inset in front of the entrance door to allow the door to swing towards
the public corridor. The approximate boundaries and location of the Leased
Premises are outlined in red on Exhibit A. For purposes of this Lease, the
parties agree that the Leased Premises shall be deemed to contain approximately
15,000* leasable square feet (the "Leasable Square Footage"), such Leasable
Square Footage calculated by the formula: the approximate actual or usable
square footage occupied by the Tenant multiplied by the factor 1.1433 to account
for the tenants shared use of the common areas of the Project. The exact
Leasable Square Footage shall be determined solely by the Landlord's architect
and shall be measured in accordance with the rules of B.O.M.A. standard of
measurement for multi-tenancy. This Lease shall be adjusted after the
determination of exact Leasable Square Footage to reflect the exact Leasable
Square Footage and all other items related to the Leasable Square Footage shall
be adjusted accordingly. The purpose of the site plan shown on Exhibit A is to
show the approximate location of the Leased Premises. Landlord reserves the
right at any time to relocate or make additions to the various common areas,
automobile parking areas, and other areas of the Project.
2. USE. TENANT covenants and agrees to use the Leased Premises for the
purpose of conducting therein office use for GENERAL OFFICE USE and for no other
purpose whatsoever, without the prior written consent of the LANDLORD.
3. TERM. The term of this Lease shall commence on October 15, 1997 OR
fifteen (15) days after LANDLORD notifies TENANT that the space is available to
TENANT for occupancy and fixturing, or when TENANT commences business on the
premises, whichever shall occur first and shall continue for a period of 60 full
consecutive months (the "Term"); expiring on the last day of October, 2002.
LANDLORD and TENANT shall execute, acknowledge and deliver a written statement
specifying the commencement date of the Term once it is determined pursuant to
the terms of this Lease Agreement.
4. RENT.
A. TENANT shall pay to LANDLORD annually for the Term of the Lease, without
prior demand thereof, at its address set forth below, the sum as defined below
as the Minimum Rent for each year of the Term of this Lease.
The Minimum Rent for the Term of the Lease shall be calculated by the following
formula: the Leasable Square Footage multiplied by the absolute net rate per
square foot as indicated below, in equal monthly installments, in advance on or
before the 1st day of each month of the Lease Term. The absolute net rate for
each year of the Term shall be: SEE ADDENDUM
All such Rent shall be paid without any set-off, counterclaim or deduction
whatsoever and without demand therefore being made. Minimum rent for any partial
month shall be prorated on a daily basis.
B. Additional Rent, which is estimated at Five Dollars Seventy Five Cents
($5.75) per Leasable square foot for the first year of the Term, shall be
payable by TENANT in monthly installments as are billed by LANDLORD at the
beginning of the Lease for a twelve (12) month period, each such installment
being due on the first day of each month but to be received from the TENANT no
later than the 10th of each month (per paragraph 4(c) herein). The monthly
payments to be made by TENANT shall be adjusted and revised to compensate for
any overpayment of underpayment made by TENANT in such preceding twelve (12)
month period. Within ninety (90) days after the end of each twelve (12) month
period, LANDLORD shall, upon request, make available LANDLORD'S records relating
to the operating costs for such preceding period. At the end of this Lease any
overages collected as Additional Rent which are to the credit of TENANT shall be
reimbursed to TENANT as credit against its Minimum Rent. Additional Rent
includes LANDLORD'S "operating costs" defined in Exhibit "E" (B), page 23 of
this Lease.
C. TENANT shall pay LANDLORD a $100.00 service charge for all monthly rent
payments not received by the 10th day of the month for which they are payable.
Said service charge is to partially cover extra expense involved in handling
delinquent payments. In addition to the above, any rental and other sums payable
hereunder by TENANT which are not paid within ten (10) days after the due date
shall bear interest at the rate of the annual prime rate of BANC ONE plus five
percent per annum or the highest amount legally allowed by law, whichever is
less, from the date due to the date paid.
- --------------------------
* REFER TO ADDENDUM ITEM #4
1
<PAGE> 3
D. All Rent, Additional Rent and other sums due to the LANDLORD, unless
specifically provided, are due and payable in advance on or before the first day
of each and every calendar month during said Term of the Lease at the office of
LANDLORD at 1155 Kelly Johnson Boulevard, Colorado Springs, Colorado, U.S.A. or
such other place as LANDLORD may in writing advise TENANT.
5. DEPOSITS. It is further agreed that TENANT, concurrently with the
execution of this Lease shall deposit with LANDLORD, and will keep on deposit at
all times during the Term of this Lease, the sum of $15,000.00, as security for
the payment by TENANT of the rent and other charges herein agreed to be paid,
and for the faithful performance of all the terms, conditions and covenants of
this Lease. If, at any time during the Term of this Lease, TENANT shall be in
default in the performance of any provision of this Lease, LANDLORD, shall have
the right to use said deposit, or so much thereof as is necessary in payment of
any rental in default, in reimbursement of any expense incurred by LANDLORD
hereunder and in payment of any damages incurred by LANDLORD by reason of
TENANTS's default. In any such events, TENANT shall, on written demand of
LANDLORD, forthwith remit to LANDLORD a sufficient amount in cash to restore
said deposit to its original amount. If TENANT shall have fully and faithfully
complied with all the provisions of this Lease, said deposit shall be refunded
to TENANT within sixty (60) days after the termination of this Lease. LANDLORD
shall have the right to commingle said deposit with other funds of LANDLORD.
LANDLORD shall deliver the balance of said funds, if any, deposited here by
TENANT to the acquirer of LANDLORD's interest in the Project and, in the event
of a transfer of sale, thereafter. LANDLORD shall be discharged from further
liability with respect to such deposit.
6. The "Lease" consists of this Lease Agreement, the General Terms and
Conditions of Lease Agreement attached hereto, Exhibits attached hereto, and any
subsequent written Modification of Lease executed by the parties hereto in
amending the terms hereof.
IN WITNESS WHEREOF, said LANDLORD and TENANT have caused this Lease to be
executed the day and year first above written.
TENANT: LANDLORD:
USA.NET CHAPEL HILLS OFFICE BUILDING,
A COLORADO JOINT VENTURE
BY: BVT CHAPEL HILLS LTD.
BY: /s/ GEOFFREY E. LIND BY: /s/ Illegible
------------------------------ -----------------------------
Agent
Its: Chief Operating Officer
-----------------------------
Date: October 17, 1997 Date: 9/11/97
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2
<PAGE> 4
GENERAL TERMS AND CONDITIONS OF LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PARAGRAPH
<S> <C>
Construction of Improvements 1
Availability of Premises 2
Project Construction 3
Financial Responsibility 4
Parking 5
Fire or Casualty 6
Services and Expenses 7
Alterations and Care of Premises 8
Default and Remedies 9
Assignment or Subletting 10
Encumbrances 11
Eminent Domain 12
Mutual Waiver of Subrogation 13
Additional Covenants 14
No Partnership, Joint Venture or Agency 15
Holding Over 16
Quiet Enjoyment 17
Rules and Regulations 18
Force Majeure 19
Recording by Tenant 20
No Option 21
Attornment 22
Notice 23
Representations 24
Amendments of Approvals 25
Grammatical Changes 26
Article Heading 27
Exhibit A - Leased Premises
Exhibit B - Landlord's Work
Exhibit C - Site Plan
Exhibit D - Guaranty
Exhibit E - Services and Expenses
Exhibit F - Rules and Regulations
</TABLE>
TENANT: (Initials) LANDLORD: (Initials) /s/ Illegible
----------------- ---------------
Date: Date: 9/11/97
------------------------------ ------------------------------
3
<PAGE> 5
GENERAL TERMS AND CONDITIONS OF LEASE AGREEMENT
1. CONSTRUCTION OF IMPROVEMENTS.
A. LANDLORD shall construct certain portions of the Leased
Premises for TENANT's use and occupancy. All work to be performed and paid for
by LANDLORD shall be listed and described in Exhibit "B" attached hereto.
B. Any work defined in this Lease which is TENANT's obligation
to complete at its expense and to be performed by TENANT must first be approved
in writing by LANDLORD and shall be constructed in a good and workmanlike
manner, free from any liens for labor and materials. TENANT agrees to indemnify
LANDLORD and hold LANDLORD harmless against any loss, liability or damage
resulting from such work, and to furnish LANDLORD with a certificate of
insurance for general liability and workman's compensation insurance. TENANT
shall promptly pay for any work done initially or subsequently in or about its
Leased Premises, and will not permit or suffer any mechanic's lien to attach to
its Leased Premises, and shall promptly cause any claim for any such lien to be
released, or to secure to LANDLORD's satisfaction, in the event TENANT desires
to contest any such claim.
2. AVAILABILITY OF PREMISES.
A. The Leased Premises shall be completed, within sixty (60)
days of approval of working drawings. Rent commences upon occupancy of the
Leased Premises within the Building. If, for any reason, the Leased Premises
shall not be ready or available for occupancy on the date contemplated, this
Lease shall nevertheless continue in full force and effect, and TENANT shall
have no right to rescind, cancel or terminate the same and LANDLORD shall not be
liable for damages, if any, sustained by said TENANT on account of failure to
obtain possession on the date contemplated and in such event the rent for the
Leased Premises shall not commence until the term commences as defined in the
Lease Agreement Paragraph 3.
B. Preparation for occupancy of the Leased Premises by TENANT
shall be based on work being done to the Leased Premises in accordance with
"Exhibit B". TENANT, shall provide LANDLORD a list of any deficiencies upon
occupancy, and LANDLORD shall promptly proceed to correct those items.
3. PROJECT CONSTRUCTION.
A. Anything in this Lease to the contrary notwithstanding,
providing such cause is not due to the willful act or neglect of the LANDLORD,
the LANDLORD shall not be deemed in default with respect to the performance of
any of the terms, covenants and conditions of this Lease if same shall be due to
any strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, inability to obtain any materials, services, zoning, Project permits
or financing, through Act of God or other cause beyond the control of the
LANDLORD.
4. FINANCIAL RESPONSIBILITY.
TENANT agrees to furnish a financial statement in a form
acceptable to LANDLORD upon TENANT's execution of this Lease.
5. PARKING.
Project shall maintain approximately (3.34) unassigned parking
spaces, per One Thousand (1,000) leasable square feet, which shall be available
for TENANT's use. There are (19) visitor parking spaces available located in the
easterly parking areas which shall be for the use of Tenant's visitors on a
non-exclusive basis.
6. FIRE OR CASUALTY.
It is agreed that if, during the continuance of this Lease,
the Leased Premises shall be so damaged by fire or other casualty, not arising
from the fault or negligence of the TENANT, or those in its employ, so that the
Leased Premises shall thereby be rendered untenantable, then and in such case,
the rent herein reserved, or a just and proportionate part thereof, according to
the nature and extent of the damage which has been sustained, shall be abated
until the Leased Premises shall have been duly repaired and restored, which work
of repair and restoration shall be done with all reasonable diligence; provided
however, that should Tenant be in default at the time same occurs LANDLORD shall
have no such obligation. LANDLORD's obligation to repair and restore shall be
limited to a basic building and the replacement of any interior work which may
have been installed at LANDLORD's cost. In no event in the case of any such
destruction shall LANDLORD be required to repair or restore TENANT's stock in
trade, leasehold improvements, fixtures, furnishings, or floor coverings and
equipment. In the case the Project shall be destroyed so that the Leased
Premises are not restorable within one hundred twenty (120) days in the sole
judgment of the LANDLORD, LANDLORD shall have the right to cancel this Lease and
end the Term hereof, and in case of such cancellation, the rent, and any other
monies due and owing to LANDLORD, shall be paid by TENANT to the date TENANT
vacates the Leased Premises, and all further obligations upon the part of either
party hereto shall cease, and the estate hereby created shall thereupon
terminate. In the event the Leased Premises are damaged by fire or other
casualty during the last year of the Term of the Lease to an extent which
renders the Leased Premises untenantable, the LANDLORD may, at LANDLORD's
option, within thirty (30) days following the day of such fire or other
casualty,
4
<PAGE> 6
immediately terminate this Lease and be relieved of any obligation to rebuild or
repair the Leased Premises.
7. SERVICES AND EXPENSES.
The services of the LANDLORD and the payment by TENANT for
said services and of operational expenses are described in Exhibit "E". TENANT's
failure to comply with any one of the provisions of Exhibit "E" shall constitute
a breach of the terms of this Lease in the manner as if the same were contained
herein as general terms and conditions.
8. ALTERATIONS AND CARE OF PREMISES.
A. TENANT will not alter the exterior of the Leased Premises
(including glass and signs, if applicable) and shall have no right to make any
change, alteration, or addition to the Leased Premises without the prior written
consent of LANDLORD; all costs of such work shall be paid promptly by TENANT so
as to prevent the assertion of any liens for labor or materials. LANDLORD
reserves the right to make any alteration on the Leased Premises.
B. The TENANT agrees that it will take good care of the Leased
Premises, fixtures and appurtenances, and suffer no waste or injury, that it
will make all repairs to the Leased Premises, fixtures, and appurtenances
necessitated by the fault of the TENANT, its agents, employees and guests,
invitees and licensees, that it will not do, or permit anything to be done in
the Leased Premises which will in any way increase the fire insurance premium on
the Project, or conflict with the fire insurance policies on the Project; that
it will defend and save harmless the LANDLORD from any liability arising from
injury to person or property caused by any act or omission of TENANT, its
agents, employees or guests; and that it will surrender the Leased Premises at
the expiration of the Term (or the sooner termination thereof for any reason) in
as good condition as they were at the beginning of the Term, ordinary wear and
tear excepted.
C. All alterations, additions, erections or improvements on or
in the Leased Premises at the expiration of this Lease, except trade fixtures,
shall, at the option of the LANDLORD, be and become a part of the Leased
Premises, and shall, at the option of the LANDLORD, remain upon and be
surrendered with the Leased Premises as a part thereof at the termination of
this Lease. Should TENANT fail to remove any furniture or fixtures or personal
property of any kind, then same shall be considered as abandoned and become the
property of the LANDLORD. In the event LANDLORD may desire TENANT to remove
additions or alterations, TENANT, at his expense, shall, upon expiration of this
Lease, restore the Leased Premises to the same and as good order and condition
as when the same were entered upon by TENANT, ordinary wear and tear excepted
and in default thereof, LANDLORD may effect such removals and repairs and TENANT
shall pay LANDLORD the cost thereof, with interest at the rate of one and one
half percent (1.5%) percent per month commencing ten days after billing by
LANDLORD. Improvements constructed by the LANDLORD are not subject to this
section.
9. DEFAULT AND REMEDIES.
A. The following events shall be deemed to be events of
default by TENANT under this Lease:
(i) TENANT shall have failed to pay any installment
of rent or any other charge provided herein, or any portion thereof when the
same shall be due and payable; or
(ii) TENANT shall have failed to comply with any
other provisions of this Lease and shall not cure such failure within thirty
(30) days after LANDLORD, by written notice, has informed TENANT of such
noncompliance (in the case of a default which cannot with due diligence be cured
within a period of thirty (30) days, TENANT shall have such additional time to
cure same as may be reasonably necessary, provided TENANT proceeds promptly and
with due diligence to cure such default after receipt of said notice; or
(iii) TENANT or its guarantor, if any, shall file in
any court a petition in bankruptcy or insolvency or for the reorganization or
arrangement within the meaning of the Bankruptcy Act as amended, or under any
future Bankruptcy Act for the same or similar relief, or for the appointment of
a receiver or trustee of all or a portion of TENANT's property; or
(iv) An involuntary petition of the kind referred to
in subparagraph (iii) herein shall be filed against TENANT or its guarantor, if
any, and such petition shall not be vacated or withdrawn within sixty (60) days
after the date of filing thereof; or
(v) TENANT or its guarantor, if any, shall make an
assignment for the benefit of creditors; or
(vi) TENANT or its guarantor, if any, shall be
adjudicated a bankrupt; or
(vii) A receiver shall be appointed for the property
of TENANT or its guarantor by a court of competent jurisdiction; or
(viii) TENANT shall cease to conduct its normal
business operations in the premises or shall vacate or abandon the premises and
leave same vacated or abandoned for a period of ten (10) days; or
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(ix) TENANT shall do or permit to be done anything
which creates a lien upon the premises which is not paid or discharged promptly;
then LANDLORD, upon three (3) days' written notice to TENANT may elect either
(i) to cancel and terminate this Lease, or (ii) to terminate TENANT's right to
possession only without terminating the Lease.
B. In the event of election under (ix) above to terminate
TENANT's right to possession only, LANDLORD may, at LANDLORD's option, enter
into the premises and take and hold possession thereof, without such entry into
possession terminating this Lease or releasing TENANT in whole or in part from
TENANT's obligation to pay the rent hereunder for the full stated Term. Upon
such reentry with fifteen (15) days written notice, LANDLORD may remove all
persons and property from the premises 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. Upon and after entry into possession without
termination of the Lease, LANDLORD, may but need not relet the premises, or any
part thereof, for the account of TENANT, to any person, firm or corporation,
other than TENANT, for such rent, for such time and upon such terms as LANDLORD,
in LANDLORD's sole discretion, shall determine, and LANDLORD shall not be
required to accept any tenant offered by TENANT or to observe any instruction
given by TENANT about such reletting. In any such case, LANDLORD may make
repairs and redecorate the premises to the extent deemed by LANDLORD necessary
or desirable, and TENANT shall, upon demand pay the costs thereof, together with
LANDLORD's expense of reletting, including commissions. If the consideration
collected by LANDLORD upon any such reletting for TENANT's account, and after
deducting all expenses incident thereto, including brokerage fees and legal
expenses is not sufficient to pay monthly the full amount of the rent provided
in this Lease, TENANT shall pay to LANDLORD the amount of each monthly
deficiency upon demand. In the event that LANDLORD shall have terminated
TENANT's right to possession only, LANDLORD shall have the right to cancel and
terminate this Lease by serving five (5) days written notice on TENANT of such
further election and to pursue any remedy at law or in equity that may be
available to LANDLORD.
C. If TENANT shall fail to remove all personal property upon
the abandonment of the leased premises or upon the termination of this Lease for
any cause whatsoever, the LANDLORD, at its option, may remove the same in any
manner that it shall choose and store the said effects without liability to the
TENANT for loss thereof in any public or private warehouse, and the TENANT
agrees to pay the LANDLORD on demand any and all expenses incurred in such
removal, including court costs and attorney's fees and storage charges on such
personal property for any length of time the personal property shall be in
storage; or the LANDLORD, at its option, without notice, may sell said personal
property, or any of the same, at private sale and without legal process, for
such prices as the LANDLORD may obtain, and apply the proceeds of such sale upon
any amounts due under this Lease from the TENANT to the LANDLORD and upon the
expense incidental to the removal, storage, and sale of the personal property,
rendering the surplus, if any, to the TENANT.
D. In the event of any breach hereunder by TENANT, LANDLORD
may immediately or at any time thereafter, without notice, cure such breach for
the account and at the expense of TENANT. If LANDLORD at any time by reason of
such breach is compelled to pay, or elects to pay, any sum of money or do any
act which will require the payment of any sum of money, or is compelled to incur
any expense, including reasonable attorney's fees, the sum or sums so paid by
LANDLORD, with interest thereon at the rate of one and one half percent (1.5%)
per month from the date of payment thereof, shall be deemed to be due from
TENANT to LANDLORD on the first day of each month following the payment of such
respective sums or expenses.
E. [THIS SECTION DELETED]
F. If at any time or times hereafter, if by reason of default,
eviction or other action at law or equity, LANDLORD employ counsel for advice
with respect to this Lease or any related landlord-tenant law issue, or employs
counsel to intervene, file an eviction, complaint, notice, answer, motion or
other pleading in any suit or proceeding relating to this Lease Agreement or the
tenancy relationship, or to attempt to collect rents under or to enforce this
Lease Agreement against TENANT, its assign(s) or subtenant(s), then, if any of
such events, the prevailing party shall be entitled to all reasonable legal
expenses arising from any such action.
G. This lease shall be construed under Colorado Law.
H. TENANT waives and disclaims any present or future right to
withhold any rental payment or any other payment due under this Lease, or to
set-off in any action for rental, against any obligation of LANDLORD, however
incurred.
I. Should LANDLORD be in default under the terms of this
Lease, LANDLORD shall have reasonable and adequate time in which to cure the
same after written notice to LANDLORD by TENANT.
10. ASSIGNMENT OR SUBLETTING.
A. It is agreed that neither the Leased Premises nor any part
thereof shall be sublet, nor shall this Lease be assigned by TENANT without the
written consent of the LANDLORD having been first obtained, such consent shall
not be unreasonably withheld by LANDLORD. No assignment for the benefit of
creditors, or by operation of law, shall be effective to transfer any rights to
an assignee without the written consent of the LANDLORD having been first
obtained.
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B. It is agreed that if this Lease be assigned, or if the
Leased Premises or any part thereof be sublet or occupied by anyone other than
TENANT, LANDLORD may collect rent from the assignee, subtenant or occupant, and
apply the net amount collected to the rent herein specified, and no such
collection shall be deemed a waiver of the covenant herein against assignment
and subletting, or the acceptance of the assignee, subtenant or occupant as
TENANT, or a release of TENANT from the complete performance by TENANT of the
covenants herein contained on the part of TENANT to be performed.
Notwithstanding any assignment or sublease, TENANT shall remain fully liable on
this Lease and shall not be released from performing any of the terms, covenants
and conditions of this Lease.
C. LANDLORD shall in any case have the right, at its option,
to terminate this Lease, rather than have it sublet or assigned.
D. If at any time during the Term of this Lease any part or
all of the corporate shares of a corporate TENANT or any part or all of the
interests of a partnership or joint venture TENANT shall be transferred by sale,
assignment, bequest, inheritance, operation of law, or other disposition so as
to result in a change in the present effective voting control of TENANT by the
person or persons owning a majority of said corporate shares or partnership or
joint venture interests on the date of this Lease, TENANT shall promptly notify
LANDLORD in writing of such change. LANDLORD, upon receipt of said written
notice, shall not unreasonably withhold approval of such change in interest. If,
however, LANDLORD determines that such change in interest shall materially
affect the terms of this lease, it may terminate this lease at its sole option,
by giving TENANT Ninety (90) days written notice of such termination.
11. ENCUMBRANCES.
A. It is agreed that this Lease is subject and subordinate to
the lien of any trust deeds or mortgages now on, or which at any time may be
made a lien upon the Leased Premises or the Project in which the Leased Premises
are situated, and to all advances made or hereafter to be made upon the security
thereof without any further action or consent being required.
B. At any time, and from time to time, TENANT agrees, upon
request in writing from LANDLORD, to execute, acknowledge and deliver to
LANDLORD a statement in writing certifying that this Lease is unmodified and in
full force and effect or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications and the dates to
which rent, herein stipulated, and other charges have been paid.
C. In the event of any transfer or sale of the Leased Premises
by the LANDLORD, LANDLORD shall be and is hereby entirely freed and relieved of
all liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence or omission occurring
after the Consummation of such transfer or sale. The acquirer, at such transfer
or sale or any subsequent transfer or sale of the Lease Premises, shall be
deemed, without any further agreement between the parties or their successors in
interest or between the parties and any such purchaser, to have assumed and
agreed to carry out any and all of the covenants and obligations of LANDLORD
hereunder; this lease shall become part of any change in ownership, from
LANDLORD to any Third Party, under the same terms and conditions hereof.
12. EMINENT DOMAIN.
A. If the whole of the Leased Premises shall be acquired or
condemned by eminent domain for any public or quasi-public use or purpose, then
the Term of this Lease shall cease and terminate as of the date of title vesting
in such proceeding and all rentals shall be paid up to that date and TENANT
shall have no claim against LANDLORD nor the condemning authority for the value
of any unexpired Term of this Lease. If any part of the Leased Premises shall be
acquired or condemned as aforesaid, and in the event that such partial taking or
condemnation shall render the Leased Premises unsuitable for the business of the
TENANT, then the Term of this Lease shall cease and terminate as of the date of
title vesting in such proceeding. TENANT shall neither have a claim against
LANDLORD nor against the condemning authority for the value of any unexpired
Term of this Lease and rent shall be adjusted to the date of such termination.
In the event of a partial taking or condemnation which is not extensive enough
to render the premises unsuitable for the business of the TENANT, the LANDLORD
shall promptly restore the Leased Premises to a condition comparable to its
condition at the time of such condemnation less the portion lost in the taking,
and this Lease shall continue in full force and effect without any reduction or
abatement of rent.
B. In the event of any condemnation or taking as aforesaid,
whether whole or partial, the TENANT shall not be entitled to any part of the
award paid for such condemnation and LANDLORD is to receive the full amount of
such award, the TENANT hereby expressly waiving any right or claim to any part
thereof. Although all damages in the event of condemnation are to belong to the
LANDLORD whether such damages are awarded as compensation for diminution in
value of the leasehold or to the fee of the Leased Premises, TENANT shall have
the right to claim and recover from the condemning authority, but not from
LANDLORD, such compensation as may be separately awarded or recoverable by
TENANT in TENANT's own right on account of any and all damage to TENANT's
business by reason of the condemnation and for or on account of any cost or loss
to which TENANT might be put in removing TENANT's merchandise, furniture,
fixtures, leasehold improvements and equipment.
