<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1998
REGISTRATION NO. 333-55819
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CYBERIAN OUTPOST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
5734 06-1419111
DELAWARE
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
27 NORTH MAIN STREET--P.O. BOX 636
KENT, CONNECTICUT 06757
(860)927-2050
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DARRYL PECK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CYBERIAN OUTPOST, INC.
27 NORTH MAIN STREET--P.O. BOX 636
KENT, CONNECTICUT 06757
(860)927-2050
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
STANFORD N. GOLDMAN, JR. ROBERT A. SCHWED
PETER S. LAWRENCE OTHON A. PROUNIS
MICHAEL L. FANTOZZI REBOUL, MACMURRAY, HEWITT,
MINTZ, LEVIN, COHN, FERRIS, MAYNARD & KRISTOL
GLOVSKY AND POPEO, P.C. 45 ROCKEFELLER PLAZA
ONE FINANCIAL CENTER NEW YORK, NY 10111
BOSTON, MA 02111 (212)841-5700
(617)542-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF
SECURITIES TO BE PROPOSED MAXIMUM AMOUNT OF
REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE (2)
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<S> <C> <C>
Common Stock, $.01 par val-
ue.......................... $70,000,000 $20,650
</TABLE>
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(1) Estimated solely for purposes of calculating the amount of the
registration fee paid pursuant to Rule 457(o) under the Securities Act of
1933, as amended.
(2) $18,659 of such fee was paid with the initial filing on June 2, 1998.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
(SUBJECT TO COMPLETION)
DATED JULY 9, 1998
4,000,000 SHARES
LOGO
COMMON STOCK
-----------
All of the shares of Common Stock offered hereby are being sold by Cyberian
Outpost, Inc. ("Cyberian Outpost" or the "Company"). Prior to this Offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$13.00 and $15.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. Application
has been made to have the Common Stock approved for quotation on the Nasdaq
National Market under the symbol "COOL."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share...................................... $ $ $
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Total(3)....................................... $ $ $
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</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $1,050,000, payable by the Company.
(3) The Company and the Company's principal stockholder (the "Principal
Stockholder") have granted to the Underwriters a 30-day option to purchase
up to 564,286 and 35,714 additional shares of Common Stock, respectively,
solely to cover over-allotments, if any. To the extent the option is
exercised, the Underwriters will offer the shares at the Price to Public
shown above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively, and the Principal Stockholder will
receive aggregate net proceeds of $ . The Company will not receive any of
the proceeds from the sale of shares by the Principal Stockholder. See
"Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
them, and subject to their right to reject orders in whole or in part. It is
expected that delivery of such shares of Common Stock will be made at the
offices of BT Alex. Brown Incorporated in Baltimore, Maryland, on or about
,1998.
BT ALEX. BROWN
NATIONSBANC MONTGOMERY
SECURITIES LLC
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[Cyberian Outpost Logo]
THE COOL PLACE TO SHOP FOR COMPUTER STUFF!
[Graphic depiction of OUTPOST.COM Home Page]
STRATEGIC PARTNERS
[AOL Logo] [Lycos Logo] [StarMedia Logo] [c/net Logo]
[InfoSpace Logo] [Excite Logo] [theglobe.com Logo] [WebCrawler Logo]
THE UNDERWRITERS AND CERTAIN OTHER PERSONS PARTICIPATING IN THIS OFFERING MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET
PRICE OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-
COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
Cyberian Outpost is a registered service mark of the Company and the Company
claims a trademark on Cyberian Express. All other trade names, trademarks or
service marks appearing in this Prospectus are the property of their
respective owners and are not the property of the Company.
<PAGE>
OUTPOST.COM
THE COOL PLACE TO SHOP FOR COMPUTER STUFF!
[Graphic depiction of OUTPOST.COM Home Page]
WHO WE ARE
Cyberian Outpost is a leading global internet retailer of computer products to
the consumer and small office/home office marketplace with one of the largest
selections of hardware, software and peripherals available today.
[Graphic depiction of OUTPOST.COM Search Results Page]
HELPING CUSTOMERS FIND WHAT THEY NEED
Locating products is easy. Customers can browse or search for products by name,
category or manufacturer or check new arrivals for an up-to-the-moment list of
new product releases.
[Graphic depiction of OUTPOST.COM Product Description Page]
INFORMATIVE AND HELPFUL PRODUCT DESCRIPTIONS
Cyberian Outpost product descriptions provide the information consumers need to
make informed buying decisions. Customers can compare product features and learn
about related products.
[Graphic depiction of OUTPOST.COM Shopping Cart Page and Three-Step Checkout
Pages]
SECURE 3-STEP CHECKOUT
Cyberian Outpost's secure 3-step checkout process--1. Name and address 2.
Selection of shipping method 3. Choice of payment type--makes buying fast and
easy.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus. Except as otherwise noted herein, all information in this
Prospectus (i) reflects the reincorporation of the Company from a Connecticut
corporation to a Delaware corporation effected on July 6, 1998 (the
"Reincorporation"), (ii) reflects the adoption of a new Certificate of
Incorporation of the Company in connection with the Reincorporation that, among
other things, increased the number of authorized shares of Common Stock and
Preferred Stock to 50,000,000 and 10,000,000 shares, respectively, (iii)
reflects a 3-for-1 stock split effected in the form of a dividend of two shares
for each share of the Company's Common Stock effected on July 7, 1998, (iv)
reflects the amendment of the Company's Bylaws upon the consummation of this
Offering, (v) reflects the automatic conversion of all outstanding shares of
the Company's Series A and Series B Convertible Preferred Stock and Redeemable
Series C Convertible Preferred Stock into an aggregate 11,336,847 shares of
Common Stock upon the consummation of this Offering (the "Preferred Stock
Conversion"), (vi) reflects the termination of certain contingent warrants to
purchase 1,246,556 shares of Common Stock upon consummation of this Offering
and (vii) assumes no exercise of the Underwriters' over-allotment option.
Unless otherwise indicated, the terms "Company" and "Cyberian Outpost" refer to
Cyberian Outpost, Inc. and its subsidiary.
THE COMPANY
Cyberian Outpost is a leading global Internet-only retailer of computer
hardware, software and peripheral products to the consumer and small
office/home office marketplace. With more than 130,000 stock keeping units
("SKUs"), Cyberian Outpost offers an online "superstore" at www.outpost.com
that provides one-stop shopping for domestic and international customers 24
hours a day, seven days a week. The Company's online store features a fun, easy
to navigate interface, competitive pricing, extensive product information and
powerful search capabilities. The Cyberian Outpost Web site has quickly become
one of the most widely known and used e-commerce sites and has received
recognition from numerous publications, including The New York Times and
BusinessWeek. Cyberian Outpost also was named "Best Site for Computer
Equipment" by Money Magazine in September 1997 and was cited as an "e-commerce
trailblazer" by Forbes ASAP in April 1998. To enhance Cyberian Outpost's brand
recognition and increase traffic to its online store, the Company has recently
entered into strategic alliances with Internet content providers and portal
sites such as America Online, Lycos-Bertelsmann, StarMedia, c|net, InfoSpace,
Excite, WebCrawler, theglobe.com and MetaCrawler.
The Company has grown rapidly since its inception in 1995. Net sales
increased from $1.9 million for the year ended February 29, 1996 to $22.7
million for the year ended February 28, 1998 ("fiscal 1998"). In the quarter
ending May 31, 1998, net sales totaled $11.6 million, which represented a $7.7
million increase over the quarter ending May 31, 1997. During the last four
consecutive fiscal quarters, the Company's quarterly net sales have increased
from $4.6 million to $6.1 million, $8.1 million and $11.6 million,
respectively. Of the more than 124,000 individual customers in over 140
countries worldwide who have purchased from Cyberian Outpost since inception,
more than 90,000 have become customers since March 1, 1997. In addition, the
Company has achieved high levels of average order size and repeat orders. The
Company has an average order size of approximately $250, a number that the
Company believes is significantly higher than many other online retailers.
Repeat customers accounted for approximately 48% of net sales in fiscal 1998.
The Company believes that its target market of consumers and small
office/home office businesses represents an attractive and rapidly growing
segment of the Web commerce industry. According to Jupiter Communications
("Jupiter"), a market research firm, domestic online consumer purchases
(excluding cars and real estate) are expected to grow from an estimated $2.6
billion in 1997 to approximately $37.5 billion by 2002. Jupiter also estimates
that the single largest domestic Web retail opportunity for the consumer and
small office/home office market is online sales of computer products (including
hardware, software and consumer electronics). By 2002, the
3
<PAGE>
online consumer market for computer products is estimated to reach
approximately $10.5 billion in the United States alone, compared to estimated
domestic online markets for travel, books and music of $8.6 billion, $2.2
billion and $1.2 billion, respectively.
The Company believes that, as an Internet-only retailer, it enjoys several
key operating advantages over traditional store- and catalog-based retailers of
computer products. These advantages include:
Attractive economics of the "virtual" store. As an Internet-only
merchant, Cyberian Outpost enjoys structural economic advantages
relative to traditional retailers, including: (i) low-cost and
essentially unlimited "shelf space," (ii) flexible advertising and
affordable merchandising opportunities, (iii) lower personnel
requirements, (iv) scaleable technology and systems that can serve a
fast-growing customer base and (v) the ability to serve a worldwide
customer base from a single, domestic location.
One-stop shop. Because Cyberian Outpost's "shelf space" is low cost and
essentially unlimited, the Company offers a broad selection that would
be economically or physically impractical to stock in a store or to
include in a typical mail-order catalog. Cyberian Outpost currently
offers more than 130,000 hardware, software and peripheral SKUs. The
Company purchases all of these products from distributors or directly
from vendors.
Global customer base. With its global reach, Cyberian Outpost can
deliver a broad selection of products to customers in international,
rural or other locations that cannot support large-scale physical
stores.
Value-added online content. In addition to offering the products
themselves, Cyberian Outpost's Web site delivers value-added content,
including extensive product descriptions. The Company also offers a free
e-mail newsletter, Cyberian Express, which delivers product information
and updates to over 26,000 subscribers weekly.
Convenient 24-hour shopping. Purchasing items from Cyberian Outpost is
more convenient than shopping in a physical store. The Cyberian Outpost
Web site is open 24 hours a day, seven days a week, and may be reached
from the buyer's home or office.
Customer service. In addition to the product and order tracking
information that is available on Cyberian Outpost's Web site, the
Company provides pre- and post-sales support via both e-mail and toll-
free telephone service.
Low-cost, alternative distribution channel for manufacturers. Cyberian
Outpost offers manufacturers a direct, low-cost retail channel. In
contrast to store-based retailers that often charge for shelf space and
catalog retailers that often require up-front payments, all of Cyberian
Outpost's products are carried free of charge.
In an effort to become the leading global Internet-only retailer of computer
hardware, software and peripheral products to the consumer and small
office/home office marketplace, the Company is pursuing a strategy consisting
of the following key elements:
Focus on consumer online retailing of computer products. The Company's
merchandising strategy is tailored to consumers in terms of product
selection, site design and selection of affiliate and linking programs.
The Company believes that the www.outpost.com store, with its cartoon
graphics, colorful environment and fun and irreverent edge, enhances its
position as a leading online consumer brand.
Build brand recognition through multiple marketing channels. The Company
seeks to build Cyberian Outpost's brand recognition and expand its
customer base through multiple marketing channels which include (i)
strategic alliances with major Internet content and portal sites, (ii)
Web-based marketing and promotional campaigns, (iii) linking programs
with targeted Web sites and (iv) personalized direct marketing programs
designed to generate repeat sales from existing customers. The Company's
4
<PAGE>
strategic alliances generally provide for the Company to be the most
prominent computer retailer on certain of the sites of these providers
with the exclusive right to place computer banner advertisements and
integrated links to the Cyberian Outpost Web site on certain computer-
related pages.
Exploit international market opportunities. Cyberian Outpost believes
that the Web offers a unique opportunity for online retailers, who are
not encumbered by historically inefficient distribution mechanisms, to
reach the global market for computer hardware and software products, a
market that the Company believes is approximately equal to the size of
the domestic market for such goods.
Promote repeat purchases. The Company's strategy is to build customer
loyalty and promote repeat buying by providing enhanced product
information, efficient site navigation and search capabilities,
personalized services and targeted communications.
Leverage technology to maximize business impact. The Company's
technology team leverages the unique efficiencies of the Internet to (i)
personalize the user experience, (ii) increase merchandising
effectiveness and (iii) improve operating efficiency. For example,
Cyberian Outpost is developing systems to personalize visitors' shopping
experiences by re-merchandising the store in real-time for individual
shoppers.
The Company was incorporated as a Connecticut corporation on March 6, 1995
and was reincorporated in Delaware on July 6, 1998. The Company's principal
offices are located at 27 North Main Street, Kent, Connecticut 06757, and its
telephone number is 860-927-2050.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... 4,000,000 shares
Common Stock to be outstanding after this 22,017,133 shares (1)
Offering................................
Use of proceeds.......................... For the payment of sales and
marketing expenses, including
payments associated with strategic
alliances, capital expenditures
associated with technology and
systems upgrades, expansion of the
Company's headquarters location, and
other general corporate purposes,
including working capital.