13. MUTUAL WAIVER OF SUBROGATION.
Anything in this Lease to the contrary notwithstanding,
neither LANDLORD nor TENANT shall be liable to the other for any business
interruption or any loss or damage to property or injury to or death of persons
occurring on the Leased Premises or the adjoining properties, sidewalks, streets
or
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alleys, or in any manner growing out of or connected with TENANT's use and
occupation of, or LANDLORD's operation and maintenance of, the Leased Premises,
or the condition thereof, or of sidewalks, streets or alleys adjoining, caused
by the negligence or other fault of LANDLORD or TENANT or of their respective
agents, employees, subtenants, licensees or assignees, to the extent that such
business interruption or loss or damage to property or injury to or death of
persons is covered by or indemnified by proceeds received from insurance carried
by the other party (regardless of whether such insurance is payable to or
protects LANDLORD or TENANT or both) or for which such party is otherwise
reimbursed; and LANDLORD and TENANT each hereby respectively waives all right of
recovery against the other, its agents, employees, subtenants, licensees and
assignees, for any such loss or damage to property or injury to or death of
persons to the extent the same is covered or indemnified by proceeds received
from any such insurance, or for which reimbursement is otherwise received.
Nothing in this Paragraph contained shall be construed to impose any other or
greater liability upon either LANDLORD or TENANT than would have existed in the
absence of this Paragraph.
14. ADDITIONAL COVENANTS. TENANT further covenants and agrees:
A. To comply with all lawful orders, building codes,
regulations and requirements issued by any Federal, State or Municipal
Governments, or any department or division thereof, insofar as the same are
applicable to its possession and occupancy of the Leased Premises. TENANT
further covenants not to use the Leased Premises for any purposes now or
hereafter prohibited by the Laws of the United States, the State of Colorado or
applicable ordinances; or for any improper or questionable purpose whatsoever.
B. That it will indemnify LANDLORD and save LANDLORD harmless
from each and every loss, cost, damage or expense arising out of any accident or
other occurrence causing injury to any person or property whomsoever or
whatsoever, and due directly or indirectly to the condition of the Leased
Premises or to the use or neglect of the Project premises, or any part thereof,
by said TENANT, or any person or persons holding under said TENANT, and will
indemnify and hold harmless said LANDLORD from all damages and penalties arising
out of any failure of TENANT, in any respect, to comply with all and any of the
requirements and provisions of this Lease; and shall hold LANDLORD harmless from
any penalty, damage and charge imposed for any violation of any laws, whether
occasioned by act or neglect of said TENANT, or by another or others in the
Leased Premises holding under or through TENANT. TENANT shall not hold or
attempt to hold LANDLORD liable for any injury or damage, either proximate or
otherwise; or liable for any injury or damage occasioned by defective wiring or
breakage or stoppage of plumbing or sewage upon the Leased Premises, whether
said breakage or stoppage results from freezing or otherwise. In the event, that
LANDLORD, in its acts or omissions, is found grossly negligent under this
section, said indemnification shall not apply.
C. That no assent, expressed or implied, to any breach of any
one or more of the covenants or agreements hereof, nor the delay of LANDLORD in
the assertion of any rights hereunder, shall be deemed to be taken to be a
waiver of any succeeding or other breach. The various rights, remedies, powers,
options and elections of LANDLORD reserved, expressed or contained in this Lease
are cumulative and no one of them shall be deemed to be exclusive of the others
or of such other rights, remedies, powers, options or elections as are now or
may hereafter be conferred upon LANDLORD by law.
D. To display no sign, advertisement, notice or other
lettering on any part of the outside of the Leased Premises or the Project of
which they form a part, or inside exterior glass, without, in each instance, the
prior written consent of LANDLORD, such consent may be arbitrarily withheld by
LANDLORD. No trade fixtures or other projections shall be attached to the
outside walls or roof of the Leased Premises without the prior written consent
of the LANDLORD, such consent may be arbitrarily withheld by LANDLORD. LANDLORD
is to provide a bronze strip suite entrance sign according to building standards
with lettering and wording approval by TENANT. Additionally, the lobby directory
strip will be in accordance with building standards with wording approved by
TENANT.
E. To permit LANDLORD to place a "For Rent" sign upon the
Leased Premises, only during the last 90 days of Lease term; and LANDLORD may,
at any reasonable hour of the day, enter into or upon, and go through and view
and inspect, the Leased Premises.
F. That no act or thing done by LANDLORD or LANDLORD's agents
during the Term hereof, or any extension thereof, shall be deemed an acceptance
of a surrender of the Leased Premises, and no agreement to accept such surrender
shall be valid unless in writing signed by LANDLORD.
G. No payment by TENANT, or receipt by LANDLORD, of a lesser
amount than the rent and other charges herein stipulated, shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement on any check or any letter accompanying any check, or payment as
rent, be deemed an accord and satisfaction, and LANDLORD may accept such check
or payment without prejudice to LANDLORD's right to recover the balance of such
rent or pursue any other remedy available to LANDLORD.
H. That the exhibits or supplements, if any be hereto
attached, are made a part hereof and shall be binding upon the parties hereto,
and if any provision of said exhibits or supplements shall conflict in any
manner with any other provision of this Lease, the provision of the supplement
shall prevail.
I. That all the terms, conditions and covenants to be observed
and performed by the parties hereto shall be applicable and binding upon their
heirs, executors, administrators, successors and assigns.
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J. That the invalidity or unenforceability of any provision of
this Lease shall not affect or impair the validity of any other provision. The
laws of the State of Colorado shall govern the interpretation, validity,
performance and enforcement of this Lease.
15. NO PARTNERSHIP, JOINT VENTURE OR AGENCY.
It is expressly understood that LANDLORD and TENANT are not
partners or joint venturers and that LANDLORD has no right, title or interest in
and to the business of TENANT, and that LANDLORD has no right to represent or
bind TENANT in any respect whatsoever, and that nothing herein contained shall
be deemed, held or construed as making LANDLORD a partner, joint venturer, or
associate of TENANT, nor as rendering LANDLORD liable for any debts, liabilities
or obligations incurred by TENANT. Neither is the relationship between LANDLORD
and TENANT that of Principal and Agent. It is expressly understood that the
relationship between the parties hereto is, and shall at all times, remain that
of LANDLORD and TENANT.
16. HOLDING OVER.
It is agreed that if, after the expiration of this Lease,
TENANT shall, without LANDLORD's consent, remain in possession of the Leased
Premises and shall continue to pay rent without written agreement as to such
possession, such TENANT shall be regarded as a tenant from month to month, at a
monthly rental, payable in advance, equal to two (2) times the monthly rental
for the last full month immediately prior to said expiration, and shall
otherwise be subject to all the terms and conditions of this Lease.
17. QUIET ENJOYMENT.
Upon payment by the TENANT of the rents and other charges
herein provided, and upon the observance and performance of all the covenants,
terms and conditions on TENANT's part to be observed and performed, TENANT shall
peaceably and quietly hold and enjoy the Leased Premises for the term hereby
leased without hindrance or interruption by LANDLORD or any other person or
persons lawfully or equitably claiming by, through or under the LANDLORD,
subject, nevertheless, to the terms and conditions of this Lease.
18. RULES AND REGULATIONS.
TENANT shall comply with all rules and regulations set forth
in Exhibit "F". Any violation of said rules shall be a failure to perform a
covenant of this Lease. LANDLORD shall have the right to make additions and
amendments to said regulations from time to time and such additions and
amendments shall be as binding on TENANT as if set forth herein.
19. FORCE MAJEURE.
In the event that either party shall be delayed or hindered in
or prevented from the performance of any act required hereunder by reason of
strikes, lockouts, riots, insurrection or war, then performance of such act
shall be excused for the period of the delay and the period for the performance
of any such act shall be extended for a period equivalent to the period of such
delay. The provisions of this section shall not operate to excuse TENANT from
prompt payment of Rents or any other payments required by the terms of this
Lease; however, LANDLORD agrees to abatement of rent after 30 days, only if any
act is substantially disruptive affecting all tenants and their ability to do
business.
20. RECORDING BY TENANT.
It is understood by the parties hereto that this Lease or any
memo thereof, shall not be recorded by TENANT without LANDLORD's written
permission.
21. NO OPTION.
The submission of this Lease for examination or execution does
not constitute a reservation of or option for the Leased Premises, and this
Lease becomes effective as a Lease only upon execution and delivery thereof by
LANDLORD and TENANT.
22. ATTORNMENT.
At the election of the encumbrancer, TENANT shall, in the
event of any foreclosure of any encumbrances attorn to the purchaser upon any
such foreclosure sale and recognize such purchaser as the LANDLORD. This lease
shall become part of any change in ownership, from LANDLORD to any Third Party
under the same terms and conditions hereof.
23. NOTICE.
Any notice which may be required to be given hereunder from
either of the parties to the other shall be in writing. Said notice may be
served personally or shall be deemed duly served by LANDLORD upon TENANT if
mailed by Certified Mail, Return Receipt Requested, with proper postage prepaid,
addressed to TENANT at the address at the Leased Premises hereby leased, and by
TENANT upon LANDLORD if mailed by Certified Mail, Return Receipt Requested, with
proper postage prepaid, addressed to LANDLORD at the address in Paragraph 4D of
Lease Agreement, or at such other address as either party may hereafter fix, by
notice in writing to the other.
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24. REPRESENTATIONS.
TENANT acknowledges and agrees that it has not relied upon any
statements, representations, agreements or warranties except as are expressed
herein.
25. AMENDMENTS OR APPROVALS.
No amendment or modification of this Lease, or any approvals
or permissions of LANDLORD required under this Lease, shall be valid or binding
unless reduced to writing and executed by the parties hereto in the same manner
as the execution of this Lease.
26. GRAMMATICAL CHANGES.
Wherever the words "LANDLORD" and "TENANT" are used in this
indenture, they shall include "LANDLORD" and "TENANT's" and shall apply to
persons, both men and women, companies, associations, partnerships, corporations
and trusts.
27. ARTICLE HEADINGS.
It is agreed that the head notes or article headings are
inserted only as a matter of convenience and for reference, and in no way
define, limit or describe the scope or intent of this Lease.
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EXHIBIT "A"
LEASED PREMISES
[FLOOR PLAN]
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EXHIBIT B
LANDLORD'S WORK AND IMPROVEMENTS
Landlord agrees to paint and carpet (to building standard quality) the entire
floor and provide $7,500 for partitions and doors.
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EXHIBIT "C"
LEGAL DESCRIPTION & SITE PLAN
To Wit:
Lot 3, Block 1, CHAPEL HILLS TECHNOLOGICAL CENTER as recorded in Plat Book P-2
at Page 76, in the records of El Paso County, Colorado, Except the following:
Commencing at the Southeast corner of said Lot 3; thence N 45(Degrees)52'29" E,
69.99 feet to the Point of Beginning of the said exception (the Basis of Bearing
is the Southerly line of said Lot 3, being N 88(Degrees)47'02" E, to which all
bearings are relative); thense S 39(Degrees)15'38" W, 7.61 feet; thence S
88(Degrees)47'06" W, 190.32 feet; N 44(Degrees)29'29" W, 10.19 feet; thence N
02(Degrees)13'55" E, 208.74 feet; thence N 05(Degrees)21'31" E, 71.10 feet;
thence N 38(Degrees)57'59" E, 109.24 feet; thence N 82(Degrees)53'00" E, 4.16
feet; thence S 53(Degrees)11'58" E, 200.82 feet; thence S 06(Degrees)16'34" E,
10.23 feet; thence S 40(Degrees)38'51" W, 52.15 feet; thence S 15(Degrees)11'31"
W, 107.62 feet; thence S 10(Degrees)15'49" E, 84.64 feet to the Point of
Beginning of the above described exception.
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EXHIBIT "D"
GUARANTY
Guaranty, dated as of this 20th day of October, 1997, made by JOHN
STREET ("Guarantor"). Guarantor has received a copy of the Lease between USA.NET
and THE CHAPEL HILLS OFFICE BLDG., A JOINT VENTURE (the "LANDLORD") dated the
_____ day of _________________, 19___, (the "Lease"), has examined the Lease and
is familiar with all the terms, covenants and provisions contained therein, and
as an inducement to LANDLORD to enter into the foregoing Lease, does hereby
unconditionally guarantee* in accordance with the Lease, and that TENANT will
faithfully perform and observe each covenant and condition of the Lease to be
performed or observed by TENANT. This Guaranty is an unconditional, irrevocable,
and absolute guarantee of payment and performance. Guarantor does hereby agree
that the TENANT has full authority to make any changes, modifications and
alterations in the foregoing Lease which shall be agreeable to LANDLORD, and
that such changes, modifications and alterations will not relieve the
undersigned from their responsibility hereunder.
Guarantor's obligation under this Guaranty shall in no way be affected
or impaired by reason of the happening from time to time of any of the following
with respect either to the Lease or to this Guaranty, even without notice to or
the further consent of Guarantor.
A. The extension by LANDLORD of the time for payment by TENANT of any
sums owing or payable under this Lease.
B. The assignment, subletting or mortgaging or the purported
assignment, subletting or mortgaging of all or part of TENANT's interest in the
Lease.
C. The waiver, failure, omission or dely of LANDLORD to enforce,
assert, or exercise any right, power or remedy conferred on LANDLORD in the
Lease or by law or any action on the part of LANDLORD granting indulgence or
extension in any form.
D. The voluntary or involuntary liquidation, dissolution, sale or other
disposition of all or substantially all the assets, a receivership, an
insolvency, a bankruptcy, an assignment for the benefit of creditors, a
reorganization, or any other similar proceeding affecting TENANT or any of its
assets, or the disaffirmance of the Lease in any such proceeding.
E. Any other cause, whether similar to or dissimilar from the
foregoing.
Notice of acceptance of this Guaranty and any obligations or
liabilities contracted or incurred by TENANT are all hereby waived by Guarantor.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of Colorado.
No waiver by LANDLORD of the payment by Guarantor of any of his
obligations contained in this Guaranty, nor any extension of time for the
payments by Guarantor of any such obligations, shall affect or impair this
Guaranty or constitute a waiver or relinquishment of any rights of LANDLORD
hereunder for the future. No action brought under this Guaranty against
Guarantor and no recovery had in pursuance thereof shall be any bar or defense
to any further action or recovery which may be brought or had under this
Guaranty by reason of any default or further default by TENANT.
All the provision of this Guaranty shall inure to the benefit of
LANDLORD and its grantors, successors and assigns, and shall inure to the
benefit of any future owner of the fee title of which the Leased Premises (as
defined in the Lease) are a part; and all the provisions of this Guaranty shall
be binding upon the Guarantor, his heirs, legal representatives, successors and
assigns.
If this Guaranty is signed by more than one Guarantor, each such
Guarantor shall be jointly and severally liable hereunder.
All of LANDLORD's rights and remedies under the Lease and under this
Guaranty shall be distinct, separate and cumulative and no such right or remedy
shall be exclusive of or a waiver of any of the others.
IN WITNESS WHEREOF, the undersigned have executed this Guaranty
effective this 20th day of October, 1997.
GUARANTOR:
BY: /s/ John Street
------------------------------------
JOHN STREET
ADDRESS: 1310 NORTHGATE ROAD, BLACK FOREST, COLORADO 80921
- -------------------------------
*A LIMITED GUARANTY OF ALL SUMS EXPENDED BY LANDLORD FOR TENANT FINISH AND FOR
THE $57,500 OF RENTAL ABATEMENT.**UPON REPAYMENT OF THE $57,500 PLUS INTEREST,
AS OUTLINED IN SECTION 1(a) OF THE ADDENDUM, THE GUARANTOR SHALL BE RELEASED
FROM ANY AND ALL LIABILITY.
**AT THE END OF THE 16TH MONTH OF THE PRIMARY LEASE TERM AND
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<PAGE> 16
EXHIBIT "E"
SERVICES AND EXPENSES
1. Notwithstanding any term in this Lease to the contrary, it is the
intent of the LANDLORD and TENANT that this Lease is an absolute net lease to
the LANDLORD with the TENANT paying its proportionate share of all costs of
operation of the Project including and not limited to the cost of managing,
operating, cleaning of common areas and tenant spaces per building standards as
may be determined by the LANDLORD from time to time, equipping, protecting,
lighting, relamping, repairing, replacing, heating, air conditioning, of all the
areas of the Project or any other costs reasonably related to the cost of the
operation of the Project. Such costs shall include, but shall not be limited to
utilities, supplies, janitorial services, management fees, employees' wages,
social security and unemployment insurance contributions, union benefits,
rubbish, snow and ice removal, maintenance and replacement of landscaping,
paving, parking lot striping and premiums for insurance.
The LANDLORD shall provide only those services specifically stated in this
Exhibit at the cost of the TENANT. TENANT covenants and agrees to procure all
other services and pay all other costs and expenses or reimburse LANDLORD should
LANDLORD elect to pay certain costs and expenses.
2. INSURANCE.
A. LANDLORD shall procure all risk coverage subject to
standard exclusions (including coverage for rental loss in connection with
damage and destruction covered by the said fire and extended coverage
insurance), liability, workman's compensation and other reasonably necessary
insurance on the Project. TENANT shall reimburse LANDLORD monthly, as Additional
Rent for its proportionate share of the actual net cost and expense to LANDLORD
of such insurance including losses due to deductible insurance of the LANDLORD.
TENANT's proportionate share of such costs shall be determined by Paragraph 7 of
this Exhibit. One-twelfth (1/12th) of the amount due shall be payable on the
first day of each month and added to the monthly rental. These amounts may be
based on an estimate until the actual premiums are available and then available
adjustments shall be made and any difference shall be payable based on TENANT's
actual share as determined. Said payment amount shall be modified annually, if
necessary, in order to accurately reflect the actual insurance premium payment.
B. TENANT shall maintain at its sole cost and expense fire and
extended coverage, vandalism, malicious mischief and special extended coverage
insurance in an amount adequate to cover the cost of replacement of all
furniture, fixtures, alterations, decorations, inventory, goods, merchandise,
improvements and equipment in the Leased Premises, whether supplied or owned by
the TENANT or by the LANDLORD in companies and form acceptable to LANDLORD. The
policy of insurance required to be obtained hereunder by TENANT shall provide
that any and all loss proceeds shall be payable to LANDLORD and TENANT as their
interest may appear and shall state that the insurer will not cancel or change
the insurance without first giving the LANDLORD twenty (20) days prior written
notice. A copy of the policy or a certificate of insurance shall be delivered to
the LANDLORD within thirty (30) days of TENANT's occupancy of the premises.
C. TENANT agrees that it will not keep, use, sell or offer for
sale upon the Leased Premises any article that may be prohibited by the
LANDLORD's form of fire insurance policy. TENANT agrees to pay any increase in
premiums for insurance that may be charged during the Term of tenants or
subtenants in the Project resulting from the presence, storage, use or sale of
equipment, materials, supplies, merchandise or other articles in or about the
Leased Premises, whether or not LANDLORD has consented to the same or not.
D. TENANT, shall for the entire Term hereof, keep in full
force and effect a policy of public liability and property damage insurance with
respect to the Leased Premises, hallways of Leased Premises, and the business
operated by TENANT and any subtenants of TENANT in the Leased Premises. The
limits of said policy shall be no less than One Million ($1,000,000.00) Dollars
combined single limit coverage for bodily injury and property damage liability.
The policy shall name LANDLORD, any person, firm, or corporation designated by
LANDLORD, and TENANT as the insured and shall state that the insurer will not
cancel or change the insurance without first giving the LANDLORD twenty (20)
days prior written notice. The insurance shall be with an insurance company
licensed to do business in the State of Colorado. A copy of the policy or a
certificate of insurance shall be delivered to LANDLORD within thirty (30) days
of TENANT's occupancy of the premises. TENANT shall increase the foregoing
limits if LANDLORD deems such increase is desirable to protect TENANT and
LANDLORD as well.
E. TENANT shall repair any damage that might be caused to the
Leased Premises in connection with breaking and entering of said Leased Premises
for the purpose of larceny.
F. TENANT shall maintain at its own cost and expense a
Standard Form of Worker's Compensation and Employer's Liability Insurance
covering all TENANT's employees for injury or illness suffered in the course of
or arising out of their employment, providing Statutory Worker's Compensation
benefits and Employer's Liability Limits of liability of not less than One
Hundred Thousand ($100,000.00) Dollars and TENANT shall show evidence of such
coverage.
3. UTILITIES.
A. TENANT shall be solely responsible for and shall promptly
pay its proportionate share per Paragraph 7 hereof, of all charges for heat,
water (including sewage charges and/or taxes based on water consumption), gas,
electricity, or any other utility used or consumed in
15
<PAGE> 17
the Leased Premises. Should LANDLORD elect to supply the water, gas, heat,
electricity or other utility used or consumed in the Leased Premises, TENANT
agrees to purchase and pay for same as Additional Rent provided such rate is no
higher than TENANT could obtain for like service from the utility company. In no
event shall LANDLORD be liable for an interruption or failure in the supply of
any such utilities to the Leased Premises.
B. TENANT agrees to install no electrical equipment which
overloads the lines or interferes with other equipment in the Project, or any
part thereof and if said lines are overloaded by such installation, to
immediately remedy the same at its own expense and to comply with all
requirements of the Insurance Underwriters or governmental authorities.
4. TAXES.
A. TENANT covenants and agrees to pay to LANDLORD, as
Additional Rent, that sum which is equal to TENANT's proportionate share as
determined in Paragraph 7 of this Exhibit of real estate taxes and special
assessments levied and imposed against the entire Project and payable by
LANDLORD. For the tax year in which this Lease commences or terminates, the
provisions hereof shall apply in the proportionate to which the number of months
the Leased Premises are occupied by TENANT bear to a full tax year. In addition
to the foregoing, TENANT shall be liable for all taxes levied against all
personal property, and trade fixtures placed by TENANT in or about the Leased
Premises, and for any tax increase due to improvements, additions or alterations
to the Leased Premises made during the Term of this Lease.
B. In the event that any tax or assessment other than real
estate, public utility or school zone tax is ever levied against the Project,
such as a rent, business or gross receipt tax or otherwise, said tax shall be
the sole responsibility of TENANT. TENANT shall pay the same as further
Additional Rent before any fine, penalty, interest or costs may be added thereto
for the nonpayment thereof.
5. MAINTENANCE AND REPAIR.
A. LANDLORD agrees to provide regular maintenance so as to
keep in good order, condition, and repair, foundations and structural portions
of the Leased Premises, except for any damage thereof caused by any act or
negligence of TENANT, its employees, invitees, agents, licensees, or
contractors. The LANDLORD shall not be responsible if TENANT is negligent to
make plumbing, electrical, or mechanical repairs or replacements or other
improvements of repairs of any kind upon the Leased Premises except as may be
expressly set out in this Lease. Any dispute between LANDLORD and TENANT as to
the LANDLORD's obligations under this Paragraph shall not excuse the payment of
rent or other performances by TENANT.
B. TENANT agrees that, from and after the date that possession
of the Leased Premises is delivered to the TENANT, and until the end of the Term
hereof, it will be responsible for its prorata share of payments of all repairs,
maintenance, and replacements to the Leased Premises other than those
specifically required to be performed by LANDLORD in Paragraph A above,
including but not limited to the interior and exterior portions of Project
including all doors, windows, plate glass and show windows surrounding the
Leased Premises, roof and Project skin; the mechanical plumbing, heating, air
conditioning, ventilating and electric equipment and systems; partitions, and
all other fixtures, appliances and facilities furnished by TENANT or LANDLORD.
C. LANDLORD reserves the right to elect to provide certain
maintenance, repairs, and replacements, including preventative maintenance. In
the event of such election, TENANT shall pay its proportionate share of expenses
as determined in Paragraph 7 of this Exhibit.
D. TENANT shall not, however, be responsible for repair of any
damage caused by any act of gross negligence of LANDLORD, its employees or
agents. TENANT shall not be required to make structural repairs or alterations
which may be required by governmental rules, order or regulations unless
resulting from the business operations maintained by TENANT in the Leased
Premises. TENANT shall not permit or suffer the Leased Premises, or the walls or
the floors thereof to be endangered by overloading. All repairs, maintenance,
replacement or any other work required by this Paragraph shall be approved by
LANDLORD prior to commencement of such work.
E. Should any provision of this Paragraph 5 be inconsistent
with any other provision of this Lease, this Paragraph 5 shall prevail.
6. COMMON AREAS.
A. The "Common Area" of the Project is that part designated by
LANDLORD from time to time for the common use of all tenants, including among
other facilities, parking area, sidewalks, landscaping, curbs, truckways,
delivery passages, enclosed and open mall, loading areas, private streets and
alleys, lighting facilities, drinking fountains, meeting rooms, locker rooms,
public toilets, hallways, lobbies, elevators, service rooms, equipment and the
like. LANDLORD reserves the right to change from time to time the dimensions and
location of the Common Areas as shown on Exhibit "A" as well as the dimension,
identity and type of any buildings (except the Leased Premises) shown on Exhibit
"A" and to construct additional buildings or additional stories on existing
buildings or other improvements in the Project. LANDLORD also reserves the right
to dedicate portions of the Common Area and other portions of the Project
(except the Leased Premises) for street, park, utility and other public
concessionaires and licensees shall have the non-exclusive right to use the
Common Area, as constituted from time to time, such use to be in common with
LANDLORD, other tenants of the Project and other persons entitled to use the
same, and subject to the rules and regulations governing use as they may be
amended from time to time, including the designation of specific areas in which
automobiles owned by TENANT, its
16
<PAGE> 18
employees, sublessees, concessionaires and licensees shall be parked. Upon
request of LANDLORD, TENANT will furnish to LANDLORD a complete list of the
license numbers of all automobiles operated by TENANT, its employees,
sublessees, concessionaires or licensees. TENANT shall not take any action which
would interfere with the rights of other persons to use the Common Area.
LANDLORD may temporarily close any part of the Common Area for such periods of
time as may be necessary to prevent the public from obtaining prescriptive
rights or to make repairs or alterations.