Proposed Nasdaq National Market Symbol... COOL
</TABLE>
- --------
(1) Excludes 1,824,000 and 2,359,794 shares of Common Stock reserved for
issuance upon the exercise of stock options and warrants, respectively,
outstanding on May 31, 1998, at weighted average exercise prices of $1.95
and $2.29 per share, respectively. Also excludes an aggregate of 2,102,700
shares of Common Stock issuable upon the exercise of stock options granted
to employees after May 31, 1998, at the initial public offering price.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
PERIOD FROM MARCH THREE MONTHS
6, 1995 (DATE OF YEARS ENDED FEBRUARY 28, ENDED MAY 31,
INCEPTION) THROUGH -------------------------- ---------------
FEBRUARY 29, 1996 1997 1998 1997 1998
------------------ ------------ ------------ ------ -------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $1,852 $ 10,790 $ 22,681 $3,889 $11,562
Cost of sales........... 1,689 9,535 20,525 3,541 10,520
------ ------------ ------------ ------ -------
Gross profit.......... 163 1,255 2,156 348 1,042
Operating expenses:
Sales and marketing
(1).................. 218 1,407 5,943 468 4,009
General and
administrative....... 259 805 1,623 302 722
Technology and
development.......... 54 382 1,058 294 596
------ ------------ ------------ ------ -------
Total operating
expenses........... 531 2,594 8,624 1,064 5,327
------ ------------ ------------ ------ -------
Operating loss........ (368) (1,339) (6,468) (716) (4,285)
Other income (expense),
net (2)................ (4) 1 (624) (6) 129
------ ------------ ------------ ------ -------
Net loss.............. $ (372) $ (1,338) $ (7,092) $ (722) $(4,156)
====== ============ ============ ====== =======
Net loss applicable to
common
stockholders(3)...... $ (372) $ (1,338) $ (7,092) $ (722) $(4,632)
====== ============ ============ ====== =======
Basic and diluted net
loss per common share
(3).................... $(0.07) $ (0.22) $ (1.07) $(0.11) $ (0.69)
====== ============ ============ ====== =======
Weighted average basic
and diluted common
shares outstanding
(3).................... 5,244 6,145 6,633 6,494 6,680
====== ============ ============ ====== =======
OPERATING DATA:
Customers (4)........... 5,500 32,500 81,000 39,000 124,000
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1998
-----------------------------------
PRO FORMA AS
ACTUAL PRO FORMA (5) ADJUSTED (6)
------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 8,510 $ 8,510 $ 59,540
Working capital............................ 11,400 11,400 62,430
Total assets............................... 17,771 17,771 68,801
Redeemable convertible preferred stock..... 20,125 -- --
Total stockholders' (deficit) equity....... (6,908) 13,217 64,247
</TABLE>
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(1) Sales and marketing expense for the year ended February 28, 1998 includes a
charge of $703,897 representing the fair value of common stock warrants
issued in connection with a marketing agreement. See Note 6(a) to
Consolidated Financial Statements.
(2) Other income (expense), net for the year ended February 28, 1998 includes a
charge of $567,563 representing the amortization of the original issue
discount in connection with a note payable. See Notes 3 and 6(a) to
Consolidated Financial Statements.
(3) See Note 1 to Consolidated Financial Statements for an explanation of the
determination of the number of common shares used in computing the amount
of basic and diluted net loss per common share and net loss applicable to
common stockholders.
(4) Cumulative number of customers who have purchased products from the Company
from its inception in March 1995 through the end of each period.
(5) Adjusted to reflect the Preferred Stock Conversion.
(6) Adjusted to give effect to the sale of the Common Stock in this Offering at
an assumed initial public offering price of $14.00 per share and the
application of the estimated net proceeds therefrom.
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in this Prospectus,
before purchasing the shares of Common Stock offered hereby.
Limited Operating History; Accumulated Deficit; Anticipated Losses. The
Company was founded in March 1995 and began selling computer products in May
1995. Accordingly, the Company has a limited operating history on which to
base an evaluation of its business and prospects. The Company's prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets such as online commerce. Such
risks for the Company include, but are not limited to, the changing nature and
unpredictability of its business environment and the difficulty of managing
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 strategies, continue to develop and upgrade its
technology and transaction-processing systems, improve its Web site, provide
superior customer service and order fulfillment, respond to competitive
developments, and attract, retain and motivate qualified personnel. There can
be no assurance that the Company will be successful in addressing such risks,
and the failure to do so could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
Since inception, the Company has incurred significant losses, and as of May
31, 1998 had an accumulated deficit of approximately $13.0 million. The
Company believes that its success will depend in large part on its ability to
(i) extend its brand position, (ii) provide its customers with outstanding
value and a superior shopping experience and (iii) achieve sufficient sales
volume to realize economies of scale. Accordingly, the Company intends to
invest heavily in marketing and promotion, Web site development and technology
and operating infrastructure development. As a result, the Company believes
that it will incur substantial operating losses for the foreseeable future and
that such losses will increase over the near term. Because the Company has
relatively low product gross margins, achieving profitability given planned
investment levels depends upon the Company's ability to generate and sustain
substantially increased revenue levels. During the early stages of its
development, the Company has experienced a significant revenue growth rate. As
the Company matures, however, such growth rate will decline. There can be no
assurance that the Company will successfully continue to increase revenues,
achieve or maintain profitability or generate cash from operations in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Unpredictability of Future Revenues; Potential Fluctuations in Operating
Results; Seasonality. As a result of the Company's limited operating history
and the emerging nature of the markets in which it competes, the Company may
not be able to accurately predict its revenues. Further, sales within the
computer industry are substantially affected by new product releases from
manufacturers. Historically, such releases tend to maintain or increase
overall sales revenues. Therefore, a lack of or delay in new product releases
by manufacturers can negatively impact the Company's revenues. The Company's
current and future expense levels are based largely on its investment plans
and estimates of future revenues. Sales and operating results generally depend
on the volume of, timing of and ability to fulfill orders received, which are
difficult to forecast. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Accordingly,
any significant shortfall in revenues in relation to the Company's planned
expenditures would have an immediate adverse effect on the Company's business,
prospects, financial condition and results of operations. Further, as a
strategic response to changes in the competitive environment, the Company may
from time to time make certain unforeseen pricing, service or marketing
decisions the cost of which could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
See "Business--Competition."
The Company expects to experience significant fluctuations in its future
operating results due to a variety of factors, many of which are outside the
Company's control. Factors that may adversely affect the Company's operating
results include (i) the Company's ability to retain existing customers,
attract new customers at a steady rate and maintain customer satisfaction,
(ii) the Company's ability to manage its fulfillment activities and
7
<PAGE>
maintain gross margins, (iii) the announcement or introduction of new Web
sites, services and products by the Company, its vendors, strategic partners
and competitors, (iv) the success of the Company's strategic alliances, (v)
price competition or higher wholesale prices in the industry, (vi) mix of
product sales, (vii) seasonality of sales typically experienced by retailers,
(viii) the level of use of the Internet and online services and consumer
acceptance of the Internet and other online services for the purchase of
consumer products such as those offered by the Company, (ix) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner, (x) the level of traffic to the
Company's Web site, (xi) technical difficulties, system downtime or Internet
brownouts, (xii) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure, (xiii) the level of merchandise returns experienced by the
Company, (xiv) governmental regulation and (xv) general economic conditions
and economic conditions specific to the Internet, online commerce and the
industry. In view of the rapidly evolving nature of the Company's business and
its limited operating history, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and should
not be relied upon as an indication of future performance. The Company also
expects that it will experience seasonality in its business, reflecting a
combination of seasonal fluctuations in Internet usage and traditional retail
seasonality patterns. Sales in the traditional retail computer industry are
higher in the fourth calendar quarter of each year than in the preceding three
quarters. To date, the Company's limited operating history and rapid growth
make it difficult to ascertain the effects of seasonality on its business.
Need for Additional Capital. The Company's operations to date have consumed
substantial amounts of capital. The Company expects capital and operating
expenditures to increase over the next several years as the Company seeks to
expand its business through investments in marketing and promotion, Web site
development and technology and operating infrastructure development. The
Company believes that the net proceeds from this Offering, investment
securities and existing cash will be sufficient to support the Company's
operations for at least the next 12 months, although there can be no assurance
that the Company will not have additional capital needs prior to the end of
such period. The Company may be required to raise additional capital to
continue to support its business operations, including obligations to
strategic partners and third-party manufacturers. In the event that such
additional financing is necessary, the Company may seek to raise such funds
through public or private equity or debt financing or other means. No
assurance can be given that additional financing will be available when
needed, or that, if available, such financing will be obtained on terms
favorable to the Company or its shareholders. To the extent that the Company
raises additional capital by issuing equity securities, ownership dilution to
existing shareholders will result. In the event that adequate funds are not
available, the Company's business, financial condition and results of
operations may be materially adversely affected. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Competition. The online commerce market is new, rapidly evolving and
intensely competitive. Current and new competitors can launch new sites
quickly and inexpensively. In addition, the computer products retail industry
as a whole is intensely competitive. The Company currently or potentially
competes with a variety of companies such as (i) traditional computer
retailers including CompUSA and MicroCenter, (ii) mail-order retailers
including CDW, MicroWarehouse, Insight, PC Connection and Creative Computers,
(iii) Internet-only computer retailers including Egghead.com, software.net and
BuyComp.com, (iv) manufacturers that sell directly over the Internet including
Dell, Gateway, Apple and many software companies, (v) a number of online
service providers including America Online and the Microsoft Network that
offer computer products directly or in partnership with other retailers, (vi)
some non-computer retailers such as Wal-Mart that sell a limited selection of
computer products in their stores and (vii) computer products distributors
that may develop direct channels to the consumer market. Increased competition
from these and other sources could require the Company to respond to
competitive pressures by establishing pricing, marketing and other programs or
seeking out additional strategic alliances or acquisitions that may be less
favorable to the Company than would otherwise be established or obtained, and
thus could have a material adverse effect on the business, prospects,
financial condition and results of operations of the Company. See "Business--
Competition."
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The Company believes that the principal competitive factors in its market
are brand recognition, selection, price, variety of value-added services, ease
of use, site content, fulfillment, reliability, quality of search tools,
customer service and technical expertise. Many of the Company's current and
potential competitors have longer operating histories, larger customer bases,
greater brand recognition, and significantly greater financial, marketing and
other resources than the Company. In addition, online retailers may be
acquired by, receive investments from, or enter into other commercial
relationships with, larger, well-established and well-financed companies as
use of the Internet and other online services increases. The Company is aware
that certain of its competitors have and may continue to adopt aggressive
pricing or inventory availability policies and devote substantially more
resources to Web site and systems development than the Company. Increased
competition may result in reduced operating margins, loss of market share and
a diminished brand franchise, any of which would have a material adverse
effect on the Company. Moreover, companies that control access to Internet
commerce transactions through network access or Web browsers currently
promote, and will likely continue to promote, competitors of the Company. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on the Company. See "Business--
Competition."
Risks Associated with International Sales. A key component of the Company's
strategy is to expand its sales in foreign markets. International sales, which
are denominated in U.S. dollars, accounted for approximately 36% of the
Company's revenues in fiscal 1998. The Company anticipates that it will expend
significant financial and management resources to expand its international
marketing program through (i) strategic alliances with major Internet content
and portal sites, (ii) Web-based marketing and promotional campaigns, (iii)
linking and affiliate programs with targeted Web sites and (iv) personalized
direct marketing programs designed to generate repeat sales from existing
customers. If the revenues generated by these marketing programs are
insufficient to offset the expense of establishing and maintaining such
programs, the Company's business, financial condition and results of
operations could be materially adversely affected. There can be no assurance
that the Company will be able to maintain or expand its sales in foreign
markets.
The Company's international sales are subject to certain risks not inherent
in its domestic sales, including political and economic instability in foreign
markets, restrictive trade policies of foreign governments, local economic
conditions in foreign markets, potentially adverse tax consequences and the
burdens on customers of complying with a variety of applicable laws. All of
such factors may suppress demand for the Company's services and the products
it sells. The impact of such factors on the Company's business is inherently
unpredictable. There can be no assurance that such factors, particularly if
they occur in Japan, which accounted for approximately 10% of the Company's
revenues in fiscal 1998, or in any other country in which the Company has a
material amount of sales in the future, will not have a material adverse
effect upon the Company's revenues from international sales and, consequently,
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Strategy."
Risk of System Failure; Dependence on Third-Party Provider. The Company's
success, in particular its ability to successfully receive and fulfill orders
and provide high-quality customer service, largely depends on the efficient
and uninterrupted operation of its computer and communications hardware
systems. Substantially all of the Company's computer and communications
hardware required for Web access is managed by Exodus Communications, Inc., a
third-party provider located in New Jersey. The Company is dependent on the
services of this provider, and its systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications
failure, break-ins, earthquake and similar events. The Company does not
presently have a formal disaster recovery plan and does not carry sufficient
business interruption insurance to compensate it for losses that may occur.
Despite the implementation of network security measures by the Company, its
servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruption, delays, loss of
data or the inability to accept and fulfill customer orders. The occurrence of
any of the foregoing risks could have a material adverse effect on the
Company's business, financial condition and results of operation. See
"Business--Technology and Systems."
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Risk of Capacity Constraints; Reliance on Internally Developed Systems. A
key element of the Company's strategy is to generate a high volume of traffic
on, and use of, its Web site. Accordingly, the satisfactory performance,
reliability and availability of the Company's Web site, transaction-processing
systems and network infrastructure are critical to the Company's reputation
and its ability to attract and retain customers and maintain adequate customer
service levels. The Company's revenues depend on the number of visitors who
shop on its Web site, the size of their orders and the volume of orders it
fulfills. The Company uses an internally developed system for its Web site,
search engine and material portions of its transaction processing and order
management. The Company's inability to add additional software and hardware or
to develop and upgrade its existing technology or network infrastructure to
accommodate increased traffic on its Web site or increased sales volume
through its transaction processing and order management systems may cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service, impaired quality and speed of order fulfillment, and
delays in reporting accurate financial information. Any system interruptions
that result in the unavailability of the Company's Web site or reduced order
fulfillment performance would reduce the volume of products sold and the
attractiveness of the Company's product and service offerings. During a 22 day
period from January 26, 1998 until February 16, 1998, the Company's Web site
operated at a decreased performance level; some customers did not receive a
timely response from the system, and product searching was extremely slow.