B. LANDLORD will operate and maintain the Common Area. The
"LANDLORD's Operating Costs" shall be those of operating and maintaining the
Common Area in a manner deemed by LANDLORD reasonable and appropriate and for
the best interests of the Project, including, without limitations; all costs and
expense of managing, operating, maintaining, repairing, replacing, lighting,
providing janitorial service, cleaning, painting, striping, policing, insuring,
providing utilities, removing snow, ice debris, conducting efficiency studies,
and regulating traffic; costs and expenses, if any, of heating, ventilating and
air conditioning the common areas; cost and expenses of inspection, maintenance,
and depreciation of machinery and equipment used in the operation and
maintenance of the common facilities, including, if any the Common Area heating,
air conditioning and ventilating equipment, and personal property taxes and
other charges incurred in connection with such equipment; costs and expense of
maintaining, planting, replanting and replacing flowers and shrubbery and
planters; real estate taxes and special assessments applicable to the Common
Area and land underlying same; cost and expense for the rental of music program
services and loudspeaker systems including furnishing electricity therefor;
sprinkler maintenance costs; administrative costs equal to four percent (4%) of
the annual Minimum Rent, of operating and maintaining the Common Area. Such
costs and expenses shall not include depreciation (other than depreciation
specified).
C. TENANT shall pay LANDLORD, as Additional Rent, its
proportionate share of LANDLORD's Operating Costs. The TENANT's proportionate
share shall be determined by Paragraph 7 of this Exhibit.
D. The charge required hereunder shall be paid by TENANT in
monthly installments in such amounts as are estimated and billed by LANDLORD at
the beginning of a twelve (12) month period commencing and ending on dates
designated solely by LANDLORD, each such installment being due on the first day
of each month. The monthly payments to be made by TENANT shall be adjusted and
revised to compensate for any overpayment or underpayment made by TENANT in such
preceding twelve (12) month period. Within ninety (90) days after the end of
each twelve (12) month period, LANDLORD shall, upon request, make available
LANDLORD's records relating to LANDLORD Operating Costs for such preceding
period.
7. PROPORTIONATE SHARE. TENANT's proportionate share of expenses or
other amounts shall be computed by multiplying said expense or amount by a
fraction, the numerator of which shall be the number of Leaseable Square Footage
of area in the Leased Premises leased by the TENANT and the denominator of which
shall be the total number of Leaseable Square Footage of area in the Project.
Total Leaseable Square Footage of area in the Project is subject to change based
on Common Area changes.
8. BOOKS AND RECORDS. LANDLORD shall maintain books and record
outlining the costs of the Services and Expenses described in this Exhibit "E"
and shall make same available for inspection by the TENANT during normal
business hours with reasonable notice by the TENANT.
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<PAGE> 19
EXHIBIT "F"
RULES AND REGULATIONS
A. The sidewalks, entrances, halls, passages, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any other
purpose than for ingress and egress to and from their respective Leased
Premises.
B. Tenants, their agents, employees or visitors, shall not make or
commit any improper noises or disturbances of any kind in the Project, or make
or defile the Project or interfere in any way with other tenants or those having
business with them.
C. The toilet rooms, water closets, locker rooms and other water
apparatus shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, ashes, chemicals or other
unsuitable substances, shall be thrown therein. Any damage from such misuse or
abuse shall be borne by the TENANT by whom or by whose employees or visitors it
shall be caused.
D. No carpet, rug or other article shall be placed in corridors as a
door mat, and nothing shall be thrown or allowed to drop by the tenants, their
agents, employees or visitors out of the windows, doors, or balconies, or down
the passages or shafts of the Project, and no tenants shall sweep or throw or
permit to be thrown from the Leased Premises, any dirt or other substance into
any of the corridors or halls, elevators, shafts or stairways of such Project.
E. No articles (except for interior artwork) shall be fastened to or
holes drilled or nails or screws driven into walls, window, partitions, nor
shall the walls or partitions be painted, papered or otherwise covered, or in
any way marked or broken, without the prior written consent of the LANDLORD.
F. Nothing shall be placed on the windows or on the outside of the
Project by the TENANT including communication devices.
G. The only window treatment permitted for the windows in the Leased
Premises is that approved in writing by the LANDLORD.
H. No sign, advertisement or notice shall be inscribed, painted or
affixed on any part of the outside or inside of said Project except those
approved in writing by LANDLORD.
I. After permission to install telephones, call boxes, telegraph wires
or other electric wires shall have been granted, LANDLORD shall approve their
location before installation. No wires shall be run in any part of the Project
excepting by or under the direction of LANDLORD. Attaching of wires to the
outside of the Project is absolutely prohibited. It is understood that
telephones are installed solely for the use and benefit of TENANT and
accordingly, TENANT will defend and save LANDLORD harmless from any damages
thereto.
J. The LANDLORD shall in all cases have the right to prescribe the
weight and proper position of safes or other heavy objects in the Project; and
the bringing in of said safes, all furniture, fixtures or supplies, the taking
out of said articles and moving about of said articles within the Project, shall
only be at such times and in such manner as the LANDLORD shall designate; and
any damage caused by any of the before mentioned operations or by any of the
said articles during the time they are in the Project, shall be repaired by
TENANT at TENANT'S expense.
K. No bicycles or similar vehicles will be allowed in the Building. No
animals or birds shall be brought into or kept upon the Project.
L. No TENANT shall do or permit anything to be done in said Project, or
bring or keep anything therein which will in any way increase the rate of fire
insurance on the Project or on property kept therein, or obstruct or interfere
with the rights of other tenants, or in any way injure or annoy them or conflict
with the laws relating to fires, or with the regulations of the Fire Department
or with any insurance policy upon said Project or any part thereof, or conflict
with any of the rules and ordinances of the Department of Health. Tenants
understand and agree that the vehicle of any tenant, its employees, agents or
guests, parked in an unauthorized area, and particularly in areas designated by
specially as visitor parking or fire lane areas, may be towed away at owner's
risk and expense.
M. LANDLORD shall not be responsible to tenants for loss of property or
for any damage done to the furniture or other effects of tenants by the LANDLORD
or any of its employees or agents or any other persons or firms unless proof of
LANDLORD's gross negligence for such damage or loss of property is established.
N. TENANTS shall securely lock the doors to its tenant spaces at all
times before leaving the Project and TENANTS shall securely lock the doors to
the main entries before leaving the Project during the times other than regular
business hours of the Project.
O. No machinery of any kind, other than normal office machines (i.e.,
electric typewriters, dictating or adding machines, or similar desk type
equipment only), shall be allowed to be operated on the Leased Premises without
prior written consent of LANDLORD.
P. No interference with the heating apparatus will be permitted.
TENANTS shall maintain minimum heating requirements.
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<PAGE> 20
Q. The use of the Leased Premises as sleeping apartments, for the
preparation of foods except as approved by LANDLORD, or for any immoral or
illegal purpose is absolutely prohibited.
R. No TENANT shall conduct, or permit any other person to conduct, any
auction upon its Leased Premises, or store goods, wares, or merchandise upon its
Leased Premises without the prior written approval of the LANDLORD except for
the usual supplies and inventory to be used by the TENANT in the conduct of its
business.
S. All glass, locks and trimmings, in or about the doors and windows of
the Leased Premises and all electric fixtures on the Leased Premises which
belong to the Project shall be kept whole, and whenever broken by TENANT or
TENANT's employees, agents, guests, invitees or licensees, TENANT shall
immediately notify LANDLORD of such breakage. All such breakage shall be
repaired by LANDLORD at TENANT's expense or may be repaired by TENANT at
TENANT's own expense at the option of the LANDLORD.
T. Any and all damage to floors, walls or ceilings due to TENANT or
TENANT's employees failure to shut off running water or liquid, shall be paid by
TENANTS.
U. All furniture or fixtures in carpeted areas shall have carpet
casters, carpet shields, or other similar protective devices.
V. No additional locks shall be placed upon any doors without the
written consent of the LANDLORD, and the TENANTS shall not permit any duplicate
keys to be made. All necessary keys shall be furnished by the LANDLORD and the
same shall be surrendered upon the termination of this Lease, and the TENANTS
shall then give to the LANDLORD or his agents explanation of the combination
upon the doors or vaults.
W. If TENANTS do not keep their Leased Premises in a good state of
preservation and cleanliness during the continuance of this Lease, the
Superintendent of LANDLORD or contractor designated by LANDLORD may take charge
of and clean the said Premises at TENANT's cost.
X. TENANTS will not conduct any auction, fire or bankruptcy sales
without first obtaining LANDLORD's written consent; or utilize any illegal
method of business operation; will not use or permit the use of any apparatus
for sound reproduction or transmission of any musical instrument or device in
such manner that the sounds so reproduces, transmitted or produces shall be
audible beyond the interior of the Leased Premises; will not cause or permit
objectionable odors to emanate or be unreasonably dispelled from the Leased
Premises; and will not load or unload or permit the loading or unloading of
merchandise, supplies or other property outside the areas designated therefor
and will comply with LANDLORD's reasonable rules for the delivery and shipping
of merchandise; and will use its best efforts to prevent the parking or standing
outside of said area, of trucks, trailers or other vehicles or equipment engaged
in such loading or unloading; and will not solicit business in the parking lot
or other Common Areas or distribute handbills or other advertising matter in
said areas.
Y. The LANDLORD will establish from time to time the hours of operation
of the mechanical, electrical and security systems of the Project to allow
TENANTS a reasonable period of operation that is equitably consistent with the
uses by the TENANTS of the Project. TENANT shall be responsible for additional
charge on utilities if use of the building by TENANT is over 20% of regular
business hours. Such charge shall be based on the same percentage as use overage
occurs.
Z. LANDLORD reserves the right to make reasonable rules and regulations
to control the use of parking.
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<PAGE> 21
ADDENDUM
TO THE LEASE AGREEMENT
BETWEEN
THE CHAPEL HILLS OFFICE BUILDING, A JOINT VENTURE ("LANDLORD")
AND
USA.NET, INC. ("TENANT")
1. Rent
<TABLE>
<CAPTION>
Months Net Rent Operating Expenses
------ -------- ------------------
<S> <C> <C> <C>
1-6(a) $11.50 $5.75
7-18 $12.50 $5.75
19-30 $13.00 $5.75
31-52 $13.50 $5.75
53-60 $14.00 $5.75
</TABLE>
(a) The net rent for months 1-4 shall be abated and the
Tenant shall be responsible for the Operating
Expenses only. The net rent on 15,000 sq. ft. in
months 1-6 per month is $14,375 and the total
abatement concession is $57,500. The $57,500
concession shall be amortized over months 5 through
16 and shall accrue interest at a rate of 10% per
annum at the beginning of the 5th month.
2. Operating expenses are subject to the provisions of additional
rent contained in Section 4 of the Lease.
3. Landlord reserves the right to submeter the Tenant's premises
area in the event Tenant's use of utilities exceeds normal
building usage.
4. Tenant has the right to use the balance of the space on the
4th floor. The costs of the right shall be the monthly
operating costs on the balance of the space for the first six
(6) months. Beginning in month seven (7), Tenant shall be
responsible for net rent and operating expenses.
5. Landlord agrees to permit Tenant, at Tenant's cost, to erect a
building mounted sign on the freeway side of the building,
which will be clearly visible from the freeway. The sign shall
be in accordance with city and state ordinances and subject to
the consent of the Landlord, which shall not be unreasonably
withheld. Tenant has the option to place signage the same size
and configuration as the former Telephone Express sign. The
sign will be as large as, but will not exceed that size.
Landlord shall not allow any other Tenant to erect a sign on
the building without the Tenant's consent. At the end of the
lease term Tenant shall remove the sign, at Tenant's expense,
and make any repairs to the building to restore it to its
previous condition.
6. Tenant has a roof mounted microwave antenna. The Tenant is
solely responsible to maintain and repair any damage that is
created by the installation, removal or maintenance of the
antenna. The Landlord will insure that there will be no roof
obstructions erected which will block the antenna's line of
sight to the south and west.
7. Palmer McAllister has acted as a Transaction Broker by the
agreement of both parties in this transaction.
8. Tenant will have certain areas of its leased premises which it
shall designate to Landlord as secured areas. Janitorial
service will not be supplied by the building to these areas.
<PAGE> 22
SECOND ADDENDUM TO THE LEASE AGREEMENT
THIS SECOND ADDENDUM to the Office Lease Agreement is entered
into by and between The Chapel Hills Office Building, a Colorado Joint
Venture, as "Landlord", and USA.Net, Inc., as "Tenant".
Landlord and Tenant have entered into a business Office Lease
Agreement dated September 11, 1997 (the "Lease"), and this is the
Second Addendum to that Office Lease Agreement. Terms not defined in
this Second Addendum shall have the meaning given them in the Office
Lease Agreement. Landlord and Tenant desire to modify the Lease
Agreement. For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree
as follows:
1. [LANGUAGE IN THIS SECTION DELETED AND REPLACED WITH THE
FOLLOWING LANGUAGE:]
See Sec. 4 below.
2. The Second Addendum, as depicted on Exhibit A, which is
attached hereto, and being more particularly described as
Suite 306, 1155 Kelly Johnson Blvd., Colorado Springs, CO
80920, depicts the expansion of the original premises by 1,868
rentable square feet. By execution of this Addendum, Landlord
and Tenant hereby agree that the total premises area of Suite
306 shall contain a total premises area of 1,868 rentable
square feet ("New Premises Area").
3. This Second Addendum to the Office Lease Agreement provides
that the term of this expansion space shall be conterminous
with the Lease.
4. The commencement date of this lease shall be upon substantial
completion of improvements to premises estimated to be June 1,
1998.
5. The termination date of this lease shall be October 31, 2002.
6. The per annum square footage rent for the expansion space
shall be per the terms of the Lease.
7. Tenant Finish: Landlord agrees to provide the following:
a. Replace carpet with same quality carpet as in Tenant's
existing suite.
b. Repaint entire suite with same color paint as in
Tenant's existing suite.
c. Remove one (1) wall.
8. In addition, Tenant will pay its prorata share of operating
expenses, as defined in the original lease agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second
Addendum to the Lease Agreement as of this 20 day of May, 1998.
LANDLORD: TENANT:
CHAPEL HILLS OFFICE BUILDING, USA.NET, INC.
A JOINT VENTURE
By: /s/ Illegible By: /s/ Geoffrey E. Lind
---------------------------- --------------------------------
Title: Agent Title: COO
------------------------- ------------------------------
Date: May 15, 1998 Date: May 20, 1998
-------------------------- ------------------------------
<PAGE> 23
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made as of August 12,
1998, by and between USA.NET, INC., a Delaware corporation ("Tenant"), and BVT
CHAPEL HILLS, LTD., a Tennessee limited partnership ("Landlord"), with reference
to the following facts.
RECITALS
A. Landlord (then known as The Chapel Hills Office Building, a Joint
Venture) and Tenant entered into a certain Office Lease Agreement dated as of
September 11, 1997, as supplemented and amended by that certain Addendum to
Lease Agreement, and that certain Second Addendum to Lease Agreement dated May
20, 1998 (as supplemented and amended, the "Lease"), pursuant to which Tenant
leases from Landlord certain premises described in the Lease (the "Leased
Premises") and located in the building known as 1155 Kelly Johnson Boulevard
(the "Project") in Colorado Springs, Colorado.
B. Tenant wishes to add certain space in the Project to the Leased
Premises, and Landlord has consented to that addition, subject to the terms and
conditions of this Amendment. All capitalized terms used in this Amendment but
not otherwise defined herein shall have the meanings given to them in the Lease.
AGREEMENT
In consideration of the recitals set forth above and the covenants
contained herein, Landlord and Tenant hereby agree as follows:
1. Expansion of Premises. The Leased Premises will be expanded as
of the Expansion Date (as defined below) to include those premises known as
"Suite 301" of the Project and depicted in Exhibit A attached hereto ("Suite
301"). By adding Suite 301 to the Leased Premises, the Leasable Square Footage
of the Leased Premises will increase by 2,396 square feet, which Leasable Square
Footage is calculated based on a revised load factor of 1.145 (the "Suite 301
Leasable Area"). The total Leasable Square Footage of the Leased Premises shall
be 25,209 square feet.
2. Term. Tenant's lease of Suite 301 will commence as of the date
(the "Expansion Date") that is the later of August 15, 1998 or the date that
Tenant is notified by Landlord that the improvements to Suite 301 required under
Section 4 below have been substantially completed. The lease of Suite 301 will
expire on the last day of the Term, which Landlord and Tenant acknowledge and
agree is October 31, 2002.
3. Rent.
3.1 Commencing as of the Expansion Date, and continuing
until December 31, 1998, Tenant will pay to Landlord annual Minimum Rent for
Suite 301 in an amount equal to
<PAGE> 24
the Suite 301 Leasable Area multiplied by $14.00, which additional Minimum Rent
will be pro-rated on a per diem basis for the month in which the Expansion Date
occurs.
3.2 Commencing January 1, 1999, and continuing through
the remainder of the Term, Tenant will pay to Landlord annual Minimum Rent for
Suite 301 in an amount equal to the Suite 301 Leasable Area multiplied by the
following amounts during the following years:
January 1, 1999 to December 31, 1999: $14.50
January 1, 2000 to December 31, 2000: $15.00
January 1, 2001 to December 31, 2001: $15.50
January 1, 2002 to October 31, 2002: $16.00
3.3 In addition to Minimum Rent, Tenant will pay all
applicable Additional Rent and other charges with respect to the Suite 301
Leasable Area, including its pro rata share of operating expenses, in the manner
and at the times provided in the Lease, effective upon the Expansion Date.
4. Tenant Improvements. Landlord will perform and pay for the
following improvements to Suite 301: (a) replacement of the carpet; (b)
repainting; and (c) addition of an interior door to Suite 306, and any other
reasonable items, all subject to Tenant's reasonable approval, but at a total
cost not to exceed $5.00 per square foot of the Suite 301 Leasable Area. Except
as required by the preceding sentence, Tenant acknowledges that it has inspected
Suite 301, is familiar with its physical condition, and accepts Suite 301 in its
"As Is" condition. Tenant acknowledges and agrees that Landlord makes no
warranties, either explicit or implied, regarding the suitability of Suite 301
for any use or purpose.
5. Parking. Section 5 of the General Terms and Condition of Lease
Agreement is hereby amended and restated to read as follows:
The Project shall include approximately 2.9 parking spaces per
One Thousand (1,000) leasable square feet, which parking spaces shall
be available for Tenant's use on a non-exclusive basis with other
tenants of the Project and visitors.
6. Broker's Commissions. Tenant and Landlord represent and
warrant to each other that there are no claims for brokerage commissions or
finder's fees in connection with this Amendment. Tenant agrees to indemnify
Landlord against and hold it harmless from all liabilities arising from any
claims of brokerage commissions and finder's fees made by any broker or finder
engaged by Tenant, and Landlord agrees to indemnify Tenant against and hold it
harmless from all liabilities arising from any claims of brokerage commissions
and finder's fees made by any broker or finder engaged by Landlord.
7. Authority. Each of the persons executing this instrument on
behalf of a party warrants that such party is a duly authorized and existing
entity, that such party has full right and authority to fulfill each of its
obligations hereunder, and that each of the persons signing on behalf of such
party is authorized to do so.
2
<PAGE> 25
8. Successors and Assigns. All provisions of this Amendment will
be binding upon and inure to the benefit of the parties hereto, their successors
and assigns.
9. Effect of Agreement. This Amendment will not constitute an
offer by Landlord nor will it be of any binding effect on Landlord until it is
signed by Landlord. This Amendment contains the entire agreement between the
parties relating to the matters discussed herein. Except as specifically set
forth in this Amendment, all provisions of the Lease remain in full force and
effect.
10. Counterparts. This Amendment may be executed in separate
counterparts, each of which, when taken together, will constitute a single
document.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
TENANT:
USA.NET, INC.,
A Delaware corporation
By: /s/ GEOFFREY E. LIND
--------------------------------------
Name: Geoffrey E. Lind
------------------------------------
Title: COO
-----------------------------------
LANDLORD:
BVT CHAPEL HILLS, LTD.,
A Tennessee limited partnership
By: BVT Real Estate Development, Inc.
A Tennessee corporation, as
General Partner
By: /s/ J. GREER CUMMINGS, JR.
-----------------------------
Name: J. Greer Cummings, Jr.
--------------------------
Title: Assistant Secretary
--------------------------
3
<PAGE> 1
EXHIBIT 10.16
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into on
this 1st day of March, 1997 by and among USA.NET, INC., a Colorado corporation
("Seller"), and INTERNET EXPRESS, LLC, a Colorado limited liability corporation
("Buyer"). Seller and Buyer are sometimes hereinafter referred to individually
as the "Party" and collectively as the "Parties."
RECITALS
A. Seller is engaged in the business of designing, creating and
marketing a communications system which provides a means of accessing the
Internet global information network by means of "dial-up" and dedicated lines.
In addition, Seller provides Web site hosting and E-mail services.
B. Seller's principal place of business is located at 102 South Tejon,
Suite 220, Colorado Springs, CO 80903 (the "Premises"). Seller has additional
locations in Denver CO, Seattle WA and Albuquerque NM (the "Co-Location
Sites").
C. Buyer believes it would be in Buyer's best interest to purchase
certain assets of Seller as set forth herein in exchange for the consideration
as set forth herein, and Seller believes it would be in Seller's best interest
to enter into this Agreement for the sale of such assets.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
covenants and conditions set forth herein, the Parties agree as follows:
AGREEMENT
1. TRANSFER OF ASSETS. Seller hereby agrees to sell and Buyer hereby
agrees to purchase the Internet dial-up, dedicated line access, server
co-location and Web site hosting portions of its operations and the goodwill
associated therewith (the "Business"), certain assets related thereto and
certain accounts receivable as expressly set forth in this Agreement; provided,
however, assets used solely in connection with E-mail services, including but
not limited to e-mail services for dial-up customers, shall not be subject to
sale hereunder. Subject to the terms and conditions set forth in this
Agreement, Seller agrees to sell, convey, transfer, assign and deliver to Buyer
and Buyer agrees to purchase from Seller those assets set forth below (the
"Assets"):
(a) EQUIPMENT. All equipment and all other tangible assets, listed
on Exhibit A which is attached hereto and incorporated herein by this reference
(the "Equipment").
(b) INVENTORY AND SUPPLIES. All inventory, if any, and office
supplies used solely in connection with the Business.
(c) CONTRACTS. All right, title and interest of Seller, to and
under executory contracts and other agreements of Seller including its work in
progress relating to the Business
1.
<PAGE> 2
and all supplier and customer contracts and royalty agreements used in
connection with the Business expressly listed on Exhibit B1 (the "Contracts").
(d) OPERATING DATA AND RECORDS. All operating data and records of
Seller directly relating to the Business, including, but not limited to, all
customer lists, sales records, administrative guidelines, employee manuals,
internal procedure guides and memoranda, warranty records, purchase and supply
forms, sales literature and any other relevant operating data and records
directly related to the Business (the "Records").
(e) CLAIMS. Any right, title and interest that Seller may have in
any claims or rights against any third parties, arising under the Contracts or
related to the Equipment but excluding any claims that Seller may have against
any person or entity against whom a claim may be asserted that is not related
to the Assets or the "Assumed Liabilities" (as defined below).
(f) INTANGIBLE ASSETS. All intangible assets of Seller listed on
Exhibit B1 as well as the subdomain names and network numbers listed on Exhibit
B2. Notwithstanding the foregoing, Seller may retain ownership of its Class B
IP addresses.
(g) ACCOUNTS RECEIVABLE. All accounts receivable of the Business.
2. ASSUMED LIABILITIES. Other than those liabilities accruing after
the Closing under the terms of the Contracts, all telephone line charges for
telephone lines and network provider charges for network connectivity used
solely in connection with the Business after March 1, 1997, under that certain
Promissory Note (the "Note") in the stated amount of $500,000, executed by
Seller in favor of UMB Bank of Colorado ("Lender") and except as listed on
Exhibit C (the "Assumed Liabilities"), Buyer shall not assume or become liable
for any debts, liabilities, claims, contingencies or other obligations of any
kind at any time whether or not in connection with the Business owed by Seller,
including but not limited to:
(a) The principal amount of any accrued interest and/or other
charges in respect of any indebtedness for money borrowed, capitalized lease
obligations (other than Contracts expressly assumed by Buyer and listed on
Exhibit B hereto), or obligations under any outstanding loan or credit
agreements, owed by Seller as of the Closing Date (other than the Note) to:
(i) any other financial institution or other lender,
(ii) any stockholders ("Stockholders") of Seller, or
to any officer, director or employee of Seller or Stockholders or any of their
respective affiliates, and/or
(iii) any other person, firm or corporation;
(b) Any obligations under any guaranties by Seller or Stockholders
of or in respect of any indebtedness, liabilities or obligations of any person,
firm or corporation (other than the Note);
2.