This slowdown in service was due to a sudden increase in the level of traffic
to the site as a result of strategic alliances that had recently been put in
place. While the Company continually reviews and seeks to upgrade and expand
its transaction processing and order management systems in a timely and
effective manner, the Company could experience future systems overloads or
failures. In addition, there can be no assurance that the Company will be able
to integrate smoothly any newly developed or purchased modules with its
existing systems or prevent unauthorized access to Company data. Any inability
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Technology and
Systems."
Dependence on Outside Fulfillment House; Risk of Failure of Fulfillment
System. The Company houses its inventory in a leased warehouse located in
Wilmington, Ohio. In addition to warehousing services, the manager of the
warehouse also provides order fulfillment services for the Company. The
Company is therefore dependent on the warehouse manager for timely, accurate
order fulfillment. Although the warehouse manager operates a secure facility,
its systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. The Company does not presently have redundant systems or a
formal disaster recovery plan and does not carry sufficient business
interruption insurance to compensate it for losses that may occur. The
occurrence of any of the foregoing risks could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Warehousing and Fulfillment."
Risk of Inadequate Insurance Coverage and Disaster Recovery Plans. The
Company's fulfillment systems and operations, as well as its computer and
communications hardware system are vulnerable to damage or interruption from
fire, flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. The Company does not carry sufficient business interruption
insurance to compensate it for losses that may occur, nor does it have formal
disaster recovery plans. Losses and liabilities arising from uninsured or
underinsured events could have a material adverse effect on the Company's
business, financial condition and results of operations.
Management of Continued Growth; New Management Team. The Company has rapidly
and significantly expanded its operations, and anticipates that further
significant expansion will be required to address potential growth in its
customer base and market opportunities. Although there can be no assurance of
further significant expansion, to date the Company's expansion has placed, and
is expected to continue to place a significant strain on the Company's
management, operational and financial resources. From March 1995 to June 30,
1998, the Company expanded from two full-time employees to 87 full-time and 11
part-time employees. Several members of the Company's senior management have
only recently joined the Company, including its Executive Vice President and
Chief Financial Officer, Chief Technology Officer, Vice President of Sales and
Vice President and General Merchandise Manager, and none of its officers has
prior executive management experience at public
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companies. The Company's new employees include a number of key managerial,
technical and operations personnel who have not yet been fully integrated into
the Company, and the Company expects to add additional key personnel in the
near term. To manage any material growth of its operations and personnel, the
Company will be required to improve existing transaction-processing,
operational and financial systems, procedures and controls, and to expand,
train and manage its already growing employee base. Further, the Company's
management will be required to maintain and expand its relationships with
various distributors, other Web sites and other Web service providers,
Internet and other online service providers and other third parties necessary
to the Company's business. There can be no assurance that the Company's
current and planned personnel, systems, procedures and controls will be
adequate to support the Company's future operations, that management will be
able to hire, train, retain, motivate and manage required personnel or that
the Company's management will be able to successfully identify, manage and
exploit existing and potential market opportunities. If the Company is unable
to manage growth effectively, its business, prospects, financial condition and
results of operations will be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Employees."
Dependence on Key Personnel; Need for Additional Personnel. The Company's
performance is substantially dependent on the continued services and
performance of its senior management and other key personnel, particularly
Darryl Peck, President and Chief Executive Officer. The Company maintains key
person life insurance on the life of Mr. Peck in the amount of $2.0 million.
The Company has also entered into employment agreements with Mr. Peck, as well
as the Company's Executive Vice President and Chief Financial Officer, Chief
Technology Officer and Vice President and General Merchandise Manager. The
Company's performance also depends on the Company's ability to retain and
motivate its other officers and key employees. The loss of the services of any
of its executive officers or other key employees could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company's future success also depends on its ability to
identify, attract, hire, train, retain and motivate other highly skilled
technical, managerial, editorial, merchandising, marketing and customer
service personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be able to successfully attract, assimilate
or retain sufficiently qualified personnel. The failure to retain and attract
the necessary technical, managerial, editorial, merchandising, marketing and
customer service personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Employees" and "Management."
Dependence on Continued Growth of Online Commerce. The Company's future
revenues and any future profits are substantially dependent upon the
willingness of consumers to accept the Internet as an effective medium of
commerce. Furthermore, since all of the Company's business is generated from
its Web site, the Company is especially dependent upon the long-term
acceptance of online commerce. Rapid growth in the use of and interest in
online services is a recent phenomenon, and there can be no assurance that
acceptance and use will continue to develop or that a sufficiently broad base
of consumers will adopt and continue to use the Internet and other online
services as a medium of commerce. Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty and there exist few proven services and products. The Company
relies on consumers who have historically used traditional means of commerce
to purchase merchandise. For the Company to be successful, these consumers
must accept and utilize novel ways of conducting business and obtaining
information.
The Internet may not be accepted by consumers as a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that online
services continue to experience significant growth in the number of users,
their frequency of use or an increase in their bandwidth requirements, there
can be no assurance that the infrastructure of the Internet and other online
services will be able to support the demands placed upon them. In addition,
Internet services could lose their viability due to delays in the development
or adoption of new standards and protocols required to handle increased levels
of online service activity or due to increased governmental regulation.
Changes in or insufficient availability of
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telecommunications services to support Internet services also could result in
slower response times and adversely affect usage of the Internet and other
online services generally and Cyberian Outpost in particular. If use of the
Internet and other online services does not continue to grow or grows more
slowly than expected, if the infrastructure for Internet services does not
effectively support growth that may occur, or if the Internet does not become
a viable commercial marketplace, the Company's business, financial condition
and results of operations would be materially adversely affected.
Rapid Technology Change. To remain competitive, the Company must continue to
enhance and improve the responsiveness, functionality and features of its
store. The online commerce industry in which the Company operates, is
characterized by rapid technological change, changes in user and customer
requirements and preferences, frequent new product and service introductions
embodying new technologies and the emergence of new industry standards and
practices that could render the Company's existing Web site and proprietary
technology and systems obsolete. The Company's success will depend, in part,
on its ability to license leading technologies useful in its business, enhance
its existing services, develop new services and technology that address the
increasingly sophisticated and varied needs of its customers, and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis. The development of Web site and other
proprietary technology entails significant technical and business risks. There
can be no assurance that the Company will successfully use new technologies
effectively or adapt its Web site, proprietary technology and transaction-
processing systems to customer requirements or emerging industry standards. If
the Company is unable, for technical, legal, financial or other reasons, to
adapt in a timely manner in response to changing market conditions or customer
requirements, the Company's business, financial condition and results of
operations would be materially adversely affected. See "Business--Technology
and Systems."
Reliance on Certain Vendors. While the Company purchases its merchandise
from many different vendors, during fiscal 1998, approximately 38% and 10%,
respectively, of its products were purchased through two major distributors,
Ingram Micro and MicroAge. Failure to develop and maintain relationships with
these and other vendors that would allow it to source sufficient quantities of
merchandise on acceptable commercial terms could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Warehousing and Fulfillment."
Online Commerce Security Risks; Credit Card Fraud. A significant barrier to
online commerce and communications is the secure transmission of confidential
information over public networks. The Company relies on encryption and
authentication technology licensed from third parties to provide security and
authentication necessary to effect secure transmission of confidential
information, such as customer credit card numbers. There can be no assurance
that advances in computer capabilities, new discoveries in the field of
cryptography, or other events or developments will not result in a compromise
or breach of the algorithms used by the Company to protect customer
transaction data. If any such compromise of the Company's security were to
occur, it could have a material adverse effect on the Company's business,
financial condition and results of operations. A party who is able to
circumvent the Company's security measures could misappropriate proprietary
information or cause interruptions in the Company's operations. The Company
may be required to expend significant capital and other resources to protect
against such security breaches or to alleviate problems caused by such
breaches. Further, even if the Company is able to continue to prevent the
compromise of its security systems, if the security systems of other retailers
in the online commerce industry were compromised or perceived to be
ineffective, the Company's business, financial condition and results of
operations could be materially adversely affected.
Concerns over the security of transactions conducted on the Internet and the
privacy of users may also inhibit the growth of online services generally,
especially as a means of conducting commercial transactions. To the extent
that activities of the Company or third-party contractors involve the storage
and transmission of proprietary information, such as credit card numbers,
security breaches could damage the Company's reputation and expose the Company
to a risk of loss or litigation and possible liability. There can be no
assurance that the Company's security measures will prevent security breaches
or that failure to prevent such security breaches will not have a material
adverse effect on the Company's business, prospects, financial condition and
results of
12
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operations. In addition, like other retailers who accept credit card
information over the telephone or Internet without a signature, the Company
has incurred losses as a result of orders placed with fraudulent credit card
information, despite the fact that the payment of such orders was approved by
the applicable financial institution. Under current credit card practices, a
retailer like Cyberian Outpost is liable for fraudulent credit card
transactions, where, as is the case with transactions processed by the Company
over the Internet, no cardholder signature is obtained. To date, losses due to
credit card fraud incurred by the Company have not been material. There can be
no assurance that the Company will not suffer significant losses as a result
of fraudulent use of credit card information in the future, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Technology and Systems."
Risks Associated with Entry into New Business Areas. The Company may choose
to expand its operations by developing new Web sites, promoting new or
complementary products or sales formats, expanding the breadth and depth of
products and services offered or expanding its market presence through
relationships with third parties. In addition, the Company may pursue the
acquisition of new or complementary businesses, or technologies, although it
has no present understandings, commitments or agreements with respect to any
material acquisitions or investments. There can be no assurance that the
Company would be able to expand its efforts and operations in a cost-effective
or timely manner or that any such efforts would increase overall market
acceptance. Furthermore, any new business or Web site launched by the Company
that is not favorably received by consumers could damage the Company's
reputation or the Cyberian Outpost brand. Expansion of the Company's
operations in this manner would also require significant additional expenses
and development, operations and editorial resources and would strain the
Company's management, financial and operational resources. The lack of market
acceptance of such efforts could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Trademarks and Proprietary Rights; Unlicensed Arrangements; Liability for
Online Content. The Company regards its service marks, trademarks, trade
secrets and similar intellectual property as instrumental to its success, and
relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, customers,
strategic partners and others to protect its proprietary rights. The Company
has pursued the registration of its trademarks and service marks in the United
States and internationally, and has applied for the registration of certain of
its trademarks and service marks. Effective trademark, service mark, copyright
and trade secret protection may not be available in every country in which the
Company's products and services are made available online.
The Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand is maintained by such licensees, there can be no
assurance that such licensees will not take actions that might materially
adversely affect the value of the Company's proprietary rights or reputation,
which could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. The Company is not
aware of any material infringements of its trademarks and proprietary rights.
However, there can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate or that third parties will not
infringe or misappropriate the Company's copyrights, trademarks and similar
proprietary rights. See "Business--Intellectual Property."
In addition, the Company believes that its success to date and its future
success will depend in part upon its ability to provide reviews and other
information about the computer products that it sells. As an online publisher,
the Company may face potential liability for copyright, trademark or patent
infringement, defamation or other claims based on the nature and content of
materials that the Company publishes or distributes. Defending such claims, or
liability arising out of such claims, could have a material adverse effect on
the Company. Moreover, because of the interconnectivity currently provided on
the Company's Web site, and because the Company expects to greatly expand such
interconnectivity in the future, the Company could be exposed to liability
with respect to content that it does not control. Insurance carried by the
Company may not be sufficient to offset liability arising from these types of
liabilities, and any liability in excess of such coverage could have a
material adverse effect on the Company.
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Governmental Regulation and Legal Uncertainties. The Company believes that
it is not currently subject to direct regulation by any domestic or foreign
governmental agency, other than regulations applicable to businesses generally
and laws or regulations directly applicable to access to online commerce.
However, due to the increasing popularity and use of online services, it is
possible that a number of laws and regulations covering issues such as user
privacy, pricing, content, copyrights, distribution and characteristics and
quality of products and services may be enacted. For instance, although
current U.S. laws limiting the export of encryption software do not materially
affect the Company since the Company only sells 15 SKUs affected by these
laws, the enactment of laws in the future that limit or prohibit the export of
products sold by the Company could have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may decrease the growth in use of the
Internet, which could, in turn, decrease the demand for the Company's products
and services and increase the Company's cost of doing business, or otherwise
have an adverse effect on the Company's business, prospects, financial
condition and results of operations. Moreover, the applicability to online
services of existing laws in various jurisdictions governing issues such as
intellectual property ownership, sales and other taxes, libel and personal
privacy is uncertain and may take years to resolve. Any such new legislation
or regulation, the application of laws and regulations from jurisdictions
whose laws do not currently apply to the Company's business, or the
application of existing laws and regulations to online services could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Sales and Other Taxes. The Company does not currently collect sales or other
similar taxes in respect of shipments of goods into states other than
Connecticut and Ohio. However, one or more states may seek to impose sales tax
collection obligations on out-of-state companies such as the Company that
engage in online commerce. In addition, any new operation by the Company in
other states could subject shipments into such states to state sales taxes
under current or future laws. A successful assertion by one or more states or
any foreign country that the Company should collect sales or other taxes on
the sale of merchandise could have a material adverse effect on the Company's
business, financial condition and results of operations.
Year 2000 Compliance. The Company uses a significant number of computer
software programs and operating systems in its internal operations, including
applications used in order processing, inventory management, distribution,
financial business systems and various administrative functions. Although the
Company believes that its internal software applications contain source code
that is able to interpret appropriately the upcoming calendar year 2000,
failure by the Company to make any required modifications to make such
software "Year 2000" compliant could result in systems interruptions or
failures that could have a material adverse effect on the Company's business.