<PAGE> 3
(c) Any accrued employee expenses, including salaries, bonuses,
vacation pay, holiday pay and payroll taxes, incurred in the ordinary course of
the Business by Seller on or before the Closing Date;
(d) Any amounts owed by Seller, Stockholders or their affiliates
to attorneys, accountants or other professionals engaged from time to time by
Seller, Stockholders or their affiliates;
(e) Any Accounts Payable of Seller arising out of the operation of
the Business (other than accounts payable arising under the Contracts after the
Closing);
(f) Any: (i) pension, profit sharing or other past service
liability or indexing cost for retirement or disability benefits accruing to
any employees of Seller relating to their employment with Seller, (ii) pension
obligations for retired employees of Seller or post-retirement medical benefits
relating to their employment with Seller, (iii) accrued tax liabilities or
obligations of Seller, Stockholders or their affiliates for any periods on or
prior to the Closing Date, including, without limitation, any liabilities of
Seller for income taxes (federal, State or local), sales taxes or other taxes,
including franchise taxes and taxes based on the income or capital of Seller,
and non-current payroll taxes as of the Closing Date;
(g) Any past, present or future costs, assessments, fines,
penalties or related contingencies assessed or assessable under any
environmental, labor, employee safety, wage and hour or other statute, rule or
regulation, arising out of or relating to any transaction, act or omission
before the Closing Date of Seller or any of its officers, directors or
employees;
(h) Any past or present workers' compensation, contingent
liability or tort claims arising out of or relating to any transaction, act or
omission, before the Closing Date, of Seller or any of its officers, directors
or employees; and
(i) Any claims, liabilities or contingencies relating to
litigation, labor disputes, governmental investigations or administrative
proceedings against or affecting Seller relating to its operation of the
Business before the Closing.
3. PURCHASE PRICE. The purchase price for the Business and the Assets
shall be $925,000, and the assumption of the Assumed Liabilities. The Purchase
Price shall be evidenced by a secured promissory note of Buyer (the "Purchase
Price Note") providing for installment payments of $300,000 on or before March
3, 1997, and $150,000 on or before March 15, 1997, $250,000 on or before April
1, 1997 and $225,000 on or before May 1, 1997. Buyer shall perform all of the
Assumed Liabilities in accordance with their terms, including, without
limitation, the obligation to make timely payments of monthly installments of
principal and interest due to Lender under the Note. If the Note is accelerated
by Lender due to a failure to timely pay such monthly installments to Lender,
Buyer shall be obligated to pay all amounts then due under the Note by reason
of such acceleration.
3.
<PAGE> 4
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller hereby
represents and warrants to and covenants and agrees with Buyer and Buyer's
successors and assigns that:
(a) AUTHORITY AND TITLE. The execution, delivery and performance
of this Agreement and the transactions herein contemplated, have been duly
authorized and approved by the Stockholders and the Board of Directors of
Seller. Seller is the sole owner of the Assets with full right to sell the
Assets to Buyer as provided herein. The Assets shall be transferred free and
clear of all liens and encumbrances, except for lien of taxes not yet due and
payable and liens securing Assumed Liabilities. Stockholders and Board of
Directors resolutions approving the sale by Seller are attached hereto as
Exhibit D.
(b) COMPLIANCE. Execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with or
result in a breach of any of the terms, provisions or conditions of the
Articles of Incorporation or Bylaws of the Seller or any statute, regulation or
court or administrative order or process applicable to Seller, or any material
agreement or instrument to which Seller is a party or by which it is bound, or
constitute a default thereunder.
(c) OUTSTANDING BALANCE. The outstanding principle balance and
accrued interest under the Note as of the Closing Date is $324,760.38. A true
and correct copy of the Note is attached hereto as Exhibit E.
(d) LICENSES AND PERMITS. To the best of Seller's knowledge,
Seller has all the necessary licenses, permits and any other necessary
approvals for the conduct and operations of the Business and there are not
existing restrictions or any other governmental rules or regulations that would
prevent the conduct of the Business on the Premises. Seller is not aware of any
restrictions or any other rules or regulations that may prohibit or materially
interfere with the conduct of the Business on the Premises in the future.
(e) CONDITION OF ASSETS. To the Seller's knowledge, there are no
material defects or deficiencies in the operating condition or state of repair
of, or any other condition or stated facts affecting, any of the Assets which
would materially adversely affect their use or detract from their value, except
that Seller notes that the log-in script of Seller may be incompatible with
Buyer's server software. All such properties and Assets are suitable for the
purposes used and adequate and sufficient for all current operations of the
Business.
(f) ACCOUNTS RECEIVABLE. Seller represents and warrants that
attached to this Agreement as Exhibit F is a complete and accurate Schedule of
the accounts receivable of the Seller as of February 28, 1997, together with an
accurate aging of these accounts. These accounts receivable have arisen from
valid sales in the ordinary course of business. All accounts have been
collected in full since that date, or are collectible in full to the best of
Seller's knowledge.
4.
<PAGE> 5
(g) CUSTOMER LISTS. Seller represents and warrants that attached
to this Agreement as Exhibit G is a correct and current list of all customers
of Seller, together with summaries of the sales made to each customer during
the most recent fiscal year. Except as indicated in Exhibit G, Seller does not
have any information, nor is it aware of any facts, indicating that any of
these customers intend to cease doing business with Seller, or materially alter
the amount of business that they are presently doing with Seller.
(h) TAXES. Seller has filed or caused to be filed, or has obtained
extensions, within the times and within the manner prescribed by law, all
federal, state and local tax returns and tax reports which are required to be
filed by, or with respect to, the Seller or its property. Such returns and
reports reflect accurately all liability for taxes of Seller for the periods
covered thereby. Except as disclosed to Buyer in writing, all said taxes have
been fully paid or adequately disclosed and fully provided for in the books and
financial statements of Seller. No governmental examination of any tax return
of Seller is currently in process.
(i) CORPORATE STATUS. Seller is a corporation duly organize,
validly existing and in good standing under the laws of the State of Colorado
and has full power and authority to own all of its properties and to carry on
its Business as it is now being conducted.
(j) INSURANCE. Seller has maintained and will continue to maintain
through the Closing Date all necessary insurance with respect to its Business,
properties and employees.
(k) COMPLIANCE WITH LAWS. The Business and operations of Seller
are being conducted in all material respects in compliance with all applicable
laws, rules and regulations of all authorities and Seller has received no
notice of any violation of any law, statute, ordinance, rule, regulation or
governmental requirement relating to the Business or its Assets.
(l) HAZARDOUS WASTE. Seller has not, in the conduct of its
Business or in the ownership of any of its properties installed, used,
manufactured, stored, released or disposed other than in material compliance
with all applicable laws.
(m) LITIGATION. Seller represents and warrants that there is no
material suit, action, arbitration or legal, administrative or other
proceeding, or governmental investigation pending or, to the best knowledge of
Seller, threatened, against or affecting Seller, or the Business or Assets.
Seller is not in default with respect to any order, writ, injunction or decree
of any federal, state, local or foreign court, department, agency or
instrumentality.
(n) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties set forth in this Section 4 shall be true and
correct in all material respects as of the Closing Date as though made on and
as of the Closing Date.
(o) ACCURACY OF REPRESENTATIONS AND WARRANTIES. To the best of
Seller's knowledge, no representation or warranty by Seller contained in this
Agreement or any statement or certificate furnished or to be furnished to Buyer
or its representatives in connection herewith or pursuant hereto contains any
untrue statement of a fact or omits to state any fact required to
5.
<PAGE> 6
make the statements herein or therein contained not misleading, taken as a
whole. Seller has disclosed to buyer in writing all material adverse facts
known to it relating to Seller and its condition (financial or otherwise),
Business, Assets, Liabilities, operations and prospects. The copies of all
documents furnished to Buyer hereunder are true and complete copies of the
originals thereof.
(p) TELCO CHARGES. Seller has paid or shall pay all amounts owed
as of February 28, 1997 for the payment of network connectivity charges and
telephone line charges with respect to circuits and telephone lines used in
connection with the Business and to be transferred to Buyer hereunder for the
ongoing operation of the Business. Buyer is responsible for all circuits and
telephone lines used in connection with the Business after March 1, 1997.
(q) CONTRACTS. Exhibit B sets forth a list of all Contracts as of
the date of this Agreement. A true and correct copy of each Contract has been
made available for inspection by the Buyer. Seller is not in default in any
material respect under any contract. To Seller's knowledge, as of the date
hereof, no other party to any contract is in material default thereunder.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to and covenants and agrees with Seller and its respective
successors and assigns that:
(a) AUTHORITY. Execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with or
result in a breach of any of the terms, provisions or conditions of any
governing documents of Buyer or any statute, regulation or court or
administrative order or process applicable to Seller, or any material agreement
or instrument to which Seller is a party or by which it is bound, or constitute
a default thereunder.
(b) APPROVAL. The execution, delivery and performance of this
Agreement and the transactions herein contemplated, have been duly authorized
and approved by the Board of Directors of Buyer.
6. SELLER'S BUSINESS RECORDS.
(a) ACCESS TO RECORDS. Seller will make available to Buyer and to
Buyer's attorneys, engineers and representatives, such records and other
material reasonably requested by Buyer in order to permit it to make adequate
review of Seller. All information furnished to Buyer by Seller will be kept
confidential. In the event that no closing occurs on the Closing Date for any
reason, all information furnished to Buyer by Seller will be immediately
returned by Buyer. Buyer shall have the right to inspect and approve of said
books and Records on or before the Closing Date.
(b) DELIVERY OF BUSINESS RECORDS. Seller shall deliver the Records
to Buyer on the Closing Date.
6.
<PAGE> 7
7. FURTHER ASSURANCES AND INSTRUMENTS. From time to time after the
Closing Date, Seller shall, without further consideration, execute, acknowledge
and deliver to Buyer further instruments of assignment, transfer and conveyance
and take such other actions as Buyer may reasonably request to assure, to
complete and to evidence the assignment, transfer and conveyance to Buyer of
the Assets and full possession thereof in accordance with the provisions of
this Agreement. Seller shall make its best efforts to assign the Contracts to
Buyer.
8. RISK OF LOSS. Pending consummation of the sale and purchase
described in this Agreement, based on the satisfaction of the conditions set
forth herein to occur as of the Closing Date, Seller shall bear all risk of
loss, damage or destruction to the Business and the Assets through the Closing
Date.
9. PRORATIONS AND CREDITS. There shall be prorated between Seller and
Buyer on the basis of thirty (30) day months as of March 1, 1997 the following
designated item:
(a) All personal property taxes levied or assessed against any of
the Assets for the current tax year based on the amount shown on the latest
available tax bill for the Assets whether the bill be for the current tax year
or the preceding tax year.
(b) All other prepaid expenses of the Business which are
associated with the Assets and benefit Buyer and its operations of the
Business.
10. INDEMNIFICATION.
(a) INDEMNIFICATION BY SELLER. From and after the Closing, and
subject to the terms and conditions of this Agreement (including the
limitations contained in Section 10.6 hereof), Seller agrees to reimburse,
indemnify and hold harmless Buyer against and in respect of any and all
damages, losses, liabilities, costs and expenses incurred or suffered by Buyer
that result from, relate to or arise out of (i) a breach of the Seller's
representations and warranties set forth in this Agreement or (ii) Seller's
failure to perform or comply with any covenant or agreement set forth in this
Agreement.
(b) INDEMNIFICATION BY BUYER. From and after the Closing, and
subject to the terms and conditions of this Agreement, Buyer agrees to
reimburse, indemnify and hold harmless Seller and its Stockholders against and
in respect of any and all damages, losses, liabilities, costs and expenses
incurred or suffered by Seller or its Stockholders that result from, relate to
or arise out of (i) a breach of the Buyer's representations and warranties set
forth in this Agreement or (ii) Buyer's failure to perform or comply with any
covenant or agreement set forth in this Agreement.
(c) DEFENSE OF CLAIMS.
(i) NOTICE. When any claim, action or suit that is
indemnifiable hereunder shall be filed or asserted in writing against any
indemnified party, the indemnified party shall promptly notify the indemnifying
party of the same in writing specifying in
7.
<PAGE> 8
reasonable detail the basis of such claim, action or suit and the facts
pertaining thereto. The failure of the indemnified party to promptly notify the
indemnifying party of such claim, action or suit after notice to the
indemnified party of such claim, action or suit shall not constitute a waiver
of its rights under this provision unless such failure to promptly notify the
indemnifying party shall have materially and adversely prejudiced the rights of
the indemnifying party in respect of such claim, action or suit.
(ii) ASSUMPTION OF DEFENSE. Following the notice described in
Section 10.3(i) above, the indemnifying party shall have ten (10) days to
notify the indemnified party that it intends to assume the defense of any
claim, action or suit that is indemnifiable hereunder, in which case the
indemnifying party shall be entitled thereafter to assume such defense. In
connection with such defense, the indemnifying party may employ its own legal
counsel, who shall be reasonably satisfactory to the indemnified party.
(iii) FAILURE TO ASSUME DEFENSE. In the event that the
indemnifying party fails to give notice of the assumption of the defense of any
claim, action or suit that is indemnifiable hereunder within the time period
described in Section 10.3(ii) above, the indemnifying party shall no longer be
entitled to assume such defense and the indemnified party shall defend such
claim, action or suit, and, in such event, the indemnifying party shall
indemnify the indemnified party for all reasonable fees and expenses incurred
in connection therewith. The indemnifying party shall be entitled to
participate at its own expense and with its counsel in the defense of any
claim, action or suit, the defense of which it does not assume. Prior to
effectuating any compromise or settlement of any such claim, action or suit,
the indemnified party shall furnish the indemnifying party with written notice
of any proposed compromise or settlement in sufficient time to allow the
indemnifying party to act thereon. Following reasonable time after the giving
of such notice, the indemnified party shall be permitted to effect such
compromise or settlement unless the indemnifying party (A) reimburses the
indemnified party in accordance with the terms of this section for all
reasonable fees and expenses incurred by the indemnified party in connection
with the action, claim or suit, and (B) assumes the defense of the action,
claim or suit.
(d) LIMITATION ON INDEMNIFICATION. No claim for indemnification
under Section 10(a) may be made after the 360th day following the Closing Date.
The amount of any indemnification claims arising under Section 10(a) or Section
10(b) shall be limited to the amount of the Purchase Price. In addition, Seller
or Buyer shall not be required to provide any indemnification with respect to
claims arising under Section 10(a) or Section 10(b) until, and only to the
extent that, the amount of such claims and expenses exceeds $10,000.
(e) NO OTHER RIGHTS AND REMEDIES. The indemnification rights under
this Section 10 are the exclusive method for the parties to compensate or
indemnify each other for claims relating to the Business and the Assets.
11. INTENTIONALLY OMITTED.
8.
<PAGE> 9
12. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE. The obligations of
Buyer to purchase the Assets under this Agreement are subject to the
satisfaction, at or before the Closing Date, of all the conditions set forth in
this Section. Buyer may waive any or all of these conditions in whole or in
part without prior notice; provided, however, that no such waiver of a
condition shall constitute a waiver by Buyer of any of its other rights or
remedies, at law or in equity, if Seller shall be in default of any of their
representations, warranties or covenants under this Agreement.
(a) PERFORMANCE BY SELLER. Seller shall have performed, satisfied
and complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it on or before the Closing Date.
(b) ACCURACY OF SELLER'S REPRESENTATIONS. All the representations
and warranties made by the Seller herein are accurate as of the Closing Date.
(c) APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, opinions and other documents delivered to Buyer
under this Agreement shall be satisfactory in all reasonable respect to Buyer
and his counsel.
(d) LEASES. Buyer and Seller shall have entered into subleases or
assignment of the leases of space, in a form and scope acceptable to both
parties, with respect to the Premises and Co-Location Sites to permit Buyer to
conduct the operation of the Business after the Closing Date in a similar
manner to the current operations of the Buyer. Each such agreement shall be for
a term of at least one (1) year, terminable by Buyer at any time upon at least
sixty (60) days prior notice and such other terms as are reasonable and
customary. The lease for space of the premises in Colorado Springs shall
provide for four (4) months free rent.
(e) SUBDOMAIN NAME USAGE. Seller hereby grants Buyer a revocable
exclusive license to use the USA.NET subdomain names and network numbers that
have been used in connection with the Business, as listed on Exhibit H at not
cost to Buyer in order to enable Buyer to continue to operate the Business.
Seller may revoke such license at any time beginning one (1) year after the
Closing upon ninety (90) days prior written notice to Buyer.
13. CLOSING. The Closing (the "Closing") shall occur on or before
March 1, 1997 (the "Closing Date"). Buyer and Seller may mutually agree to move
the Closing Date. The effective date of this Agreement for all purposes shall
be March 1, 1996.
14. COSTS AND EXPENSES. Buyer and Seller shall each pay their own
attorney's fees and any other costs and expenses associated with the
preparation and execution of this Agreement and the obligations set forth
therein.
15. BUSINESS BROKER. Seller and Buyer represent and warrant that
no intermediary is entitled to any commission or finder's fee in connection
with any part of this transaction. Seller and Buyer indemnify each other
against any other such claims.
9.
<PAGE> 10
16. SALES AND USE TAX. In the event that there is any sales and use
tax or any other tax on Seller associated with the transfer of the Assets from
Seller to Buyer, Buyer shall be solely responsible for the payment of said
taxes and shall file any necessary tax returns relating thereto in a complete,
accurate and timely manner.
17. ALLOCATION OF PURCHASE PRICE. The purchase price for the
Assets shall be allocated as set forth on Exhibit I attached hereto. The
parties hereto agree to make all appropriate fillings with federal and state
taxing authorities consistent with such allocation.
18. GENERAL PROVISIONS.
(a) NOTICES. All notices pertaining to this Agreement shall be in
writing and shall be transmitted either by facsimile, overnight mail, personal
hand delivery or through the facilities of the United States Post Office,
certified or registered mail, return receipt requested. The addresses set forth
below for the respective Parties shall be the places where notices shall be
sent, unless written notice of a change of address is given.
Internet Express, LLC
102 South Tejon, Suite ____
Colorado Springs, Colorado 80903
USA.NET, Inc.
102 South Tejon, Suite 220
Colorado Springs, Colorado 80903
Any such notices shall be deemed to be given as of the date so
delivered.
(b) SEVERABILITY. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of the Agreement.
(c) ATTORNEY'S FEES. In the event that any legal, declaratory,
self help or equitable action including, but not limited to, arbitration, is
commenced between the Parties hereto or their personal representatives
concerning any provision of this Agreement or the rights and duties of any
person in relation thereto, the prevailing Party shall be entitled, in addition
to such other relief that may be granted, to a reasonable sum for their
attorney's fees and any other costs and expenses relating thereto.
(d) GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be controlled by and construed under the
laws of the State of Colorado. In the event of any litigation arising out of
any dispute in connection with this Agreement, the Parties hereby consent to
the jurisdiction of the Colorado courts with venue in Colorado Springs,
Colorado.
10.
<PAGE> 11
(e) PARTIES IN INTEREST. Nothing in this Agreement shall confer
any rights or remedies under or by reason of this Agreement on any persons
other than the Parties and their respective successors and assigns nor shall
anything in this Agreement relieve or discharge the obligation or liability of
any third person to any party to this Agreement, nor shall any provision give
any third person any right of subrogation or action over or against any party
to this Agreement.
(f) SURVIVAL OF REPRESENTATIONS. The respective representations
and warranties of the Parties contained in this Agreement or any exhibit or
document delivered pursuant hereto shall survive the purchase and sale of the
Assets and Business contemplated hereby for a period of one (1) year following
the Closing Date.
(g) AMENDMENTS, MODIFICATIONS AND WAIVERS. No amendment or
modification of this Agreement or any Exhibit or Schedule hereto shall be valid
unless made in writing and signed by the party to be charged therewith. No
wavier of any provision of this Agreement shall be deemed, or shall constitute,
a waiver of any other provision, whether or not similar. No wavier shall be
binding unless executed in writing by the party making the waiver.
(h) COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all Parties hereto had signed the same
document. All counterparts shall be construed together and shall constitute one
Agreement.
(i) BINDING EFFECT. Each and every covenant, term, provision and
agreement herein contained shall be binding upon and inure to the benefit of
the Parties hereto and their respective heirs, successors, assigns and legal
representatives and shall survive the termination of this Agreement where
appropriate to carry out the terms thereof.
(j) AGREEMENT PREPARATION. Each Party has cooperated in the
drafting and preparation of this Agreement. Hence, in any construction to be
made of this Agreement, the same shall not be construed against any Party.
(k) ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the Parties hereto respecting the subject matter contained herein and
there are no representations, agreements, arrangements or understandings, oral
or written, between and among the Parties hereto, relating to the subject
matter hereof which are not fully expressed herein.
11.
<PAGE> 12
THIS AGREEMENT is adopted and made effective as of the date first
above written as evidenced by the signatures set forth below.
BUYER SELLER
INTERNET EXPRESS, LLC USA.NET, INC.
By: /s/ Wei Lin By: /s/ John Street
------------------------------ ------------------------------
Wei Lin, President John Street, President
12.
<PAGE> 1
EXHIBIT 10.17
USA.NET, INC.
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C> <C>
SECTION 1. AGREEMENT TO SELL AND PURCHASE...............................1
1.1 Authorization of Shares......................................1
1.2 Sale and Purchase............................................1
SECTION 2. CLOSING, DELIVERY AND PAYMENT................................2
2.1 Closing......................................................2
2.2 Delivery.....................................................2
2.3 Purchase Option..............................................2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................2
3.1 Organization, Good Standing and Qualification................2
3.2 Subsidiaries.................................................3
3.3 Authorization................................................3
3.4 Valid Issuance of Shares.....................................3
3.5 Governmental Consents........................................3
3.6 No Violatoin.................................................3
3.7 Capitalization...............................................4
3.8 Litigation...................................................4
3.9 No Default...................................................4
3.10 Employees....................................................5
3.11 Patents and Trademarks.......................................5
3.12 Transactions with Stockholders, Etc..........................5
3.13 Registration Rights..........................................6
3.14 Compliance with Laws.........................................6
3.15 Material Contracts...........................................6
3.16 Properties, Assets...........................................7
3.17 Environmental and Safety Laws................................7
3.18 Financial Statements.........................................7
3.19 Tax Returns and Audits.......................................8
3.20 Brokers or Finders...........................................8
3.21 Minute Books.................................................8
3.22 Disclosure...................................................8
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..............8
4.1 Authorization................................................8
4.2 Purchase Entirely for Own Account............................9
4.3 Investment Experience........................................9
4.4 Accredited Investor..........................................9
4.5 Restricted Securities........................................9
4.6 Further Limitations on Disposition...........................9
</TABLE>
i.
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
SECTION 5. CONDITIONS TO CLOSING........................................9
5.1 Conditions to Purchaser's Obligations at the Closing.........9
5.2 Conditions to Obligations of the Company....................11
SECTION 6. INDEMNIFICATION.............................................12
6.1 Use of Proceeds.............................................12
6.2 Right of First Refusal to Acquire the Company...............12
6.3 Negative Covenants..........................................13
SECTION 7. MISCELLANEOUS...............................................13
7.1 Press Releases..............................................13
7.2 Governing Law...............................................13
7.3 Survival....................................................13
7.4 Successors and Assigns......................................13
7.5 Entire Agreement............................................13
7.6 Severability................................................14
7.7 Amendment and Waiver........................................14
7.8 Delays or Omissions.........................................14
7.9 Notices.....................................................14
7.10 Expenses....................................................14
7.11 Attorneys' Fees.............................................14
7.12 Titles and Subtitles........................................15
7.13 Counterparts................................................15
7.14 Broker's Fees...............................................15
7.15 Specific Performance........................................15
</TABLE>
ii.
<PAGE> 4
USA.NET, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of April 8, 1997, by and among USA.NET, INC., a Delaware
corporation (the "Company") and AMERICAN EXPRESS TRAVEL RELATED SERVICES
COMPANY, INC. (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of up to an
aggregate of one million fifty-five thousand one hundred fifty-eight (1,055,158)
shares of its Series B Preferred Stock;
WHEREAS, the Purchaser desires to purchase five hundred twenty-seven
thousand five hundred seventy-nine (527,579) shares of Series B Preferred Stock
(the "Shares"), and have the option to purchase a minimum of three hundred
fifty-one thousand four hundred twenty-one (351,421) and up to a maximum of five
hundred twenty-seven thousand five hundred seventy-nine (527,579) shares of
Series B Preferred Stock on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to the
Purchaser, and to grant the Purchaser the option to purchase such additional
shares, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Initial Closing (as
defined in Section 2 below), the Company shall have authorized (i) the sale and
issuance to Purchaser of the Shares and (ii) the issuance of such shares of
Common Stock to be issued upon conversion of the Shares (the "Conversion
Shares"). The Shares and the Conversion Shares shall have the rights,
preferences, privileges and restrictions set forth in the Restated Certificate
of Incorporation of the Company, as amended, in the form attached hereto as
Exhibit A (the "Restated Certificate").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Initial Closing the Company hereby agrees to issue and sell to the Purchaser
and the Purchaser agrees to purchase from the Company the Shares at a purchase
price of Five Dollars Sixty-Nine Cents ($5.69) per share.
1.
<PAGE> 5
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "Initial Closing") shall take place at 1:00 p.m. on the date
hereof, at the offices of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250,
Boulder, Colorado 80302-6737, or at such other time or place as the Company and
the Purchaser may mutually agree. The closing of the sale and purchase of the
Shares under the purchaser option set forth in Section 2.3 below, shall take
place at 1:00 p.m. on the date five (5) business days after the Company receives
notice of Purchaser's election to buy the option shares, at the offices of
Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder, Colorado
80302-6737, or at such other time or place as the Company and the Purchaser may
mutually agree (the "Option Closing") (the Initial Closing and the Option
Closing are referred to herein as the "Closing" and each such date is
hereinafter referred to as the "Closing Date").
2.2 DELIVERY. At the Initial Closing, subject to the terms and
conditions hereof, the Company will deliver to the Purchaser a certificate
representing the number of Shares to be purchased at the Closing by the
Purchaser, against payment of the purchase price therefor by check or wire
transfer made payable to the order of the Company.