The Company does not anticipate that it will incur material expenses to make
its computer software programs and operating systems "Year 2000" compliant.
However, there can be no assurance that unanticipated costs necessary to
update software, or potential systems interruptions, will not exceed the
Company's present expectations and have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, failure by key service providers to the Company, such as its
fulfillment house and the Company's Web hosting service provider, to make
their respective computer software programs and operating systems "Year 2000"
compliant could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
Broad Discretion of Management as to Use of Proceeds. A substantial portion
of the net proceeds to be received by the Company in connection with this
Offering is not allocated for any specific purpose, but will be allocated to
expansion of sales and marketing activities, working capital and general
corporate purposes. A portion or all of the net proceeds of this Offering may
also be used for strategic acquisitions of businesses, products or
technologies complementary to those of the Company; however, the Company is
not currently a party to any commitments or agreements and is not currently
involved in any negotiations with respect to any material acquisitions.
Accordingly, management will have broad discretion with respect to the
expenditure of such
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proceeds. Purchasers of shares of Common Stock offered hereby will be
entrusting their funds to the Company's management, upon whose judgment they
must depend, with limited information concerning the specific working capital
requirements and general corporate purposes to which the funds will ultimately
be applied. See "Use of Proceeds."
Potential Adverse Effect of Anti-takeover Provisions. The Company's
Certificate of Incorporation (the "Certificate of Incorporation") authorizes
the Board of Directors to issue, without stockholder approval, 10,000,000
shares of Preferred Stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of
the holders of Common Stock. The issuance of Preferred Stock or of rights to
purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal. In addition, the possible issuance of Preferred Stock
could discourage a proxy contest, make more difficult the acquisition of a
substantial block of the Company's Common Stock or limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock. The Certificate of Incorporation also provides that: (i) the
affirmative vote of the holders of at least 70% of the voting power of all of
the then outstanding shares of the capital stock of the Company, voting
together as a single class, shall be required for the stockholders to adopt,
amend or repeal any provision of the Bylaws of the Company; (ii) following the
closing of this Offering, stockholders of the Company may not take any action
by written consent without a meeting; (iii) following the closing of this
Offering, the Board of Directors will be classified into three classes with
staggered terms of three years each; and (iv) members of the Board of
Directors may be removed only for cause and after reasonable notice and an
opportunity to be heard before the body proposing to remove such director. The
foregoing provisions of the Certificate of Incorporation could have the effect
of delaying, deterring or preventing a change in control of the Company.
Delaware law also contains provisions that may have the effect of delaying,
deterring or preventing a non-negotiated merger or other business combination
involving the Company. These provisions are intended to encourage any person
interested in acquiring the Company to negotiate with and obtain the approval
of its Board of Directors in connection with the transaction. Certain of these
provisions may, however, discourage a future acquisition of the Company not
approved by the Board of Directors in which stockholders might receive an
attractive value for their shares or that a substantial number or even a
majority of the Company's stockholders might believe to be in their best
interest. As a result, stockholders who desire to participate in such a
transaction may not have the opportunity to do so. See "Description of Capital
Stock--Delaware Law and Certain Charter and Bylaw Provisions."
Shares Eligible for Future Sale; Possible Adverse Effect on Future Market
Price. Sales of Common Stock (including Common Stock issued upon the exercise
of outstanding options and warrants) in the public market after this Offering
could materially adversely affect the market price of the Common Stock. These
sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company's management deems acceptable, or at all. Upon the completion of
this Offering, the Company will have 22,017,133 shares of Common Stock
outstanding, assuming no exercise of options or warrants and assuming no
exercise of the Underwriters' over-allotment option. Of these outstanding
shares of Common Stock, the 4,000,000 shares sold in this Offering will be
freely tradeable, without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act. The
remaining 18,017,133 shares of Common Stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act and were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be resold in the public market only if registered or pursuant to an
exemption from registration, such as Rule 144 under the Securities Act. All
officers, directors and certain holders of Common Stock beneficially owning,
in the aggregate, 17,269,530 shares of Common Stock and holders of options and
warrants to purchase 5,001,474 shares of Common Stock, have agreed, pursuant
to certain lock-up agreements, that they will not offer, sell, contract to
sell, grant any option to sell, pledge, hypothecate or otherwise dispose of,
directly or indirectly, any shares of Common Stock owned by them, or that
could be purchased by them through the exercise of options or warrants to
purchase Common Stock of the Company, for a period of 180 days after the date
of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated. Upon expiration of the lock-up agreements, all shares of Common
Stock currently outstanding will
15
<PAGE>
be immediately eligible for resale, subject to the requirements of Rule 144.
Immediately following the completion of this Offering, holders of 11,336,847
shares of Common Stock and warrants to purchase 2,359,794 shares of Common
Stock will be entitled to certain registration rights. However, pursuant to
the lockup agreements, 10,940,634 of these shares of Common Stock and warrants
to purchase 1,074,774 shares of Common Stock may not be sold for 180 days
after the date of this Prospectus without the prior written consent of BT
Alex. Brown Incorporated. If such holders, by exercising their demand rights,
cause a large number of shares to be registered and sold on the public market,
such sales could have a material adverse effect on the market price of the
Company's Common Stock. The Company intends to file a registration statement
covering the 5,040,000 shares of Common Stock issued or reserved for issuance
under the Stock Plans and, upon filing, any shares subsequently issued under
such plans will be eligible for sale in the public market, subject to
compliance with Rule 144 in the case of affiliates of the Company. The Company
is unable to predict the effect such sales may have on the then prevailing
market price of the Common Stock. See "Management--Stock Plans," "Description
of Capital Stock" and "Shares Eligible for Future Sale."
No Public Market for the Common Stock; Price and Market Volatility. Prior to
this Offering, there has been no public market for the Common Stock, and there
can be no assurance that an active trading market will develop or be sustained
after this Offering or that the market price of the Common Stock will not
decline below the initial public offering price. The initial public offering
price will be determined by negotiations between the Company and the
Representatives of the Underwriters and may not be indicative of the market
price of the Common Stock in the future. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price.
Immediate and Substantial Dilution. Purchasers of shares of Common Stock in
this Offering will suffer an immediate and substantial dilution in the net
tangible book value of the Common Stock from the initial public offering
price. See "Dilution."
Absence of Dividends. No cash dividends have been paid on the Common Stock
to date and the Company does not anticipate paying cash dividends on the
Common Stock in the foreseeable future. See "Dividend Policy."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 4,000,000 shares of Common
Stock offered hereby, assuming an initial public offering price of $14.00 per
share, are estimated to be $51,030,000 ($58,377,004 if the Underwriters' over-
allotment option is exercised in full), after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company. If the Underwriters' over-allotment option is exercised in full, the
Company will not receive any proceeds from the sale of the Principal
Stockholder's portion of the 600,000 shares of Common Stock subject to the
over-allotment option that will be sold by the Principal Stockholder. See
"Underwriting."