2.3 PURCHASER OPTION. At any time on or before the first anniversary of
the Initial Closing (the "Option Period"), the Purchaser may purchase no less
than a minimum of three hundred fifty-one thousand four hundred ninety-four
(351,494) shares and up to a maximum of five hundred twenty-seven thousand five
hundred seventy-nine (527,579) shares at a price of the lower of (i) Five
Dollars Sixty-Nine Cents ($5.69) per share, or (ii) the price per share of the
Preferred Stock in any of the Company's rounds of equity financing during the
Option Period (the "Future Preferred") calculating the price per share of the
Future Preferred by dividing such price of the Future Preferred by the number of
shares of Common Stock into which a share of Future Preferred is convertible.
Such sale shall be made on the terms and conditions set forth in this Agreement,
including, without limitation, the representations and warranties by the
Purchaser as set forth in Section 4 and the conditions to Purchaser's
obligations to close set forth in Section 5 below. Any shares of Series B
Preferred Stock sold pursuant to this Section 2.3 shall be deemed to be "Shares"
for all purposes under this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser as follows except as set forth on the
Schedule of Exceptions attached hereto as Exhibit B (the "Schedule of
Exceptions") which exceptions shall be deemed to be representations and
warranties as if made hereunder.
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of
2.
<PAGE> 6
Delaware and has all requisite corporate power and authority to own its
property, to carry on its business as presently conducted and to enter into and
carry out the transactions contemplated by this Agreement, the Investor Rights
Agreement attached hereto as Exhibit C and the Marketing Agreement attached
hereto as Exhibit D (collectively, the "Agreements"). The Company is duly
qualified to transact business and is in good standing under the laws of the
State of Colorado. The Company has all necessary governmental authorizations to
own or lease its properties and assets and to carry on its business as now being
conducted.
3.2 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
3.3 AUTHORIZATION. All corporate action on the part of the Company, its
officers and directors necessary for the authorization, execution and delivery
of this Agreement and the Agreements, the performance of all obligations of the
Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Shares and the Conversion
Shares has been taken, and this Agreement and the Agreements constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies, (iii) to the extent the indemnification provisions contained
in Section 2.9 of the Investors' Rights Agreement may be limited by applicable
federal or state securities laws and (iv) except to the extent that the amount
of attorneys' fees recoverable in any lawsuit is subject to the supervisory
powers and discretion of the court.
3.4 VALID ISSUANCE OF SHARES. The Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
referred to herein will be duly authorized and validly issued, fully paid and
nonassessable, and Purchaser will have acquired good and marketable title to
such securities, free and clear of any claims, liens, restrictions on transfer
or voting or encumbrances.
3.5 GOVERNMENTAL CONSENTS. Other than the filing of the Restated
Certificate, no consents, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority on the part of the Company is required in
connection with the offer, sale or issuance of the Shares and the Conversion
Shares or the consummation of any other transaction contemplated hereby.
3.6 NO VIOLATION. The execution, delivery and performance of this
Agreement and each of the Agreements does not and will not, with or without the
passage of time or the giving of notice or both (a) violate any provision of
law, statute, rule or regulation applicable to the Company or any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body by which the Company is bound or (b) conflict with or
result in any breach of the terms of or constitute a default (or give any rise
3.
<PAGE> 7
to any right of termination, cancellation or acceleration) under, or result in a
right of termination or acceleration under, or the creation of any lien, claim
or encumbrance upon any of the properties or assets of the Company under (i) its
Certificate of Incorporation or Bylaws or (ii) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which the Company is a party or by which the Company or its assets
may be bound.
3.7 CAPITALIZATION. At the date hereof, the Company's authorized
capital stock will consist of 12,844,842 shares of Common Stock and 2,155,158
shares of Preferred Stock of which 1,100,000 are designated Series A Preferred
Stock and 1,055,158 are designated Series B Preferred Stock. Immediately after
the Closing, the issued and outstanding capital stock of the Company shall be as
set forth on Exhibit E. All issued and outstanding shares of Common Stock and
Series A Preferred Stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. The outstanding shares of Series A
Preferred Stock and Common Stock are owned by the shareholders and in the
numbers specified on Exhibit E attached hereto. Except for 530,230 shares of
Common Stock reserved for issuance under the Company's 1997 Stock Option Plan
and except as may be granted pursuant to the Agreements, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights), commitments, or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or other securities. The Company is
not a party or subject to any agreement or understanding, and, to the Company's
knowledge without investigation, there is no agreement or understanding between
any Persons which affects or relates to the voting or giving of written consents
with respect to any security or any director of the Company.
3.8 LITIGATION. There is no action, suit or proceeding pending against,
or to the best of the Company's knowledge, currently threatened before any
court, administrative agency or other governmental body against the Company
which questions the validity of this Agreement or the Agreements, or the right
of the Company to enter into any of such Agreements, or to consummate the
transactions contemplated hereby or thereby, or which could result either
individually or in the aggregate, in any material adverse change in the
condition (financial or otherwise), business, property, assets or liabilities of
the Company, nor is the Company aware that there is any valid basis for the
foregoing. The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or threatened (or any basis therefor known
to the Company) involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to, and none of its assets is bound by, the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit or proceeding by
the Company currently pending or which the Company presently intends to
initiate.
4.
<PAGE> 8
3.9 NO DEFAULT. The Company is not in violation or default under any
provision of its Certificate of Incorporation or its Bylaws, each as in effect
at the Closing. The Company is not in violation or default of any provision of
any instrument, mortgage, deed of trust, loan, contract, commitment, judgment,
decree, order or obligation to which it is a party or by which it or any of its
properties or assets are bound which would materially adversely affect the
condition (financial or otherwise), business, property, assets or liabilities of
the Company, or any note, indenture, mortgage, lease, agreement, contract,
purchase order or other obligation. There exists no condition, event or act
which after notice, lapse of time, or both, is reasonably likely to constitute a
default by the Company under any of the foregoing.
3.10 EMPLOYEES. The Company does not employ anyone to perform services
for the Company except in the capacity of an employee or consultant. Each
employee of and consultant to the Company has executed a Proprietary Information
and Inventions Agreement in substantially the form of Exhibit G. To the best
knowledge of the Company, no officer or employee is in violation of such
Proprietary Information and Inventions Agreement. The Company is not a party to
or bound by any currently effective employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
or other employee compensation agreement or arrangement or with any collective
bargaining agent. No employees of the Company are represented by any labor union
or covered by any collective bargaining agreement. There is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company. The employment of each officer and
employee of the Company is terminable at the will of the Company. Neither the
Company nor any employee is a party to, or is bound by, any agreement which
would limit in any material respect: (a) any employee's ability to perform his
obligations as a full time employee of the Company; or (b) the Company's or any
employee's ability or authority to engage in any and all lines of business in
which the Company currently engages or proposes to engage as set forth in its
current business plan.
3.11 PATENTS AND TRADEMARKS. The Schedule of Exceptions contains a
complete list of patents and pending patent applications and trademarks of the
Company. The Company has sufficient title and ownership of all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
domain names (as registered with InterNIC), proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted and
has the unrestricted right to use the foregoing without the payment of any
royalty. To the best of the Company's knowledge, all of the existing patents and
trademarks of the company are valid and all of the pending and proposed patent
applications and applications for registration of trademarks of the Company will
result in the valid issuance of patents or registration of trademarks. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. Neither the execution
nor delivery of this Agreement or the Agreements, nor the carrying on of the
Company's business as currently
5.
<PAGE> 9
proposed to be conducted, will, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, constitute
a default under, any contract, covenant or instrument under which the Company is
bound. To the best of the Company's knowledge, no employee of the Company is in
violation of any terms of any employee contract, patent disclosure agreement or
any other contract or agreement relating to the relationship of such employee
with the Company because of the nature of the business conducted or to be
conducted by the Company.
3.12 TRANSACTIONS WITH STOCKHOLDERS, ETC. No stockholder, employee,
officer or director of the Company or member of his or her immediate family, is
indebted to the Company, nor is the Company indebted (or committed to make loans
or extend or guarantee credit) to any of them. To the best of the Company's
knowledge, no employee, officer or director has any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation that
competes with the Company, except that employees, officers or directors of the
Company and members of their immediate families may own less than five percent
(5%) of the stock in publicly traded companies that may compete with the
company. No member of the immediate family of any officer or director of the
Company is directly or indirectly interested in any material contract with the
Company.
3.13 REGISTRATION RIGHTS. The Company is not under any contractual
obligation to register any of its presently outstanding securities or any of its
securities which may hereafter be issued under any securities laws of any
jurisdiction except as set forth in the Investors' Rights Agreement.
3.14 COMPLIANCE WITH LAWS. The Company has at all times conducted and
is now conducting its business in compliance with all laws, rules and
regulations applicable to it. The Company has all franchises, permits, licenses
and any 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
business, properties, prospects or financial condition of the company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or similar authority.
6.
<PAGE> 10
3.15 MATERIAL CONTRACTS
(a) Except for agreements explicitly contemplated hereby,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of $25,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than licenses arising from the purchase of
"off the shelf" or other standard products), or (iii) provisions restricting or
affecting the development, manufacture or distribution of the Company's products
or services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights (other than indemnification obligations
arising from purchase or sale agreements entered into in the ordinary course of
business).
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$75,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Schedule of Exceptions contains a true and complete
list of all Material Contracts (as defined below) in effect on the date hereof.
Each Material Contract is in full force and effect and is a valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
Neither the Company nor to the Company's knowledge, any other party to any such
contract is in default of any provision thereof. "Material Contract" means any
agreement to which the Company is a party, and which involves or relates to (A)
any current or future employment or consulting arrangement; (B) any labor union
or collective bargaining agreement; (C) any indebtedness for borrowed money or
other loan or financing arrangement or any liability on any other debt or other
obligation; (D) any agreement to which any governmental authority is a party;
(E) any transaction not in the ordinary course of business; (F) any agreement
involving prospective obligations or the right to receive in the aggregate in
excess of $25,000; (G) any agreement with the stockholders
7.
<PAGE> 11
(other than the Agreements); or (H) any mortgage, pledge, security agreement,
financing statement or other document granting a lien, claim or encumbrance on
any of the Company's properties or assets.
(f) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Certificate of Incorporation or its Bylaws that adversely affects its business
as now conducted or as proposed to be conducted, its properties or its financial
condition.
3.16 PROPERTIES, ASSETS. The Company owns its property and assets free
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course of business and do not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases, and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
3.17 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
3.18 FINANCIAL STATEMENTS. Attached hereto as Exhibit F are the
unaudited financial statements at and for the period ended February 28, 1997
(the "Financial Statements"). The Financial Statements are complete and correct
in all material respects and accurately set out and describe the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein. The Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") except for
footnotes required by GAAP. Except as set forth in the Financial Statements, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to February 28, 1997 (the
"Statement Date") which in the aggregate do not exceed Seventy-Five Thousand
Dollars ($75,000) and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under GAAP to be reflected
in the Financial Statements, which, in both cases, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. Except as disclosed in the Financial Statements, the Company is not
a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. Since the Statement Date, there has not been any material adverse
change in the financial condition of the Company.
3.19 TAX RETURNS AND AUDITS. The Company has accurately prepared all
United States income tax returns and all state and municipal tax returns
required to be filed by it, if any, has paid all taxes, assessments, fees and
charges when and as due under such returns and has made adequate provision for
the payment of all other taxes, assessments, fees and charges shown on such
returns or on assessments received by the Company. To the best of the Company's
knowledge, no deficiency assessment or proposed adjustment of the Company's
United States income tax or state or municipal taxes is pending.
8.
<PAGE> 12
3.20 BROKERS OR FINDERS. The Company has not agreed to incur, directly
or indirectly, any liability for brokerage or finders' fees, agents' commissions
or other similar charges in connection with this Agreement or any of the
transactions contemplated hereby.
3.21 MINUTE BOOKS. The minute books of the Company provided to the
Purchaser contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
3.22 DISCLOSURE. No representation, warranty or statement by the
Company in this Agreement, or in any written statement or certificate furnished
to the Purchaser pursuant to this Agreement or the transactions contemplated
hereby, contains any untrue statement of a material fact or, when taken
together, omit to state a material fact necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. However, as to any projections furnished to the Purchaser, such
projections were prepared in good faith by the Company, but the Company makes no
representation or warranty that it will be able to achieve such projections.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Purchaser hereby represents and warrants to the Company as follows:
4.1 AUTHORIZATION. The Agreements constitute and will constitute valid
and legally binding obligations of the Purchaser, enforceable in accordance with
their respective terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies, (iii) to the extent the indemnification provisions of
Section 2.9 of the Investors' Rights Agreement may be limited by applicable
federal or state securities laws and (iv) except to the extent that the amount
of attorneys' fees recoverable in any lawsuit is subject to the supervisory
powers and discretion of the court.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Purchaser in reliance upon Purchaser's representation to the Company, which by
Purchaser's execution of this Agreement Purchaser hereby confirms, that the
Shares to be received by Purchaser and the Conversion Shares will be acquired
for investment for Purchaser's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and Purchaser has
no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Purchaser further represents
that Purchaser does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Shares or Conversion Shares.
Purchaser represents that it has full power and authority to enter into this
Agreement.
9.
<PAGE> 13
4.3 INVESTMENT EXPERIENCE. Purchaser is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Company.
4.4 ACCREDITED INVESTOR. Purchaser is an "accredited investor" within
the meaning of Rule 501 of Regulation D of the Securities Act of 1933, as
amended (the "Act"), as presently in effect.
4.5 RESTRICTED SECURITIES. Purchaser understands that the Shares and
the Conversion Shares are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, Purchaser
represents that it is familiar with Rule 144 of the Act, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
4.6 FURTHER LIMITATIONS ON DISPOSITION. Purchaser acknowledges that the
Shares and, if issued, the Conversion Shares, are subject to restrictions on
transfer as set forth in the Investor Rights Agreement.
SECTION 5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. Purchaser's
obligations to purchase the Shares at each Closing are subject to the
satisfaction, at or prior to each such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects as of the Closing Date
with the same force and effect as if they had been made as of the Closing Date,
and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the proposed issuance of the Conversion Shares shall
be legally permitted by all laws and regulations to which the Purchaser and the
Company are subject, and no action is pending seeking to prevent such sale and
issuance.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the
Agreements (except for such as may be properly obtained subsequent to the
Closing).
10.
<PAGE> 14
(d) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(e) CORPORATE DOCUMENTS. The Company shall have delivered to
the Purchaser or its counsel, copies of all corporate documents of the Company
as the Purchaser shall reasonably request.
(f) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(g) COMPLIANCE CERTIFICATE. The Company shall have delivered
to Purchaser a Compliance Certificate, executed by the President of the Company,
dated the date of the Closing, to the effect that the conditions specified in
subsection (a) of this Section 5.1 have been satisfied.
(h) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as Exhibit C shall have been executed
and delivered by the parties thereto.
(i) MARKETING AGREEMENT. A Marketing Agreement substantially
in the form attached hereto as Exhibit D shall have been executed and delivered
by the Company and the Purchaser.
(j) BOARD OF DIRECTORS. Upon the Closing, the authorized size
of the Board of Directors of the Company shall be three members and the Board
shall consist of John Street, Mary Beazley and a representative designated by
Purchaser.
(k) LEGAL OPINION. The Purchaser shall have received from
legal counsel to the Company an opinion addressed to it, dated as of the Closing
Date, in substantially the form attached hereto as Exhibit H.
(l) NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change in the business, affairs, prospects, operations,
properties, assets or condition of the Company since the Statement Date.
(m) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchaser and their special
counsel, and the Purchaser and their special counsel shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
11.
<PAGE> 15
(n) STOCK RESTRICTION AGREEMENTS AND NON-COMPETE. John Street,
Mary Beazley and Walter J. Frank, Jr. shall have entered into the Stock
Restriction Agreements attached hereto as Exhibits I-1, I-2 and
I-3,respectively, and John Street shall have entered into the Non-Compete
Agreement attached hereto as Exhibit J.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares at each Closing is subject to the satisfaction, on
or prior to each such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Purchaser in Section 4 hereof shall be true and
correct in all material respects at the date of the Closing, with the same force
and effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. The Purchaser shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by the Purchaser on or before the Closing.
(c) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(d) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as Exhibit C shall have been executed
and delivered by the Purchaser.
(e) MARKETING AGREEMENT. A Marketing Agreement substantially
in the form attached hereto as Exhibit D shall have been executed and delivered
by the Company and the Purchaser.
(f) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the
Agreements (except for such as may be properly obtained subsequent to the
Closing).
SECTION 6. COVENANTS.
6.1 USE OF PROCEEDS. The Company shall use $1,000,000 of the proceeds
from the Initial Closing and $1,000,000 of the proceeds from the exercise of the
purchaser option set forth in Section 2.3 above, for the purposes set forth in
Section 2(d) of the Marketing Agreement.
6.2 RIGHT OF FIRST REFUSAL TO ACQUIRE THE COMPANY. The Company hereby
grants the Purchaser the right of first refusal to acquire the Company according
to the following terms:
12.
<PAGE> 16
(a) The Company shall notify Purchaser in writing in the event
that either (i) the Board of Directors of the Company determines that it is in
the best interests of the stockholders to sell the Company and elects to
actively shop the Company (the "Shop"), (ii) the Company has received a bona
fide offer to purchase the Company (the "Bona Fide Offer), or (iii) the Board of
Directors of the Company determines that it is in the best interests of the
Company to undertake an underwritten public offering and the Company has
received written notice of the approval of such an offering by the commitment
committee (or similar body) of the lead managing underwriter (the "Underwriter")
(the "IPO"); provided, however, that such IPO shall be firmly underwritten and
such Underwriter shall be an underwriter of recognized national standing. In the
case of the Shop, such notification shall include all terms and conditions on
which the Company desires to sell the Company. In the case of the receipt of a
Bona Fide Offer, such notification shall include all terms and conditions of the
offer (including the identity of the offering party, the total consideration
offered and the method of paying the consideration). In the case of the IPO,
such notification shall include the valuation proposed by the Underwriter. This
Section 6.2 is intended to apply to a sale or purchase of the Company regardless
of its form, including a sale or other disposition of substantially all of the
assets of the Company or a merger, consolidation or reorganization.
(b) Within thirty (30) days of receipt of such notice with
respect to a Shop or a Bona Fide Offer, Purchaser will have the right to acquire
the Company on the same terms and conditions as are set forth in the above
notice. Within twenty (20) days of receipt of such notice with respect to an
IPO, Purchaser will have the right to acquire the Company at the valuation
proposed by the Underwriter. The thirty (30) and twenty (20) day periods are
referred to collectively herein as the "Option Periods" and individually as an
"Option Period").
(c) In the event Purchaser elects not to acquire the Company
within such Option Period, then the Company may, within a ninety (90) day period
following expiration of an Option Period, (i) seek a purchaser for the Company
on the terms set forth in the Shop notice, (ii) accept the Bona Fide Offer;
provided, that such sale or merger may be on terms no more favorable to the
acquiror than those stated in the Bona Fide Offer and notice, or (iii) complete
the IPO. In the case of subsection 6.2(c)(i) above, if the Company identifies a
purchaser for the Company, then the Company shall provide Purchaser with notice
pursuant to subsection 6.2(a)(ii) above and Purchaser shall have the right of
first refusal with respect to such sale as set forth in this Section 6.2. If
such sale or merger or IPO is not completed in such ninety (90) day period, the
procedures set forth in this Section 6.2 must be complied with again.
6.3 NEGATIVE COVENANTS. So long as Purchaser owns at least 250,000
shares of Series B Stock, the Company may not without the approval of the
representative of the Series B Stock on the Company's Board of Directors:
(a) issue any debt security in a single transaction or a
series of related transactions with an aggregate principal amount in excess of
fifty percent (50%) of the Company's equity at the closing of such financing;
13.
<PAGE> 17
(b) acquire or obtain a ten percent (10%) or greater interest
in, or permit any subsidiary of the Company to acquire or obtain a ten percent
(10%) or greater interest in, any stock or other securities of any other
corporation, partnership or entity;
(c) declare or pay any dividends on any shares of Common Stock
other than in compliance with Article IV (D)(1) of the Restated Certificate;
provided, however, that repurchase of such shares may be made in connection with
any Restricted Stock Purchase Agreement between the Company and any employee; or
(d) sell any Shares which Purchaser does not purchase pursuant
to the Purchaser Option set forth in Section 2.3 above to any third party.
SECTION 7. MISCELLANEOUS.
7.1 PRESS RELEASES. Except as otherwise required by law, on or prior to
the Closing Date, Purchaser, on the one hand and the Company, on the other, may
not issue or cause publication of any press release or other public announcement
with respect to this Agreement or the transactions contemplated hereby, without
the prior written consent of the other party.
7.2 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of New York without giving effect to conflict of law
principles, with the exception that matters of corporate law shall be governed
by the laws of the State of Delaware.
7.3 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. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.4 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 and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.5 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Agreements 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 no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
7.6 SEVERABILITY. 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.
14.
<PAGE> 18
7.7 AMENDMENT AND WAIVER. This Agreement may be amended or modified
only upon the written consent of the Company and the Purchaser and the
obligations of the Company and the rights of the Purchaser under the Agreement
may be waived only with the written consent of the Company and the Purchaser.
7.8 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Agreements
or the Restated Certificate, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on the Purchaser's
part of any breach, default or noncompliance under this Agreement, the
Agreements or under the Restated Certificate or any waiver on such party's part
of any provisions or conditions of the Agreement, the Agreements, or the
Restated Certificate must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this
Agreement, the Agreements, the Restated Certificate, by law, or otherwise
afforded to any party, shall be cumulative and not alternative.
7.9 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on the signature page attached hereto or at
such other address as the Company or Purchaser may designate by ten (10) days
advance written notice to the other parties hereto.
7.10 EXPENSES. Each party shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Agreement and the Agreements.
7.11 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
7.12 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
15.
<PAGE> 19
7.13 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.
7.14 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 7.14 being untrue.
7.15 SPECIFIC PERFORMANCE. Each party stipulates that the remedies at
law in the event of any default or threatened default by the other party in the
performance of or compliance with the terms of this Agreement are not and will
not be adequate and that, to the fullest extent permitted by law, such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof.
16.
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed the SERIES B
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASER:
USA.NET, INC. AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.
By: /s/ Anne Busquet
-------------------------------
Title: President, AERS
----------------------------
By: /s/ John Street By:
------------------------------------ -------------------------------
John Street
Chairman of the Board, Chief Title:
Executive Officer and President ----------------------------
102 S. Tejon, Suite 220
Colorado Springs, CO 80903 Address: American Express Tower
Phone: (719) 520-0852 World Financial Center
(719) 520-5372 (facsimile) New York, NY 10285
Attn: Vice President, New
Business
Development, AERS
Phone: 212-640-1381
Facsimile: 212-619-7042
17.
<PAGE> 21
FIRST AMENDMENT TO SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
This First Amendment to that certain Series B Preferred Stock Purchase
Agreement, dated as of April 8, 1997 (the "Purchase Agreement"), is entered into
as of the 10th day of October, 1997, by and between USA.NET, Inc., a Delaware
corporation (the "Company") and American Express Travel Related Services
Company, Inc. ("TRS").
WHEREAS, the Company and TRS entered into the Purchase Agreement
pursuant to which TRS, under certain circumstances, was granted a right of first
refusal to acquire the Company as set forth in Section 6.2 of the Purchase
Agreement; and
WHEREAS, in connection with the sale of the Company's Series C
Preferred Stock to certain investors pursuant to the terms of that certain
Series C Preferred Stock Purchase Agreement, to be dated on or about October 10,
1997 (the "Series C Purchase Agreement"), such investors have requested that the
right of first refusal be terminated in its entirety.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned parties hereby agree as follows:
1. Section 6.2 of the Purchase Agreement is deleted in its entirety and
has no further force or effect.
2. Except as set forth herein, the Purchase Agreement shall remain in
full force and effect.
3. This Amendment may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned parties have executed this
Amendment as of the date set forth above.
USA.NET, INC. AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.
By: /s/ John Street By: /s/ Anne Busquet
------------------------------------ -------------------------------
John Street Title: President, AERS
Chairman of the Board, ----------------------------
Chief Executive Officer and By:
President -------------------------------
Title:
----------------------------
<PAGE> 22
SECOND AMENDMENT TO
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Second Amendment to that certain Series B Preferred Stock Purchase
Agreement, dated as of April 8, 1997, as amended on October 17, 1997 (the
"Purchase Agreement") is entered into as of March 23, 1998, by and between
USA.NET, INC., a Delaware corporation (the "Company") and AMERICAN EXPRESS
TRAVEL RELATED SERVICES COMPANY, INC. (the "Purchaser").
RECITALS
WHEREAS, the Company and the Purchaser entered into the Purchase
Agreement pursuant to which Purchaser purchased from the Company 527,579 shares
of the Company's Series B Preferred Stock;
WHEREAS, pursuant to Section 2.3 of the Purchase Agreement, Purchaser
has the option to purchase up to 527,579 shares of Series B Preferred Stock on
or before April 8, 1998;
WHEREAS, in accordance with Section 2.3 and Section 7.7 of the Purchase
Agreement, the Company and the Purchaser wish to enter into this Second
Amendment to make certain amendments to the Purchase Agreement and to permit
Purchaser to exercise its option to purchase additional shares of Series B
Preferred Stock of the Company.
In consideration of the mutual agreements, covenants and considerations
contained herein, the parties hereto agree as follows:
1. PURCHASE AND SALE; CLOSING
1.1 Subject to the terms and conditions hereof, and in reliance upon
the representations contained herein or incorporated by reference, the Company
hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company 356,073 shares of Series B Preferred Stock
at a purchase price of Five Dollars and Sixty-Nine Cents ($5.69) per share (the
"Additional Shares"). The Company and Purchaser agree that the Schedule of
Purchasers shall be amended to read as set forth on Exhibit A hereto.
1.2 The closing of the sale and purchase of the Additional Shares (the
"Second Closing") shall take place on the date hereof at the offices of Cooley
Godward LLP, 2595 Canyon Blvd., Suite 250, Boulder, CO 80302, or at such other
time or place as the Company and the Additional Purchaser may mutually agree.
The Second Closing shall be held simultaneously with the closing of the sale and
issuance of an aggregate of 1,223,294 shares of the Company's Series C Preferred
Stock pursuant to that certain First Amendment to Series C Preferred Stock
Purchase Agreement. At the Second Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser a certificate representing the
number of Additional Shares purchased from the Company against payment by or on
behalf of the Purchaser of the purchase price therefor by wire transfer or check
made payable to the order of the Company.
1.
<PAGE> 23
2. PURCHASE AGREEMENT
2.1 All capitalized terms used herein without definition shall have the
meanings ascribed to them in the Purchase Agreement.
2.2 The Purchase Agreement and the Schedule of Purchasers thereto are
hereby amended to provide that (i) the Purchaser makes, as of the Second
Closing, all representations and warranties therein, including, without
limitation, the representations and warranties in Section 4 of the Purchase
Agreement regarding investment intent, the Purchaser's qualifications and other
matters; (ii) the Additional Shares shall be deemed to be "Shares" for all
purposes under the Purchase Agreement; (iii) references in the Purchase
Agreement to the "Closing" shall be deemed to refer to the Second Closing for
purposes of the purchase of the Additional Shares hereunder.
2.3 The Company hereby represents and warrants to the Purchaser that
the representations and warranties of the Company made in Section 3 of the
Purchase Agreement are true and correct in all material respects as of the date
of the Second Closing except (i) as set forth on the updated Schedule of
Exceptions delivered to Purchaser, (ii) the references in such representations
to the unaudited financial statements of the Company at and as of February 28,
1997, and as to changes since such date shall be deemed to refer to the
unaudited financial statements of the Company as of December 31, 1997, and the
unaudited balance sheet and income statement for the month ended January 31,
1998, copies of which are attached hereto as Exhibit B, and to changes as of
January 31, 1998 and (iii) references in such representations to dollar values
of $25,000 and $75,000 shall be deemed to refer to dollar values of $50,000 and
$100,000.
2.4 Notwithstanding Section 6.1 of the Purchase Agreement, the Company
and Purchaser hereby agree that the Company shall use one-third (1/3) of the
proceeds from the sale of the Additional Shares for the purposes set forth in
Section 2(d) of the Marketing Agreement.
3. CONDITIONS TO ADDITIONAL OBLIGATIONS AT THE SECOND CLOSING. In lieu of
the conditions of the Purchaser's obligations at the Second Closing set forth in
Section 5 of the Purchase Agreement, the Purchaser's obligations to purchase the
Additional Shares at the Second Closing are subject to the satisfaction, at or
prior to the Second Closing, of the following conditions:
3.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS.
The representations and warranties made by the Company in Section 3 of the
Purchase Agreement shall be true and correct in all material respects as of the
Second Closing with the same force and effect as if they had been made on such
date, and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Second Closing.
3.2 LEGAL INVESTMENT. On the date of the Second Closing, the sale and
issuance of the Additional Shares and the proposed issuance of the Conversion
Shares shall be legally
2.
<PAGE> 24
permitted by all laws and regulations to which the Purchaser and the Company are
subject, and no action is pending seeking to prevent such sale and issuance.
3.3 CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained any
and all consents, permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Purchase Agreement and the Agreements
(except for such as may be properly obtained subsequent to the Second Closing).
3.4 CORPORATE DOCUMENTS. The Company shall have delivered to the
Purchaser or its counsel copies of all corporate documents of the Company as the
Purchaser shall reasonably request.
3.5 RESERVATION OF CONVERSION SHARES. The Conversion Shares issuable
upon conversion of the Shares shall have been duly authorized and reserved for
issuance upon such conversion.
3.6 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchaser a Compliance Certificate, executed by the President of the Company,
dated the date of the Second Closing, to the effect that the conditions
specified in Section 3.1 hereof have been satisfied and that the Company has
issued and sold a sufficient number of shares of Series C Preferred Stock
pursuant to the First Amendment to the Series C Preferred Stock Purchase
Agreement such that, after giving effect to the sale of the Additional Shares
hereunder, Purchaser shall own less than twenty percent (20%) of the outstanding
capital stock of the Company.
3.7 LEGAL OPINION. The Purchaser shall have received from legal counsel
to the Company an opinion addressed to it, dated as of the Second Closing, in
substantially the form rendered at the Initial Closing.
3.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company since January 31, 1998.
3.9 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Second Closing hereby and
all documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchaser and its special counsel, and
the Purchaser and its special counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
4. COUNTERPARTS. This Second Amendment may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5. OTHER TERMS AND CONDITIONS. All other terms and conditions of the
Purchase Agreement shall remain in full force and effect.
3.
<PAGE> 25
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
4.
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this SECOND
AMENDMENT TO THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT as of the date set
forth in the first paragraph hereof.
<TABLE>
<S> <C>
COMPANY: PURCHASER:
USA.NET, INC. AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.
By: /s/ John W. Street By: /s/ Larry Kutscher
---------------------------------------------- -----------------------------------
John W. Street
Chairman of the Board, Chief Executive Title: Vice President
Officer and President --------------------------------
1155 Kelly Johnson Blvd., Suite 400 By:
Colorado Springs, CO 80920 -----------------------------------
Phone: (719) 265-2930 Title:
Facsimile: (719) 265-2923 --------------------------------
ADDRESS:
American Express Tower
World Financial Center
New York, NY 10285
Attn: Vice President, New Business
Development, AERS
Phone: (212) 640-1381
Facsimile: (212) 619-7042
</TABLE>
5.
<PAGE> 1
EXHIBIT 10.18
USA.NET, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. AGREEMENT TO SELL AND PURCHASE.................................................................1
1.1 Authorization of Shares........................................................................1
1.2 Sale and Purchase..............................................................................2
SECTION 2. CLOSING, DELIVERY AND PAYMENT..................................................................2
2.1 Closing........................................................................................2
2.2 Delivery.......................................................................................2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................3
3.1 Organization, Good Standing and Qualification..................................................3
3.2 Subsidiaries...................................................................................3
3.3 Authorization..................................................................................3
3.4 Valid Issuance of Shares.......................................................................3
3.5 Governmental Consents..........................................................................4
3.6 No Violation...................................................................................4
3.7 Capitalization.................................................................................4
3.8 Litigation.....................................................................................5
3.9 No Default.....................................................................................5
3.10 Employees......................................................................................5
3.11 Patents and Trademarks.........................................................................6
3.12 Transactions with Stockholders, Etc............................................................6
3.13 Registration Rights............................................................................7
3.14 Compliance with Laws...........................................................................7
3.15 Material Contracts.............................................................................7
3.16 Properties, Assets.............................................................................8
3.17 Environmental and Safety Laws..................................................................8
3.18 Financial Statements...........................................................................9
3.19 Tax Returns and Audits.........................................................................9
3.20 Brokers or Finders.............................................................................9
3.21 Minute Books...................................................................................9
3.22 Offering Valid.................................................................................9
3.23 Real Property Holding Corporation.............................................................10
3.24 ERISA.........................................................................................10
3.25 Insurance.....................................................................................10
3.26 Disclosure....................................................................................10
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...............................................10
4.1 Authorization.................................................................................10
4.2 Purchase Entirely for Own Account.............................................................10
4.3 Investment Experience.........................................................................11
4.4 Accredited Investor...........................................................................11
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
4.5 Restricted Securities.........................................................................11
4.6 Further Limitations on Disposition............................................................11
SECTION 5. CONDITIONS TO CLOSING.........................................................................11
5.1 Conditions to Purchasers' Obligations at the Closing..........................................11
5.2 Conditions to Obligations of the Company......................................................13
SECTION 6. COVENANTS.....................................................................................14
6.1 Use of Proceeds...............................................................................14
6.2 Negative Covenants............................................................................14
SECTION 7. MISCELLANEOUS.................................................................................15
7.1 Press Releases................................................................................15
7.2 Governing Law.................................................................................15
7.3 Survival......................................................................................15
7.4 Successors and Assigns........................................................................15
7.5 Entire Agreement..............................................................................15
7.6 Severability..................................................................................15
7.7 Amendment and Waiver..........................................................................15
7.8 Delays or Omissions...........................................................................15
7.9 Notices.......................................................................................16
7.10 Expenses......................................................................................16
7.11 Attorneys' Fees...............................................................................16
7.12 Titles and Subtitles..........................................................................16
7.13 Counterparts..................................................................................16
7.14 Broker's Fees.................................................................................16
7.15 Specific Performance..........................................................................17
</TABLE>
ii.
<PAGE> 4
USA.NET, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of October 10, 1997, by and among USA.NET, INC., a Delaware
corporation (the "Company") and each of those persons and entities, severally
and not jointly, whose names are set forth on the Schedule of Purchasers
attached hereto as Exhibit A (which persons and entities are hereinafter
collectively referred to as "Purchasers" and each individually as a
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of up to an
aggregate of one million four hundred seventy two thousand seven hundred
fifty-two (1,472,752) shares of its Series C Preferred Stock;
WHEREAS, the Purchasers desire to purchase seven hundred thirty six
thousand three hundred seventy-six (736,376) shares of Series C Preferred Stock
(the "Shares") on the terms and conditions set forth herein;
WHEREAS, certain Purchasers desire to have the option to purchase up to
the number of authorized shares of Series C Preferred Stock not sold at the
Initial Closing on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to the
Purchasers on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Initial Closing (as
defined in Section 2 below), the Company shall have authorized (i) the sale and
issuance to the Purchasers of the Shares and (ii) the issuance of such shares of
Common Stock to be issued upon conversion of the Shares (the "Conversion
Shares"). The Shares and the Conversion Shares shall have the rights,
preferences, privileges and restrictions set forth in the Restated Certificate
of Incorporation of the Company, as amended, in the form attached hereto as
Exhibit B (the "Restated Certificate").
1.
<PAGE> 5
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Initial Closing, the Company hereby agrees to issue and sell to the
Purchasers and the Purchasers agree to purchase from the Company the number of
Shares set forth opposite the name of such Purchaser on Exhibit A, at a purchase
price of Six Dollars Seventy-Nine Cents ($6.79) per share.
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "Initial Closing") shall take place at 1:00 p.m. on the date
hereof, at the offices of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250,
Boulder, Colorado 80302-6737, or at such other time or place as the Company and
the Purchasers may mutually agree. The closing of the sale and purchase of the
shares of Series C Preferred Stock under the purchaser options set forth in
section 2.3 below, shall take place at 1:00 p.m. on the date five (5) business
days after the Company receives notice of a Purchaser's election to buy the
option shares, at the offices of Cooley Godward LLP, 2595 Canyon Boulevard,
Suite 250, Boulder, Colorado 80302-6737, or at such other time or place as the
Company and such Purchaser may mutually agree (each such Closing, an "Option
Closing") (the Initial Closing and each Option Closing are referred to herein as
a "Closing" and each such date is hereinafter referred to as a "Closing Date").
2.2 DELIVERY. At each Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares to be purchased at the Closing by each Purchaser, against
payment of the purchase price therefor by check or wire transfer made payable to
the order of the Company.
2.3 PURCHASER OPTIONS. At any time on or before May 1, 1998 (the
"Option Period"), (i) Premiere Technologies, Inc. ("Premiere") may purchase no
less than a minimum of two hundred ninety-four thousand two hundred fifty-six
(294,256) and up to a maximum of four hundred forty-one thousand eight hundred
twenty-six (441,826) shares of Series C Preferred Stock, (ii) Philadelphia
Ventures Liberty Fund, L.P. may purchase no less than a minimum of ninety-eight
thousand eighty-five (98,085) and up to a maximum of one hundred forty-seven
thousand two hundred seventy-five (147,275) shares of Series C Preferred Stock,
and (iii) ABS Ventures IV L.P. and ABX Fund, L.P., collectively, may purchase no
less than a minimum of ninety-eight thousand eighty-five (98,085) and up to a
maximum of one hundred forty-seven thousand two hundred seventy-five (147,275)
shares of Series C Preferred Stock, all at a per share purchase price of Six
Dollars Seventy-Nine Cents ($6.79) per share. Any such sale shall be made on the
terms and conditions set forth in this Agreement, including, without limitation,
the representations and warranties by the Purchaser as set forth in Section 4
and the conditions to Purchaser's obligations to close set forth in Section 5
below. Any shares of Series C Preferred Stock sold pursuant to this Section 2.3
shall be deemed to be "Shares" for all purposes under this Agreement.
2.
<PAGE> 6
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser as follows, except as set forth on the
Schedule of Exceptions attached hereto as Exhibit C (the "Schedule of
Exceptions") which exceptions shall be deemed to be representations and
warranties as if made hereunder.
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own its property, to carry on its business as presently conducted and to enter
into and carry out the transactions contemplated by this Agreement, the Amended
and Restated Investor Rights Agreement attached hereto as Exhibit D (the
"Investor Rights Agreement") and the Co-Marketing and Integration Agreement
attached hereto as Exhibit E (the "Marketing Agreement") (the Investor Rights
Agreement and the Marketing Agreement shall be referred to hereinafter as the
"Related Agreements"). The Company is duly qualified to transact business and is
in good standing under the laws of the State of Colorado and all other
jurisdictions in which the nature of its activities and of its properties (both
owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business. The Company has all necessary governmental
authorizations to own or lease its properties and assets and to carry on its
business as now being conducted.
3.2 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
3.3 AUTHORIZATION. All corporate action on the part of the Company, its
officers and directors necessary for the authorization, execution and delivery
of this Agreement and the Related Agreements, the performance of all obligations
of the Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Shares and the Conversion
Shares has been taken, and this Agreement and the Related Agreements constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies, (iii) to the extent the indemnification provisions contained
in Section 2.9 of the Investor Rights Agreement may be limited by applicable
federal or state securities laws and (iv) except to the extent that the amount
of attorneys' fees recoverable in any lawsuit is subject to the supervisory
powers and discretion of the court.
3.4 VALID ISSUANCE OF SHARES. The Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
referred to herein will be duly authorized and validly issued, fully paid and
nonassessable, and the Purchasers will have acquired good and marketable title
to such securities, free and clear of any claims, liens,
3.
<PAGE> 7
restrictions on transfer or voting or encumbrances except that such shares may
be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein, in the Investor Rights Agreement or as otherwise may
be required by such laws at the time a transfer is proposed. The Conversion
Shares have been duly reserved for issuance, and when issued in accordance with
the terms of the Restated Certificate, will be validly issued, fully paid and
nonassessable, and the holders thereof will have acquired good and marketable
title to such securities, free and clear of any claims, liens, restrictions or
transfer or voting or encumbrances except that such shares may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein, in the Investor Rights Agreement or as otherwise may be required by such
laws at the time a transfer is proposed.
3.5 GOVERNMENTAL CONSENTS. Other than the filing of the Restated
Certificate, no consents, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority on the part of the Company is required in
connection with the offer, sale or issuance of the Shares and the Conversion
Shares or the consummation of any other transaction contemplated hereby.
3.6 NO VIOLATION. The execution, delivery and performance of this
Agreement and the Related Agreements do not and will not, with or without the
passage of time or the giving of notice or both (a) violate any provision of
law, statute, rule or regulation applicable to the Company or any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body by which the Company is bound or (b) conflict with or
result in any material breach of the terms of or constitute a material default
(or give any rise to any right of termination, cancellation or acceleration)
under, or result in a right of termination or acceleration under, or the
creation of any lien, claim or encumbrance upon any of the properties or assets
of the Company under (i) its Certificate of Incorporation or Bylaws or (ii) any
material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other material instrument or obligation to which the Company is a
party or by which the Company or its assets may be bound.
3.7 CAPITALIZATION. Immediately prior to the Closing, the Company's
authorized capital stock will consist of (x) 13,872,090 shares of Common Stock,
531,110 shares of which are issued and outstanding and (y) 3,627,910 shares of
Preferred Stock, (i) 1,100,000 of which are designated Series A Preferred Stock,
1,062,231 shares of which are issued and outstanding, (ii) 1,055,158 of which
are designated Series B Preferred Stock, 527,579 of which are issued and
outstanding and 527,579 of which are subject to an option to purchase such
shares in favor of American Express Travel Related Services, Inc. (the "Amex
Option") and (iii) 1,472,752 of which are designated Series C Preferred Stock,
none of which are issued and outstanding. All issued and outstanding shares of
Common Stock and Preferred Stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable, are owned by the stockholders
and in the numbers specified on Exhibit F attached hereto and were issued in
compliance with all applicable state and federal securities laws concerning the
issuance of securities. The rights, preferences and privileges of each series of
Preferred Stock are as set forth in the Restated Certificate. Except for 714,513
shares of Common Stock
4.
<PAGE> 8
reserved for issuance under the Company's 1997 Stock Option Plan, the Amex
Option and except as may be granted pursuant to this Agreement or the Investor
Rights Agreement, there are not outstanding any options, warrants, rights
(including conversion or preemptive rights), commitments, or agreements for the
purchase or acquisition from the Company of any shares of its capital stock or
other securities. The Company is not obligated to redeem any of its outstanding
securities, except as may be required under the Investor Rights Agreement. The
Company is not a party or subject to any agreement or understanding, and, to the
Company's knowledge without investigation, there is no agreement or
understanding between any Persons which affects or relates to the voting or
giving of written consents with respect to any security or any director of the
Company.
3.8 LITIGATION. There is no action, suit or proceeding pending against,
or to the best of the Company's knowledge, currently threatened before any
court, administrative agency or other governmental body against the Company
which questions the validity of this Agreement or the Related Agreements, or the
right of the Company to enter into any of such Agreements, or to consummate the
transactions contemplated hereby or thereby, or which could result either
individually or in the aggregate, in any material adverse change in the
condition (financial or otherwise), business, property, assets or liabilities of
the Company, nor is the Company aware that there is any valid basis for the
foregoing. The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or threatened (or any basis therefor known
to the Company) involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to, and none of its assets is bound by, the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit or proceeding by
the Company currently pending or which the Company presently intends to
initiate.
3.9 NO DEFAULT. The Company is not in violation or default under any
provision of its Certificate of Incorporation or its Bylaws, each as in effect
at the Closing. The Company is not in violation or default of any provision of
any instrument, mortgage, deed of trust, loan, contract, commitment, judgment,
decree, order or obligation to which it is a party or by which it or any of its
properties or assets are bound which would materially adversely affect the
condition (financial or otherwise), business, property, assets or liabilities of
the Company, or any material note, indenture, mortgage, lease, agreement,
contract, purchase order or other material obligation. There exists no
condition, event or act which after notice, lapse of time, or both, is
reasonably likely to constitute a material default by the Company under any of
the foregoing.
3.10 EMPLOYEES. The Company does not employ anyone to perform services
for the Company except in the capacity of an employee or consultant. Each
employee of and consultant to the Company has executed a Proprietary Information
and Inventions Agreement in substantially the form of Exhibit G. To the best
knowledge of the Company, no officer or
5.
<PAGE> 9
employee is in violation of such Proprietary Information and Inventions
Agreement. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
agreement or arrangement or with any collective bargaining agent. No employees
of the Company are represented by any labor union or covered by any collective
bargaining agreement. There is no pending or, to the best of the Company's
knowledge, threatened labor dispute involving the Company and any group of its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company. The employment of each officer and employee of the Company is
terminable at the will of the Company. The Company has not received any notice
from any third party alleging that any employee of, or consultant to, the
Company is in violation of any term of any employment agreement or other
agreement relating to the right of such person to be employed by, or to contract
with, the Company. Neither the Company nor any employee is a party to, or is
bound by, any agreement which would limit in any material respect: (a) any
employee's ability to perform his obligations as a full time employee of the
Company; or (b) the Company's or any employee's ability or authority to engage
in any and all lines of business in which the Company currently engages or
proposes to engage as set forth in its current business plan.
3.11 PATENTS AND TRADEMARKS. The Schedule of Exceptions contains a
complete list of patents and pending patent applications and trademarks of the
Company. The Company has sufficient title and ownership of all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
domain names (as registered with InterNIC), proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted and
has unrestricted right to use the foregoing without the payment of any royalty.
To the best of the Company's knowledge, all of the existing patents and
trademarks of the Company are valid and all of the pending and proposed patent
applications and applications for registration of trademarks of the Company will
result in the valid issuance of patents or registration of trademarks. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. Neither the execution
nor delivery of this Agreement or the Related Agreements, nor the carrying on of
the Company's business as currently proposed to be conducted, will, to the best
of the Company's knowledge, conflict with or result in a material breach of the
terms, conditions or provisions of, constitute a material default under, any
material contract, covenant or instrument under which the Company is bound. To
the best of the Company's knowledge, no employee of the Company is in violation
of any terms of any employee contract, patent disclosure agreement or any other
contract or agreement relating to the relationship of such employee with the
Company because of the nature of the business conducted or to be conducted by
the Company.
3.12 TRANSACTIONS WITH STOCKHOLDERS, ETC. No stockholder, employee,
officer or director of the Company or member of his or her immediate family, is
indebted to the Company, nor is the Company indebted (or committed to make loans
or extend or guarantee
6.
<PAGE> 10
credit) to any of them. To the best of the Company's knowledge, no employee or
officer, or director who is an employee, of the Company has any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that employees or officers,
or directors who are employees, of the Company and members of their immediate
families may own less than five percent (5%) of the stock in publicly traded
companies that may compete with the Company. No member of the immediate family
of any officer, or of any director who is an employee, of the Company is
directly or indirectly interested in any material contract with the Company.
3.13 REGISTRATION RIGHTS. The Company is not under any contractual
obligation to register any of its presently outstanding securities or any of its
securities which may hereafter be issued under any securities laws of any
jurisdiction except as set forth in the Investor Rights Agreement.
3.14 COMPLIANCE WITH LAWS. The Company has at all times conducted and
is now conducting its business in compliance with all laws, rules and
regulations applicable to it. The Company has all franchises, permits, licenses
and any 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
business, properties, prospects or financial condition of the company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or similar authority.
3.15 MATERIAL CONTRACTS
(a) Except for agreements explicitly contemplated hereby,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers or directors who are employees of the Company,
affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of $50,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than licenses arising from the purchase of
"off the shelf" or other standard products), or (iii) provisions restricting or
affecting the development, manufacture or distribution of the Company's products
or services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights (other than indemnification obligations
arising from purchase or sale agreements entered into in the ordinary course of
business).
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in
7.
<PAGE> 11
excess of $50,000 or, in the case of indebtedness and/or liabilities
individually less than $50,000, in excess of $100,000 in the aggregate, (iii)
made any loans or advances to any person, other than ordinary advances for
travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Schedule of Exceptions contains a true and complete
list of all Material Contracts (as defined below) in effect on the date hereof.
Each Material Contract is in full force and effect and is a valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
Neither the Company nor to the Company's knowledge, any other party to any such
contract is in default of any provision thereof. "Material Contract" means any
agreement to which the Company is a party, and which involves or relates to (A)
any current or future employment or consulting arrangement; (B) any labor union
or collective bargaining agreement; (C) any indebtedness for borrowed money or
other loan or financing arrangement or any liability on any other debt or other
obligation; (D) any agreement to which any governmental authority is a party;
(E) any transaction not in the ordinary course of business; (F) any agreement
involving prospective obligations or the right to receive in the aggregate in
excess of $50,000; (G) any agreement with the stockholders (other than the
Related Agreements); or (H) any mortgage, pledge, security agreement, financing
statement or other document granting a lien, claim or encumbrance on any of the
Company's properties or assets.
(f) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Certificate of Incorporation or its Bylaws that adversely affects its business
as now conducted or as proposed to be conducted, its properties or its financial
condition.
3.16 PROPERTIES, ASSETS. The Company owns its property and assets free
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course of business and do not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases, and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
3.17 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
8.
<PAGE> 12
3.18 FINANCIAL STATEMENTS. Attached hereto as Exhibit H are the audited
financial statements for the year ended December 31, 1996, and the unaudited
balance sheet and income statement for the quarter ended June 30, 1997 and the
months ended July 31, 1997 and August 31, 1997 (the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and
accurately set out and describe the financial condition and operating results of
the Company as of the dates, and for the periods, indicated therein. The
Financial Statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") except for footnotes required by GAAP. Except as
set forth in the Financial Statements, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to August 31, 1997 (the "Statement Date") which in
the aggregate do not exceed $100,000 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
GAAP to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company. Except as disclosed in the Financial
Statements, the Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation. Since the Statement Date, there has not
been any material adverse change in the financial condition of the Company.
3.19 TAX RETURNS AND AUDITS. The Company has accurately prepared all
United States income tax returns and all state and municipal tax returns
required to be filed by it, if any, has paid all taxes, assessments, fees and
charges when and as due under such returns and has made adequate provision for
the payment of all other taxes, assessments, fees and charges shown on such
returns or on assessments received by the Company. To the best of the Company's
knowledge, no deficiency assessment or proposed adjustment of the Company's
United States income tax or state or municipal taxes is pending.
3.20 BROKERS OR FINDERS. The Company has not agreed to incur, directly
or indirectly, any liability for brokerage or finders' fees, agents' commissions
or other similar charges in connection with this Agreement or any of the
transactions contemplated hereby.
3.21 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
3.22 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the Conversion Shares will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the Company nor
any agent on its behalf has solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Shares to any
person or persons so as to bring the sale of such Shares by the Company within
the registration provisions of the Securities Act.
9.
<PAGE> 13
3.23 REAL PROPERTY HOLDING CORPORATION. The Company is not a real
property holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
3.24 ERISA. The Company has complied in all material respects with the
applicable rules of the Employee Retirement Income Security Act of 1974, as
amended, with respect to any employee benefit plans subject thereto.
3.25 INSURANCE. The Company has fire and casualty insurance policies
and other insurance coverage customary for companies similarly situated to the
Company.
3.26 DISCLOSURE. No representation, warranty or statement by the
Company in this Agreement, any Schedule or Exhibit hereto or in any written
statement or certificate furnished to the Purchasers pursuant to this Agreement
or the transactions contemplated hereby, contains any untrue statement of a
material fact or, when taken together, omit to state a material fact necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. However, as to any projections furnished to the
Purchasers, such projections were prepared in good faith by the Company, but the
Company makes no representation or warranty that it will be able to achieve such
projections.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Each Purchaser hereby severally represents and warrants to the Company
as follows:
4.1 AUTHORIZATION. The Agreement, the Investor Rights Agreement and, if
applicable, the Marketing Agreement, constitute and will constitute valid and
legally binding obligations of the Purchaser, enforceable in accordance with
their respective terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies, (iii) to the extent the indemnification provisions of
Section 2.9 of the Investor Rights Agreement may be limited by applicable
federal or state securities laws and (iv) except to the extent that the amount
of attorneys' fees recoverable in any lawsuit is subject to the supervisory
powers and discretion of the court.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Purchaser in reliance upon Purchaser's representation to the Company, which by
Purchaser's execution of this Agreement Purchaser hereby confirms, that the
Shares to be received by Purchaser and the Conversion Shares will be acquired
for investment for Purchaser's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and Purchaser has
no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Purchaser further represents
that Purchaser does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to
10.
<PAGE> 14
any of the Shares or Conversion Shares. Purchaser represents that it has full
power and authority to enter into this Agreement.
4.3 INVESTMENT EXPERIENCE. Purchaser is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Company.
4.4 ACCREDITED INVESTOR. Purchaser is an "accredited investor" within
the meaning of Rule 501 of Regulation D of the Securities Act of 1933, as
amended (the "Act"), as presently in effect.
4.5 RESTRICTED SECURITIES. Purchaser understands that the Shares and
the Conversion Shares are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, Purchaser
represents that it is familiar with Rule 144 of the Act, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
4.6 FURTHER LIMITATIONS ON DISPOSITION. Purchaser acknowledges that the
Shares and, if issued, the Conversion Shares, are subject to restrictions on
transfer as set forth in the Investor Rights Agreement.
SECTION 5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING. Each
Purchaser's obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to each such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects as of the Closing Date
with the same force and effect as if they had been made as of the Closing Date,
and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the proposed issuance of the Conversion Shares shall
be legally permitted by all laws and regulations to which the Purchasers and the
Company are subject, and no action is pending seeking to prevent such sale and
issuance.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Investor
Rights Agreement, (except for
11.
<PAGE> 15
such as may be properly obtained subsequent to the Closing). In addition, the
Company shall have received the consent of VarTec Telecom to John Street and
Mary Beazley's activities as they pertain to USA.NET's performance under the
Co-Marketing and Integration Agreement.
(d) RESTATED CERTIFICATE. The Restated Certificate shall read
in its entirety as set forth in Exhibit B and shall have been filed with the
Secretary of State of the State of Delaware.
(e) CORPORATE DOCUMENTS. The Company shall have delivered to
the Purchasers or their counsel, copies of all corporate documents of the
Company as the Purchasers shall reasonably request.
(f) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(g) COMPLIANCE CERTIFICATE. The Company shall have delivered
to Purchaser a Compliance Certificate, executed by the President of the Company,
dated the date of the Closing, stating that the conditions specified in
subsection (a) of this Section 5.1 have been satisfied.
(h) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as Exhibit D shall have been executed
and delivered by the parties thereto.
(i) BOARD OF DIRECTORS. Upon the Closing, the authorized size
of the Board of Directors of the Company shall be five (5) members and the Board
shall consist of John Street, Mary Beazley, Larry Kutscher, Gregg Freishtat and
Karen Griffith Gryga.
(j) CO-MARKETING AND INTEGRATION AGREEMENT. The Company and
Premiere shall have entered into the Co-Marketing and Integration Agreement in
substantially the form attached as Exhibit E hereto.
(k) AMENDMENT OF SERIES B PREFERRED STOCK PURCHASE AGREEMENT.
The Company and American Express Travel Related Services Company, Inc. ("Amex")
shall have entered into an amendment to that certain Series B Preferred Stock
Purchase Agreement, dated as of April 8, 1997, to provide that Section 6.2
therein shall be terminated in its entirety.
(l) LEGAL OPINION. The Purchaser shall have received from
legal counsel to the Company an opinion addressed to it, dated as of the Closing
Date, in substantially the form attached hereto as Exhibit I.
(m) AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT. The Company
and Amex shall have entered into an Amendment to Co-Marketing Program Agreement
in the form attached hereto as Exhibit J.
12.
<PAGE> 16
(n) LETTER AGREEMENT. The Company, Amex and Premiere shall
have entered into a letter agreement in a form acceptable to such parties.
(o) SBA MATTERS. The Company shall have executed and delivered
to each Purchaser that is a licensed Small Business Investment Company a Size
Status Declaration on SBA Form 480, an Assurance of Compliance on SBA Form 652
and an SBA Certification in the form provided to the Company, and shall have
provided to each such Purchaser information necessary for the preparation of a
Portfolio Financing Report on SBA Form 1031.
(p) MINIMUM INVESTMENT. The Purchasers shall purchase a
minimum of 736,376 Shares at the Closing.
(q) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchaser and their special
counsel, and the Purchaser and their special counsel shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares at the Closing is subject to the satisfaction, on
or prior to each such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Purchasers in Section 4 hereof shall be true and
correct in all material respects at the date of the Closing, with the same force
and effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. The Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by the Purchaser on or before the Closing.
(c) RESTATED CERTIFICATE. The Restated Certificate shall read
in its entirety as set forth in Exhibit B and shall have been filed with the
Secretary of State of the State of Delaware.
(d) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as Exhibit D shall have been executed
and delivered by the parties thereto.
(e) CO-MARKETING AND INTEGRATION AGREEMENT. The Company and
Premiere shall have entered into the Co-Marketing and Integration Agreement in
substantially the form attached as Exhibit E hereto.
13.
<PAGE> 17
(f) AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT. Company and
Amex shall have entered into an Amendment to Co-Marketing Program Agreement in
the form attached hereto as Exhibit J.
(g) LETTER AGREEMENT. The Company, Amex and Premiere shall
have entered into a letter agreement in a form acceptable to such parties.
(h) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Investor
Rights Agreement (except for such as may be properly obtained subsequent to the
Closing). In addition, the Company shall have received the consent of VarTec
Telecom to John Street and Mary Beazley's activities as they pertain to
USA.NET's performance under the Co-Marketing and Integration Agreement.
SECTION 6. COVENANTS.
6.1 USE OF PROCEEDS. The Company shall use a portion of the proceeds
from the Initial Closing as required by and for the purposes set forth in
Section 4 of the Marketing Agreement.
6.2 NEGATIVE COVENANTS. So long as there are at least 250,000 shares of
Series C Preferred Stock outstanding, the Company may not without the approval
of at least one of the persons designated by the Series C Preferred Stock,
voting as a separate class, on the Company's Board of Directors (and, with
respect to subparagraph (a) only, without the approval of the person designated
by the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, voting together as a separate class, on the Company's Board of
Directors):
(a) issue any debt security in a single transaction or a
series of related transactions with an aggregate principal amount in excess of
fifty percent (50%) of the Company's equity at the closing of such financing;
(b) acquire or obtain a ten percent (10%) or greater interest
in, or permit any subsidiary of the Company to acquire or obtain a ten percent
(10%) or greater interest in, any stock or other securities of any other
corporation, partnership or entity;
(c) declare or pay any dividends on any shares of Common Stock
other than in compliance with Article IV (D)(1) of the Restated Certificate;
provided, however, that repurchase of such shares may be made in connection with
any Restricted Stock Purchase Agreement between the Company and any employee; or
(d) sell any Shares which the Purchasers do not purchase
pursuant to the Purchaser Options set forth in Section 2.3 above to any third
party.
14.
<PAGE> 18
SECTION 7. MISCELLANEOUS.
7.1 PRESS RELEASES. Except as otherwise required by law, on or prior to
the Initial Closing Date, none of the Purchasers and the Company may issue or
cause publication of any release or other public announcement with respect to
this Agreement or the transactions contemplated hereto, without the prior
written consent of the other parties.
7.2 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of Delaware without giving effect to conflict of law
principles, with the exception that matters of corporate law shall be governed
by the laws of the State of Delaware.
7.3 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchasers and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.4 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 and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.5 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Related Agreements 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 no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
7.6 SEVERABILITY. 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.
7.7 AMENDMENT AND WAIVER. This Agreement may be amended or modified
only upon the written consent of the Company and a majority in interest of the
Purchasers and the obligations of the Company and the rights of the Purchasers
under the Agreement may be waived only with the written consent of the Company
and a majority in interest of the Purchasers.
7.8 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Restated Certificate, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
15.
<PAGE> 19
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on the Purchasers'
part of any breach, default or noncompliance under this Agreement, the Related
Agreements or under the Restated Certificate or any waiver on such party's part
of any provisions or conditions of the Agreement, the Agreements, or the
Restated Certificate must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this
Agreement, the Agreements, the Restated Certificate, by law, or otherwise
afforded to any party, shall be cumulative and not alternative.
7.9 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to the
Purchasers at the appropriate address set forth on Exhibit A attached hereto or
at such other address as the Company or Purchaser may designate by ten (10) days
advance written notice to the other parties hereto.
7.10 EXPENSES. Each party shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Agreement and the Related Agreements.
7.11 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
7.12 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.13 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.
7.14 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party
16.
<PAGE> 20
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this
Section 7.14 being untrue.
7.15 SPECIFIC PERFORMANCE. Each party stipulates that the remedies at
law in the event of any default or threatened default by the other party in the
performance of or compliance with the terms of this Agreement are not and will
not be adequate and that, to the fullest extent permitted by law, such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof.
17.
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this SERIES C
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASERS:
USA.NET, INC. [NAME OF PURCHASER]
By:
-----------------------------------
Name:
---------------------------------
By: /s/ John Street Title:
------------------------------------ --------------------------------
John Street
Chairman of the Board, Chief Executive
Officer and President
102 S. Tejon, Suite 220
Colorado Springs, CO 80903
Phone: (719) 520-0852
(719) 520-5372 (facsimile)
18.
<PAGE> 22
FIRST AMENDMENT TO
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This First Amendment to that certain Series C Preferred Stock Purchase
Agreement, dated as of October 10, 1997 (the "Purchase Agreement") is entered
into as of March 23, 1998, by and between USA.NET, INC., a Delaware corporation
(the "Company"), the holders of the Company's Series C Preferred Stock (the
"Initial Purchasers") and the purchasers set forth on the Schedule of Current
Purchasers attached hereto as Schedule A, certain of whom are Initial Purchasers
(the "Additional Purchasers").
RECITALS
WHEREAS, the Company and the Initial Purchasers entered into the
Purchase Agreement pursuant to which the Initial Purchasers purchased from the
Company an aggregate of 736,376 shares of the Company's Series C Preferred
Stock;
WHEREAS, pursuant to Section 2.3 of the Purchase Agreement, the
Purchasers have the option to purchase up to an aggregate of 736,376 shares of
Series C Preferred Stock on or before April 8, 1998;
WHEREAS, the Company wishes to sell to the Additional Purchasers, and
the Additional Purchasers wish to purchase, an additional 486,918 shares of
Series C Preferred Stock;
WHEREAS, in accordance with Section 2.3 and Section 7.7 of the Purchase
Agreement, the Company, the Initial Purchasers and the Additional Purchasers
wish to enter into this First Amendment to make certain amendments to the
Purchase Agreement, to permit the Initial Purchasers to exercise their options
to purchase 736,376 shares of Series C Preferred Stock of the Company and to
permit the Additional Purchasers to purchase 486,918 shares of Series C
Preferred Stock.
In consideration of the mutual agreements, covenants and considerations
contained herein, the parties hereto agree as follows:
1. PURCHASE AND SALE; CLOSING
1.1 Subject to the terms and conditions hereof, and in reliance upon
the representations contained herein or incorporated by reference, the Company
hereby agrees to issue and sell to the Additional Purchasers, and the Additional
Purchasers hereby agree to purchase, that number of shares of Series C Preferred
Stock specified opposite each such person's name on the Schedule of Current
Purchasers attached hereto as Schedule A at a purchase price of Six Dollars and
Seventy-Nine Cents ($6.79) per share (the "Additional Shares"). The Company and
the parties hereto agree that the Schedule of Purchasers shall be amended to
read as set forth on Exhibit A hereto.
1.
<PAGE> 23
1.2 The closing of the sale and purchase of the Additional Shares (the
"Second Closing") shall take place on the date hereof at the offices of Cooley
Godward LLP, 2595 Canyon Blvd., Suite 250, Boulder, CO 80302, or at such other
time or place as the Company and the Additional Purchasers may mutually agree.
The Second Closing shall be held simultaneously with the closing of the sale and
issuance of an aggregate of 356,073 shares of the Company's Series B Preferred
Stock pursuant to that certain Second Amendment to Series B Preferred Stock
Purchase Agreement. At the Second Closing, subject to the terms and conditions
hereof, the Company will deliver to the Additional Purchasers certificates
representing the number of Additional Shares purchased from the Company against
payment by or on behalf of each such Additional Purchaser of the purchase price
therefor by wire transfer, check made payable to the order of the Company or,
with respect to that portion of the purchase price in excess of the par value of
an aggregate of 117,820 of the shares being purchased by ABS Ventures IV L.P.
and ABX Fund, L.P., by delivery of promissory notes in a form acceptable to the
Company.
2. PURCHASE AGREEMENT
2.1 All capitalized terms used herein without definition shall have the
meanings ascribed to them in the Purchase Agreement.
2.2 The Purchase Agreement is hereby amended (i) to include the
Additional Purchasers as "Purchasers" for all purposes thereunder with the
Additional Purchasers agreeing to be bound by all terms and conditions and
making, as of the Second Closing, all representations and warranties therein,
including the representations and warranties in Section 2.4 below; (ii) the
Additional Shares shall be deemed to be "Shares" for all purposes under the
Purchase Agreement; (iii) references in the Purchase Agreement to the "Closing"
shall be deemed to refer to the Second Closing for purposes of the purchase of
the Additional Shares hereunder.
2.3 The Company hereby represents and warrants to the Purchasers that
the representations and warranties of the Company made in Section 3 of the
Purchase Agreement are true and correct in all material respects as of the date
of the Second Closing except (i) as set forth on the updated Schedule of
Exceptions delivered to the Purchasers, (ii) the references in such
representations to the audited financial statements of the Company for the year
ended December 31, 1996, and the unaudited balance sheet and income statement
for the quarter ended June 30, 1997 and the months ended July 31, 1997 and
August 31, 1997, and as to changes since August 31, 1997 shall be deemed to
refer to the unaudited financial statements of the Company as of December 31,
1997, and the unaudited balance sheet and income statement for the month ended
January 31, 1998, copies of which are attached hereto as Exhibit B, and to
changes as of January 31, 1998 and (iii) with respect to the purchase of the
Additional Shares hereunder, references to the "Restated Certificate of
Incorporation" of the Company shall be deemed to refer to the Restated
Certificate of Incorporation, as amended by the Certificate of Amendment
attached hereto as Exhibit C (the "Certificate of Amendment").
2.4 Each Purchaser hereby severally represents and warrants to the
Company as follows:
2.
<PAGE> 24
(a) AUTHORIZATION. The Agreement and the Investor Rights
Agreement constitute and will constitute valid and legally binding obligations
of the Purchaser, enforceable in accordance with their respective terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, (iii) to the extent
the indemnification provisions of Section 2.9 of the Investor Rights Agreement
may be limited by applicable federal or state securities laws and (iv) except to
the extent that the amount of attorneys' fees recoverable in any lawsuit is
subject to the supervisory powers and discretion of the court.
(b) PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with Purchaser in reliance upon Purchaser's representation to the Company, which
by Purchaser's execution of this First Amendment Purchaser hereby confirms, that
the Shares to be received by Purchaser and the Conversion Shares will be
acquired for investment for Purchaser's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this First Amendment, Purchaser
further represents that Purchaser does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Shares or Conversion Shares. Purchaser represents that it has full power and
authority to enter into this Agreement.
(c) INVESTMENT EXPERIENCE. Purchaser is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Company.
(d) RESTRICTED SECURITIES. Purchaser understands that the
Shares and the Conversion Shares are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. In this
connection, Purchaser represents that it is familiar with Rule 144 of the Act,
as presently in effect, and understands the resale limitations imposed thereby
and by the Act.
(e) FURTHER LIMITATIONS ON DISPOSITION. Purchaser acknowledges
that the Shares and, if issued, the Conversion Shares, are subject to
restrictions on transfer as set forth in the Investor Rights Agreement.
3. CONDITIONS TO ADDITIONAL OBLIGATIONS AT THE SECOND CLOSING. In lieu of the
conditions of each Purchaser's obligations at the Second Closing set forth in
Section 5 of the Purchase Agreement, each Purchaser's obligations to purchase
the shares of Series C Preferred
3.
<PAGE> 25
Stock at the Second Closing are subject to the satisfaction, at or prior to the
Second Closing, of the following conditions:
3.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS.
The representations and warranties made by the Company in Section 3 of the
Purchase Agreement shall be true and correct in all material respects as of the
Second Closing with the same force and effect as if they had been made on such
date, and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Second Closing.
3.2 LEGAL INVESTMENT. On the date of the Second Closing, the sale and
issuance of the Additional Shares and the proposed issuance of the Conversion
Shares shall be legally permitted by all laws and regulations to which the
Purchasers and the Company are subject, and no action is pending seeking to
prevent such sale and issuance.
3.3 CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained any
and all consents, permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Purchase Agreement and the Investor
Rights Agreement (except for such as may be properly obtained subsequent to the
Second Closing).
3.4 FILING OF CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE. The
Certificate of Amendment to the Restated Certificate shall have been filed with
the Secretary of State of the State of Delaware.
3.5 CORPORATE DOCUMENTS. The Company shall have delivered to the
Purchasers or their counsel copies of all corporate documents of the Company as
the Purchasers shall reasonably request.
3.6 RESERVATION OF CONVERSION SHARES. The Conversion Shares issuable
upon conversion of the Shares shall have been duly authorized and reserved for
issuance upon such conversion.
3.7 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchasers a Compliance Certificate, executed by the President of the Company,
dated the date of the Second Closing, to the effect that the conditions
specified in Section 3.1 hereof have been satisfied.
3.8 INVESTOR RIGHTS AGREEMENT. The Company, the requisite parties to
the Amended and Restated Investor Rights Agreement, dated October 17, 1997, and
the Additional Purchasers shall have entered into an amendment to such agreement
to provide that the Additional Purchasers shall be deemed to be "Investors"
thereunder.
3.9 LEGAL OPINION. The Purchaser shall have received from legal counsel
to the Company an opinion addressed to it, dated as of the Second Closing, in
substantially the form rendered at the Initial Closing.
4.
<PAGE> 26
3.10 SBA MATTERS. The Company shall have executed and delivered to each
Purchaser that is a licensed Small Business Investment Company a Size Status
Declaration on SBA Form 480, an Assurance of Compliance on SBA Form 652 and an
SBA Certification in the form provided to the Company, and shall have provided
to each such Purchaser information necessary for the preparation of a Portfolio
Financing Report on SBA Form 1031.
3.11 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Second Closing hereby and
all documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchasers and their special counsel,
and the Purchasers and their special counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
4. CONDITIONS TO ADDITIONAL OBLIGATIONS OF THE COMPANY AT THE SECOND CLOSING. In
lieu of the conditions of the Company's obligations at the Second Closing set
forth in Section 5 of the Purchase Agreement, the Company's obligations to issue
and sell the shares at the Second Closing are subject to the satisfaction, at or
prior to the Second Closing, of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by the Purchasers in Section 2.4 hereof shall be true and
correct in all material respects at the date of the Second Closing, with the
same force and effect as if they had been made on and as of said date.
4.2 PERFORMANCE OF OBLIGATIONS. The Purchasers shall have performed and
complied with all agreements and conditions herein required to be performed or
complied with by the Purchaser on or before the Second Closing.
4.3 FILING OF CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE. The
Certificate of Amendment to the Restated Certificate shall have been filed with
the Secretary of State of the State of Delaware.
4.4 INVESTOR RIGHTS AGREEMENT. The Company, the requisite parties to
the Amended and Restated Investor Rights Agreement, dated October 17, 1997, and
the Additional Purchasers shall have entered into an amendment to such agreement
to provide that the Additional Purchasers shall be deemed to be "Investors"
thereunder.
4.5 CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained any
and all consents, permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Agreement and the Investor Rights
Agreement (except for such as may be properly obtained subsequent to the
Closing).
5. COUNTERPARTS. This Second Amendment may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.
<PAGE> 27
6. OTHER TERMS AND CONDITIONS. All other terms and conditions of the Purchase
Agreement shall remain in full force and effect.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
6.
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this FIRST
AMENDMENT TO THE SERIES C PREFERRED STOCK PURCHASE AGREEMENT as of the date set
forth in the first paragraph hereof.
COMPANY: PURCHASERS:
USA.NET, INC. [NAME OF PURCHASER]
By: /s/ John W. Street By:
------------------------------------------- --------------------------
John W. Street
Chairman of the Board, Chief Executive Name:
Officer and President ------------------------
1155 Kelly Johnson Blvd., Suite 400 Title:
Colorado Springs, CO 80920 -----------------------
Phone: (719) 265-2930
Facsimile: (719) 265-2923
7.
<PAGE> 29
CONSENT
Reference is made to the Series C Preferred Stock Purchase Agreement,
dated as of October 10, 1997, as amended by the First Amendment thereto, dated
as of March 23, 1998 (as so amended, the "Purchase Agreement"), between USA.NET,
Inc., a Delaware corporation (the "Company"), and the purchasers listed on
Exhibit A thereto (the "Purchasers").
The Company and the undersigned Purchasers, who together constitute the
requisite parties necessary to amend or modify the Purchase Agreement, hereby
consent to (i) the sale by the Company of an additional 74,000 shares of Series
C Preferred Stock of the Company to ABS Ventures IV L.P. and ABX Fund L.P.
pursuant to the provisions of the Purchase Agreement and (ii) the amendment and
restatement, in the form attached to this consent, of the Schedule of Purchasers
included as Exhibit A to the Purchase Agreement.
IN WITNESS WHEREOF, the undersigned have executed this consent as of
the 23rd day of April, 1998.
USA.NET, INC.
By: /s/ John W. Street
-------------------------------------------------
John W. Street
Chairman of the Board, Chief Executive
Officer and President
[NAME OF PURCHASER]
By:
-------------------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.19
USA.NET, INC.
SERIES D PREFERRED STOCK
PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. AGREEMENT TO SELL AND PURCHASE........................................................................1
1.1 AUTHORIZATION OF SHARES..................................................................................1
1.2 SALE AND PURCHASE........................................................................................1
SECTION 2. CLOSING, DELIVERY AND PAYMENT.........................................................................2
2.1 CLOSING..................................................................................................2
2.2 DELIVERY.................................................................................................2
2.3 SUBSEQUENT SALES OF SHARES...............................................................................2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................2
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION............................................................2
3.2 SUBSIDIARIES.............................................................................................2
3.3 AUTHORIZATION............................................................................................3
3.4 VALID ISSUANCE OF SHARES.................................................................................3
3.5 GOVERNMENTAL CONSENTS....................................................................................3
3.6 NO VIOLATION.............................................................................................3
3.7 CAPITALIZATION...........................................................................................4
3.8 LITIGATION...............................................................................................4
3.9 NO DEFAULT...............................................................................................5
3.10 EMPLOYEES................................................................................................5
3.11 PATENTS AND TRADEMARKS...................................................................................5
3.12 TRANSACTIONS WITH STOCKHOLDERS, ETC......................................................................6
3.13 REGISTRATION RIGHTS......................................................................................6
3.14 COMPLIANCE WITH LAWS.....................................................................................6
3.15 MATERIAL CONTRACTS.......................................................................................7
3.16 PROPERTIES, ASSETS.......................................................................................8
3.17 ENVIRONMENTAL AND SAFETY LAWS............................................................................8
3.18 FINANCIAL STATEMENTS.....................................................................................8
3.19 TAX RETURNS AND AUDITS...................................................................................8
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.20 BROKERS OR FINDERS..................................................................................... 9
3.21 MINUTE BOOKS........................................................................................... 9
3.22 OFFERING VALID......................................................................................... 9
3.23 REAL PROPERTY HOLDING CORPORATION...................................................................... 9
3.24 ERISA.................................................................................................. 9
3.25 INSURANCE.............................................................................................. 9
3.26 DISCLOSURE............................................................................................. 9
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.................................................... 10
4.1 AUTHORIZATION.......................................................................................... 10
4.2 CONSENTS............................................................................................... 10
4.3 INVESTMENT REPRESENTATIONS............................................................................. 10
4.4 TRANSFER RESTRICTIONS.................................................................................. 11
SECTION 5. CONDITIONS TO CLOSING............................................................................... 11
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING................................................... 11
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY............................................................... 13
SECTION 6. MISCELLANEOUS....................................................................................... 13
6.1 GOVERNING LAW.......................................................................................... 13
6.2 SURVIVAL............................................................................................... 13
6.3 SUCCESSORS AND ASSIGNS................................................................................. 14
6.4 ENTIRE AGREEMENT....................................................................................... 14
6.5 SEVERABILITY........................................................................................... 14
6.6 AMENDMENT AND WAIVER................................................................................... 14
6.7 DELAYS OR OMISSIONS.................................................................................... 14
6.8 NOTICES................................................................................................ 14
6.9 ATTORNEYS' FEES........................................................................................ 15
6.10 TITLES AND SUBTITLES................................................................................... 15
6.11 COUNTERPARTS........................................................................................... 15
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.12 BROKER'S FEES.......................................................................................... 15
6.13 SPECIFIC PERFORMANCE................................................................................... 15
</TABLE>
iii.
<PAGE> 5
USA.NET, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of August 12, 1998, by and among USA.NET, INC., a Delaware
corporation (the "Company") and each of those persons and entities, severally
and not jointly, whose names are set forth on the Schedule of Purchasers
attached hereto as Exhibit A (which persons and entities are hereinafter
collectively referred to as "Purchasers" and each individually as a
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of up to an
aggregate of two million thirty-three thousand eight hundred ninety-eight
(2,033,898) shares of its Series D Preferred Stock (the "Shares");
WHEREAS, the Purchasers desire to purchase the Shares on the terms and
conditions set forth herein;
WHEREAS, the Company desires to issue and sell the Shares to the
Purchasers on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized (i) the sale and issuance to
the Purchasers of the Shares and (ii) the issuance of such shares of Common
Stock to be issued upon conversion of the Shares (the "Conversion Shares"). The
Shares and the Conversion Shares shall have the rights, preferences, privileges
and restrictions set forth in the Restated Certificate of Incorporation of the
Company, as amended, in the form attached hereto as Exhibit B (the "Restated
Certificate").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing, the Company hereby agrees to issue and sell to each Purchaser and
each Purchaser agrees to purchase from the Company, the number of Shares set
forth opposite such Purchaser's name on Exhibit A, at a purchase price of
Fourteen Dollars Seventy-Five Cents ($14.75) per share.
1.
<PAGE> 6
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "Closing") shall take place at 1:00 p.m. on the date hereof,
at the offices of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder,
Colorado 80302-6737, or at such other time or place as the Company and a
majority of the Purchasers may mutually agree.
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares to be purchased at the Closing by each Purchaser, against
payment of the purchase price therefor by check or wire transfer made payable to
the order of the Company.
2.3 SUBSEQUENT SALES OF SHARES. At any time on or before the 90th day
following the Closing, the Company may sell up to the balance of the authorized
shares of Series D Preferred Stock not sold at the Closing to such persons as
may be approved by the Board of Directors of the Company. All such sales shall
be made on the terms and conditions set forth in this Agreement, including,
without limitation, the representations and warranties by such Purchasers as set
forth in Section 4. Any shares of Series D Preferred Stock sold pursuant to this
Section 2.3 shall be deemed to be "Shares" for all purposes under this Agreement
and any purchasers thereof shall be deemed to be "Purchasers" for all purposes
under this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser as follows, except as set forth on the
Schedule of Exceptions attached hereto as Exhibit C (the "Schedule of
Exceptions") which exceptions shall be deemed to be representations and
warranties as if made hereunder.
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own its property, to carry on its business as presently conducted and to enter
into and carry out the transactions contemplated by this Agreement and the
Second Amended and Restated Investor Rights Agreement attached hereto as Exhibit
D (the "Investor Rights Agreement"). The Company is duly qualified to transact
business and is in good standing under the laws of the State of Colorado and all
other jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business. The Company has all necessary governmental
authorizations to own or lease its properties and assets and to carry on its
business as now being conducted.
3.2 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
2.
<PAGE> 7
3.3 AUTHORIZATION. All corporate action on the part of the Company, its
officers and directors necessary for the authorization, execution and delivery
of this Agreement and the Investor Rights Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Shares and the
Conversion Shares has been taken, and this Agreement and the Investor Rights
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, (iii) to the extent the
indemnification provisions contained in Section 2.9 of the Investor Rights
Agreement may be limited by applicable federal or state securities laws and (iv)
except to the extent that the amount of attorneys' fees recoverable in any
lawsuit is subject to the supervisory powers and discretion of the court.
3.4 VALID ISSUANCE OF SHARES. The Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
referred to herein will be duly authorized and validly issued, fully paid and
nonassessable, and the Purchasers will have acquired good and marketable title
to such securities, free and clear of any claims, liens, restrictions on
transfer or voting or encumbrances except that such shares may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein, in the Investor Rights Agreement or as otherwise may be required by such
laws at the time a transfer is proposed. The Conversion Shares have been duly
reserved for issuance, and when issued in accordance with the terms of the
Restated Certificate, will be validly issued, fully paid and nonassessable, and
the holders thereof will have acquired good and marketable title to such
securities, free and clear of any claims, liens, restrictions or transfer or
voting or encumbrances except that such shares may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein, in the
Investor Rights Agreement or as otherwise may be required by such laws at the
time a transfer is proposed.
3.5 GOVERNMENTAL CONSENTS. Other than the filing of the Restated
Certificate, no consents, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority on the part of the Company is required in
connection with the offer, sale or issuance of the Shares and the Conversion
Shares or the consummation of any other transaction contemplated hereby.
3.6 NO VIOLATION. The execution, delivery and performance of this
Agreement and the Investor Rights Agreement do not and will not, with or without
the passage of time or the giving of notice or both (a) violate any provision of
law, statute, rule or regulation applicable to the Company or any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body by which the Company is bound or (b) conflict with or
result in any material breach of the terms of or constitute a material default
(or give any rise to any right of termination, cancellation or acceleration)
under, or result in a right of termination or acceleration under, or the
creation of any lien, claim or encumbrance upon any of the properties or assets
of the Company under (i) its Restated Certificate or
3.
<PAGE> 8
Bylaws or (ii) any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other material instrument or obligation to which
the Company is a party or by which the Company or its assets may be bound.
3.7 CAPITALIZATION. Immediately prior to the Closing, the Company's
authorized capital stock will consist of (x) 16,655,988 shares of Common Stock,
539,710 shares of which are issued and outstanding and (y) 6,222,726 shares of
Preferred Stock, (i) 1,100,000 of which are designated Series A Preferred Stock,
1,062,231 shares of which are issued and outstanding, (ii) 1,055,158 of which
are designated Series B Preferred Stock, 883,652 of which are issued and
outstanding, (iii) 2,033,670 of which are designated Series C Preferred Stock,
all of which are issued and outstanding and (iv) 2,033,898 of which are
designated Series D Preferred Stock, none of which are issued and outstanding.
All issued and outstanding shares of Common Stock and Preferred Stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable, are owned by the stockholders and in the numbers specified on
Exhibit E attached hereto and were issued in compliance with all applicable
state and federal securities laws concerning the issuance of securities. The
rights, preferences and privileges of each series of Preferred Stock are as set
forth in the Restated Certificate. Except for (i) an aggregate of 1,244,513
shares of Common Stock that have been reserved for issuance under the Company's
1997 Stock Option Plan, 533,763 shares of which remain available for grant, (ii)
a warrant to be issued to BT Alex. Brown Incorporated pursuant to this
transaction to purchase Common Stock of the Company, (iii) conversion rights of
holders of the Company's Preferred Stock and (iv) except as may be granted
pursuant to this Agreement or the Investor Rights Agreement, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights), commitments, or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or other securities. The Company is
not obligated to redeem any of its outstanding securities, except as may be
required under the Investor Rights Agreement. The Company is not a party or
subject to any agreement or understanding, and, to the Company's knowledge
without investigation, there is no agreement or understanding between any
Persons which affects or relates to the voting or giving of written consents
with respect to any security or any director of the Company.
3.8 LITIGATION. There is no action, suit or proceeding pending against,
or to the best of the Company's knowledge, currently threatened before any
court, administrative agency or other governmental body against the Company
which questions the validity of this Agreement or the Investor Rights Agreement,
or the right of the Company to enter into any of such Agreements, or to
consummate the transactions contemplated hereby or thereby, or which could
result either individually or in the aggregate, in any material adverse change
in the condition (financial or otherwise), business, property, assets or
liabilities of the Company, nor is the Company aware that there is any valid
basis for the foregoing. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or
4.
<PAGE> 9
subject to, and none of its assets is bound by, the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit or proceeding by the Company currently
pending or which the Company presently intends to initiate.
3.9 NO DEFAULT. The Company is not in violation or default under any
provision of its Restated Certificate or its Bylaws, each as in effect at the
Closing. The Company is not in violation or default of any provision of any
instrument, mortgage, deed of trust, loan, contract, commitment, judgment,
decree, order or obligation to which it is a party or by which it or any of its
properties or assets are bound which would materially adversely affect the
condition (financial or otherwise), business, property, assets or liabilities of
the Company, or any material note, indenture, mortgage, lease, agreement,
contract, purchase order or other material obligation. There exists no
condition, event or act which after notice, lapse of time, or both, is
reasonably likely to constitute a material default by the Company under any of
the foregoing.
3.10 EMPLOYEES. The Company does not employ anyone to perform services
for the Company except in the capacity of an employee or consultant. Each
employee of and consultant to the Company has executed a Proprietary Information
and Inventions Agreement in substantially the form attached hereto as Exhibit F.
To the best knowledge of the Company, no officer or employee is in violation of
such Proprietary Information and Inventions Agreement. The Company is not a
party to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation agreement or arrangement or
with any collective bargaining agent. No employees of the Company are
represented by any labor union or covered by any collective bargaining
agreement. There is no pending or, to the best of the Company's knowledge,
threatened labor dispute involving the Company and any group of its employees.
The Company is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with the Company. The
employment of each officer and employee of the Company is terminable at the will
of the Company. The Company has not received any notice from any third party
alleging that any employee of, or consultant to, the Company is in violation of
any term of any employment agreement or other agreement relating to the right of
such person to be employed by, or to contract with, the Company. Neither the
Company nor any employee is a party to, or is bound by, any agreement which
would limit in any material respect: (a) any employee's ability to perform his
obligations as a full time employee of the Company; or (b) the Company's or any
employee's ability or authority to engage in any and all lines of business in
which the Company currently engages or proposes to engage as set forth in its
current business plan.
3.11 PATENTS AND TRADEMARKS. The Schedule of Exceptions contains a
complete list of patents and pending patent applications and trademarks of the
Company. The Company has sufficient title and ownership of all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
domain names (as registered with InterNIC), proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted and
has unrestricted right to use the foregoing without the payment of any
5.
<PAGE> 10
royalty. To the best of the Company's knowledge, all of the existing patents and
trademarks of the Company are valid and all of the pending and proposed patent
applications and applications for registration of trademarks of the Company will
result in the valid issuance of patents or registration of trademarks. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. Neither the execution
nor delivery of this Agreement or the Related Agreements, nor the carrying on of
the Company's business as currently proposed to be conducted, will, to the best
of the Company's knowledge, conflict with or result in a material breach of the
terms, conditions or provisions of, constitute a material default under, any
material contract, covenant or instrument under which the Company is bound. To
the best of the Company's knowledge, no employee of the Company is in violation
of any terms of any employee contract, patent disclosure agreement or any other
contract or agreement relating to the relationship of such employee with the
Company because of the nature of the business conducted or to be conducted by
the Company.
3.12 TRANSACTIONS WITH STOCKHOLDERS, ETC. No stockholder, employee,
officer or director of the Company or member of his or her immediate family, is
indebted to the Company, nor is the Company indebted (or committed to make loans
or extend or guarantee credit) to any of them. To the best of the Company's
knowledge, no employee or officer, or director who is an employee, of the
Company has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees or officers, or directors who are employees, of the Company and
members of their immediate families may own less than five percent (5%) of the
stock in publicly traded companies that may compete with the Company. No member
of the immediate family of any officer, or of any director who is an employee,
of the Company is directly or indirectly interested in any material contract
with the Company.
3.13 REGISTRATION RIGHTS. The Company is not under any contractual
obligation to register any of its presently outstanding securities or any of its
securities which may hereafter be issued under any securities laws of any
jurisdiction except as set forth in the Investor Rights Agreement.
3.14 COMPLIANCE WITH LAWS. The Company has at all times conducted and
is now conducting its business in compliance with all laws, rules and
regulations applicable to it. The Company has all franchises, permits, licenses
and any 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
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or similar authority.
6.
<PAGE> 11
3.15 MATERIAL CONTRACTS
(a) Except for agreements explicitly contemplated hereby,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers or directors who are employees of the Company,
affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound which may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of $100,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than licenses arising from the purchase of
"off the shelf" or other standard products), or (iii) provisions restricting or
affecting the development, manufacture or distribution of the Company's products
or services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights (other than indemnification obligations
arising from purchase or sale agreements entered into in the ordinary course of
business).
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $100,000 or, in the case of
indebtedness and/or liabilities individually less than $100,000, in excess of
$250,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Schedule of Exceptions contains a true and complete
list of all Material Contracts (as defined below) in effect on the date hereof.
Each Material Contract is in full force and effect and is a valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
Neither the Company nor to the Company's knowledge, any other party to any such
contract is in default of any provision thereof. "Material Contract" means any
agreement to which the Company is a party, and which involves or relates to (A)
any current or future employment or consulting arrangement; (B) any labor union
or collective bargaining agreement; (C) any indebtedness for borrowed money or
other loan or financing arrangement or any liability on any other debt or other
obligation; (D) any agreement to which any governmental authority is a party;
(E) any transaction not in the ordinary course of business; (F) any agreement
involving prospective obligations or the right to receive in the aggregate in
excess of $100,000; (G) any agreement with the stockholders (other than the
Investor Rights Agreement); or (H) any mortgage, pledge, security
7.
<PAGE> 12
agreement, financing statement or other document granting a lien, claim or
encumbrance on any of the Company's properties or assets.
(f) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or its Bylaws that adversely affects its business as now
conducted or as proposed to be conducted, its properties or its financial
condition.
3.16 PROPERTIES, ASSETS. The Company owns its property and assets free
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course of business and do not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases, and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
3.17 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
3.18 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser
(i) its audited financial statements for the years ended December 31, 1997 and
1996 and (ii) its unaudited balance sheets, statements of operations and
statements of cash flows for the three months ended March 31, 1997 and 1998
(collectively, the "Financial Statements"). The Financial Statements, together
with the notes thereto, are complete and correct in all material respects, have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated, except as
disclosed therein, and present fairly the financial condition and position of
the Company as of the dates, and for the periods, indicated therein, provided,
however, that the interim financial statements are subject to normal year-end
audit adjustments (which are not expected to be material), and do not contain
all footnotes required under generally accepted accounting principles.
3.19 TAX RETURNS AND AUDITS. The Company has accurately prepared all
United States income tax returns and all state and municipal tax returns
required to be filed by it, if any, has paid all taxes, assessments, fees and
charges when and as due under such returns and has made adequate provision for
the payment of all other taxes, assessments, fees and charges shown on such
returns or on assessments received by the Company. To the best of the Company's
knowledge, no deficiency assessment or proposed adjustment of the Company's
United States income tax or state or municipal taxes is pending.
3.20 BROKERS OR FINDERS. The Company has not agreed to incur, directly
or indirectly, any liability for brokerage or finders' fees, agents' commissions
or other similar charges in connection with this Agreement or any of the
transactions contemplated hereby.
8.
<PAGE> 13
3.21 MINUTE BOOKS. The minute books of the Company provided to special
counsel to BT Alex. Brown Incorporated, as placement agent for the sale of the
Shares hereunder, contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
3.22 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4 hereof, the offer, sale and
issuance of the Shares and the Conversion Shares will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the Company nor
any agent on its behalf has solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Shares to any
person or persons so as to bring the sale of such Shares by the Company within
the registration provisions of the Securities Act.
3.23 REAL PROPERTY HOLDING CORPORATION. The Company is not a real
property holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
3.24 ERISA. The Company has complied in all material respects with the
applicable rules of the Employee Retirement Income Security Act of 1974, as
amended, with respect to any employee benefit plans subject thereto.
3.25 INSURANCE. The Company has fire and casualty insurance policies
and other insurance coverage customary for companies similarly situated to the
Company.
3.26 DISCLOSURE. No representation, warranty or statement by the
Company in this Agreement, any Schedule or Exhibit hereto or in any written
statement or certificate furnished to the Purchasers pursuant to this Agreement
or the transactions contemplated hereby, contains any untrue statement of a
material fact or, when taken together, omit to state a material fact necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. However, as to any projections furnished to the
Purchasers, such projections were prepared in good faith by the Company, but the
Company makes no representation or warranty that it will be able to achieve such
projections.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby severally represents and warrants to the Company
as follows:
4.1 AUTHORIZATION. The Agreement and the Investor Rights Agreement
constitute and will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their respective terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, (iii) to the extent
the
9.
<PAGE> 14
indemnification provisions of Section 2.9 of the Investor Rights Agreement may
be limited by applicable federal or state securities laws and (iv) except to the
extent that the amount of attorneys' fees recoverable in any lawsuit is subject
to the supervisory powers and discretion of the court.
4.2 CONSENTS. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or banking authority on the part of Purchaser required in
connection with the consummation of the transactions contemplated in the
Agreement and the Investor Rights Agreement have been or shall have been
obtained prior to and be effective as of the Closing.
4.3 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in this Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser understands that the Company has no present intention of
registering the Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Shares or the Conversion Shares under the circumstances, in the amounts
or at the times Purchaser might propose.
(b) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement and the Investor Rights Agreement.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement.
(c) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(d) INVESTMENT. Purchaser is acquiring the Shares (or any of
the Common Stock into which the Shares are convertible) for investment for its
own account and not with a view to, or for resale in connection with, any
distribution thereof, and Purchaser has no present intention of selling or
distributing the Shares (or any of the Common Stock into which the Shares are
convertible). Purchaser understands that the Shares (and the Common Stock into
which the Shares are convertible) to be purchased by it have not been registered
under the Securities Act
10.
<PAGE> 15
which depends upon, among other things, the bona fide nature of the investment
intent as expressed herein.
(e) COMPANY INFORMATION. Purchaser has received and read the
Financial Statements and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser has also had the opportunity to ask
questions of and receive answers from, the Company and its management regarding
the terms and conditions of this investment.
(f) RESTRICTED SECURITIES. Purchaser acknowledges and agrees
that the Shares and the Conversion Shares must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the number of shares
being sold during any three-month period not exceeding specified limitations.
4.4 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees that
the Shares and the Conversion Shares are subject to restrictions on transfer as
set forth in the Investor Rights Agreement.
SECTION 5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING. Each
Purchaser's obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects as of the Closing with
the same force and effect as if they had been made as of the Closing, and the
Company shall have performed all obligations and conditions herein required to
be performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. At the Closing, the sale and issuance of
the Shares and the proposed issuance of the Conversion Shares shall be legally
permitted by all laws and regulations to which the Purchasers and the Company
are subject, and no action shall be pending seeking to prevent such sale and
issuance.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation
11.
<PAGE> 16
of the transactions contemplated by the Agreement and the Investor Rights
Agreement, (except for such as may be properly obtained subsequent to the
Closing).
(d) RESTATED CERTIFICATE. The Restated Certificate shall read
in its entirety as set forth in Exhibit B and shall have been filed with the
Secretary of State of the State of Delaware.
(e) CORPORATE DOCUMENTS. The Company shall have delivered to
the Purchasers or their counsel, copies of all corporate documents of the
Company as the Purchasers shall reasonably request.
(f) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(g) COMPLIANCE CERTIFICATE. The Company shall have delivered
to Purchaser a Compliance Certificate, executed by the President of the Company,
dated the date of the Closing, stating that the conditions specified in
subsection (a) of this Section 5.1 have been satisfied.
(h) INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement
substantially in the form attached hereto as Exhibit D shall have been executed
and delivered by the parties thereto.
(i) LEGAL OPINION. The Purchaser shall have received from
legal counsel to the Company an opinion addressed to it, dated as of the
Closing, in substantially the form attached hereto as Exhibit G.
(j) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(k) NO MATERIAL ADVERSE CHANGE. Since the date of this
Agreement, no event shall have occurred which has had a material adverse effect
on the Company's business, results of operations or financial condition.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares at the Closing is subject to the satisfaction, on
or prior to each such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Purchasers in Section 4 hereof shall be true and
correct in all material
12.
<PAGE> 17
respects at the date of the Closing, with the same force and effect as if they
had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. The Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by the Purchaser on or before the Closing.
(c) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(d) INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement
substantially in the form attached hereto as Exhibit D shall have been executed
and delivered by the parties thereto.
(e) ESCROW AGREEMENT. An Escrow Agreement substantially in the
form attached hereto as Exhibit H shall have been executed and delivered by the
Purchasers.
(f) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Investor
Rights Agreement (except for such as may be properly obtained subsequent to the
Closing).
SECTION 6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of Colorado without giving effect to conflict of law
principles, with the exception that matters of corporate law shall be governed
by the laws of the State of Delaware.
6.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchasers and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 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 and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Investor Rights 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 no party shall be liable or bound
to any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
13.
<PAGE> 18
6.5 SEVERABILITY. 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.
6.6 AMENDMENT AND WAIVER. This Agreement may be amended or modified
only upon the written consent of the Company and a majority in interest of the
Purchasers and the obligations of the Company and the rights of the Purchasers
under the Agreement may be waived only with the written consent of the Company
and a majority in interest of the Purchasers. This Agreement may be amended with
only the consent of the Company to include additional purchasers pursuant to
Section 2.3 as "Purchasers" hereunder.
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Investor
Rights Agreement or the Restated Certificate, shall impair any such right, power
or remedy, nor shall it be construed to be a waiver of any such breach, default
or noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on the Purchasers'
part of any breach, default or noncompliance under this Agreement, the Investor
Rights Agreement or under the Restated Certificate or any waiver on such party's
part of any provisions or conditions of the Agreement, the Investor Rights
Agreement, or the Restated Certificate must be in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, the Investor Rights Agreement, the Restated Certificate,
by law, or otherwise afforded to any party, shall be cumulative and not
alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to the
Purchasers at the appropriate address set forth on Exhibit A attached hereto or
at such other address as the Company or Purchaser may designate by ten (10) days
advance written notice to the other parties hereto.
6.9 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
14.
<PAGE> 19
6.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.11 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.
6.12 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein, except that the Company shall be obligated
to pay BT Alex. Brown Incorporated, an amount equal to up to One Million Eight
Hundred Thousand Dollars ($1,800,000) and a warrant to purchase up to sixty-one
thousand seventeen (61,017) shares of Common Stock of the Company upon the
Closing. Each party hereto further agrees to indemnify each other party for any
claims, losses or expenses incurred by such other party as a result of the
representation in this Section 6.12 being untrue.
6.13 SPECIFIC PERFORMANCE. Each party stipulates that the remedies at
law in the event of any default or threatened default by the other party in the
performance of or compliance with the terms of this Agreement are not and will
not be adequate and that, to the fullest extent permitted by law, such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof.
15.
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this SERIES D
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASERS:
USA.NET, INC. [NAME OF PURCHASER]
By:
--------------------------
Name:
------------------------
By: /s/ JOHN STREET Title:
------------------------------------- -----------------------
John Street
Chairman of the Board, Chief Executive
Officer and President
1155 Kelly Johnson Blvd., Suite 400
Colorado Springs, CO 80920
Phone: (719) 265-2930
Facsimile: (719) 265-2923
16.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
April 5, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001039052
<NAME> USA.NET, INC.
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 4,043,316 8,049,567
<SECURITIES> 0 3,458,015
<RECEIVABLES> 289,868 1,508,440
<ALLOWANCES> 29,000 151,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,464,733 13,724,465
<PP&E> 2,907,644 15,201,289
<DEPRECIATION> 363,905 1,751,773
<TOTAL-ASSETS> 7,015,614 27,179,323
<CURRENT-LIABILITIES> 2,247,013 6,645,074
<BONDS> 1,235,158 3,997,147
0 0
12,876,193 44,787,263
<COMMON> 531 544
<OTHER-SE> (9,343,281) (28,250,705)
<TOTAL-LIABILITY-AND-EQUITY> 7,015,614 27,179,323
<SALES> 782,517 4,702,713
<TOTAL-REVENUES> 782,517 4,702,713
<CGS> 1,614,247 5,329,235
<TOTAL-COSTS> 1,614,247 5,329,235
<OTHER-EXPENSES> 3,476,806 16,445,835
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,247 229,893
<INCOME-PRETAX> (5,673,912) (19,227,787)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,673,912) (19,227,787)
<DISCONTINUED> 699,977 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,973,935) (19,227,787)
<EPS-PRIMARY> (9.36) (35.75)
<EPS-DILUTED> (9.36) (35.75)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0001039052
<NAME> USA.NET, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 392,788
<SECURITIES> 0
<RECEIVABLES> 165,570
<ALLOWANCES> 152,000
<INVENTORY> 0
<CURRENT-ASSETS> 407,596
<PP&E> 465,281
<DEPRECIATION> 49,795
<TOTAL-ASSETS> 1,048,127
<CURRENT-LIABILITIES> 542,669
<BONDS> 0
0
0
<COMMON> 531
<OTHER-SE> 504,927
<TOTAL-LIABILITY-AND-EQUITY> 1,048,127
<SALES> 33,564
<TOTAL-REVENUES> 33,564
<CGS> 298,863
<TOTAL-COSTS> 298,863
<OTHER-EXPENSES> 1,135,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,075,072)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,075,072)
<DISCONTINUED> (1,602,778)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,677,850)
<EPS-PRIMARY> (12.23)
<EPS-DILUTED> (12.23)
</TABLE>