The principal purposes of this Offering are to obtain additional capital, to
create a public market for the Common Stock, to facilitate future access by
the Company to public equity markets and to provide increased visibility and
credibility in the marketplace. The Company expects to use the net proceeds of
this Offering for the payment of sales and marketing expenses, including
payments associated with strategic alliances, capital expenditures associated
with technology and systems upgrades, expansion of the Company's headquarters
location and general corporate purposes, including working capital. The
Company may, when the opportunity arises, use an unspecified portion of the
net proceeds to acquire or invest in complementary businesses, products and
technologies. From time to time, in the ordinary course of business, the
Company expects to evaluate potential acquisitions of such businesses,
products or technologies. However, the Company has no present understandings,
commitments or agreements with respect to any material acquisition. Pending
use of the net proceeds for the above purposes, the Company intends to invest
such funds in short-term, interest-bearing, investment-grade securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company intends to retain any earnings to fund future growth and
the operation of its business and, therefore, does not anticipate paying any
cash dividends in the foreseeable future. See "Risk Factors--Absence of
Dividends."
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1998 (i) on an actual basis, (ii) on a pro forma basis to give effect to
the Preferred Stock Conversion and the Reincorporation and (iii) on a pro
forma basis as adjusted to reflect the sale by the Company of 4,000,000 shares
of Common Stock offered hereby, at an assumed initial public offering price of
$14.00 per share, after deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company and the application of
the estimated net proceeds therefrom. The following table should be read in
conjunction with the Company's Consolidated Financial Statements, including
the Notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MAY 31, 1998
------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- ------- -----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Current portion of capital lease obligations.... $ 144 $ 144 $ 144
======== ======= =======
Capital lease obligations, excluding current
portion........................................ $ 175 $ 175 $ 175
-------- ------- -------
Redeemable Series C Convertible Preferred Stock,
$.01 par value, 3,000,000 shares authorized,
2,770,125 shares issued and outstanding actual;
no shares issued and outstanding pro forma and
pro forma as adjusted.......................... 20,125 -- --
-------- ------- -------
Stockholders' equity (deficit)(1):
Preferred Stock, $.01 par value, 10,000,000
shares authorized, 682,738 Series A
Convertible shares and 326,086 Series B
Convertible shares issued and outstanding
actual; 10,000,000 shares authorized, no
shares issued and outstanding pro forma and
pro forma as adjusted........................ 3,364 -- --
Common Stock, $.01 par value, 50,000,000
shares authorized, 6,680,286 shares issued
and outstanding actual; 50,000,000 shares
authorized, 18,017,133 shares issued and
outstanding pro forma, 22,017,133 shares
issued and outstanding pro forma as
adjusted..................................... 67 180 220
Additional paid-in capital...................... 2,619 25,995 76,985
Accumulated deficit............................. (12,958) (12,958) (12,958)
-------- ------- -------
Total stockholders' equity (deficit)........ (6,908) 13,217 64,247
-------- ------- -------
Total capitalization...................... $ 13,392 $13,392 $64,422
======== ======= =======
</TABLE>
- --------
(1) Excludes 1,824,000 and 2,359,794 shares of Common Stock reserved for
issuance upon the exercise of stock options and warrants, respectively,
outstanding on May 31, 1998, at weighted average exercise prices of $1.95
and $2.29 per share, respectively. Also excludes an aggregate of 2,102,700
shares of Common Stock issuable upon the exercise of stock options granted
to employees after May 31, 1998, at the initial public offering price.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of May 31, 1998,
assuming the Preferred Stock Conversion had been completed as of such date,
was approximately $13.2 million or $0.73 per share of Common Stock. Pro forma
net tangible book value per share is determined by dividing the net tangible
book value of the Company (pro forma tangible assets less total liabilities)
by the number of shares of Common Stock outstanding. After giving effect to
(i) the sale of 4,000,000 shares of Common Stock by the Company in this
Offering at an assumed initial public offering price of $14.00 per share and
after deducting the underwriting discounts and commissions and estimated
offering expenses and (ii) the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of May 31,
1998 would have been approximately $64.2 million, or $2.92 per share. This
represents an immediate increase in pro forma net tangible book value of $2.19
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $11.08 per share to new investors. The following table
illustrates this dilution on a per share basis.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $14.00
------
Pro forma net tangible book value per share before this
Offering.................................................... $0.73
Increase per share attributable to new investors............. 2.19
-----
Pro forma net tangible book value per share after this
Offering...................................................... 2.92
------
Dilution per share to new investors (1)........................ $11.08
======
</TABLE>
- --------
(1) If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value after this Offering would be approximately
$3.17 per share, resulting in dilution to new investors in this Offering
of $10.83 per share. See "Underwriting."
The following table sets forth on a pro forma basis as of May 31, 1998,
assuming the Preferred Stock Conversion had been completed as of such date,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing
stockholders and by new investors, based on an assumed initial public offering
price of $14.00 per share and before deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 18,017,133 81.8% $26,619,904 32.2% $ 1.48
New investors.................. 4,000,000 18.2 56,000,000 67.8 14.00
---------- ---- ----------- ----
Total........................ 22,017,133 100% $82,619,904 100%
========== ==== =========== ====
</TABLE>
The foregoing tables assume no exercise of any outstanding stock options or
warrants to purchase Common Stock. To the extent such options and warrants are
exercised, there will be further dilution to the new investors. See
"Capitalization," "Management--Stock Plans" and "Description of Capital
Stock."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of February 28,
1997 and 1998, and for the period from March 6, 1995 (date of inception)
through February 29, 1996 and for the years ended February 28, 1997 and 1998
were derived from the Consolidated Financial Statements of the Company which
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, whose report appears elsewhere herein. Selected consolidated
financial data for the three months ended May 31, 1997 and 1998 were derived
from unaudited financial statements of the Company. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations have been included in such unaudited financial statements. Such
results may not be indicative of the results expected for a full year.
Selected consolidated financial data should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM MARCH YEARS ENDED THREE MONTHS ENDED
6, 1995 (DATE OF FEBRUARY 28, MAY 31,
INCEPTION) THROUGH ---------------- -------------------
FEBRUARY 29, 1996 1997 1998 1997 1998
------------------ ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales............... $1,852 $10,790 $22,681 $ 3,889 $ 11,562
Cost of sales........... 1,689 9,535 20,525 3,541 10,520
------ ------- ------- -------- ---------
Gross profit........... 163 1,255 2,156 348 1,042
Operating expenses:
Sales and marketing
(1)................... 218 1,407 5,943 468 4,009
General and
administrative........ 259 805 1,623 302 722
Technology and
development........... 54 382 1,058 294 596
------ ------- ------- -------- ---------
Total operating
expenses.............. 531 2,594 8,624 1,064 5,327
------ ------- ------- -------- ---------
Operating loss......... (368) (1,339) (6,468) (716) (4,285)
Other income (expense),
net (2)................ (4) 1 (624) (6) 129
------ ------- ------- -------- ---------
Net loss............... $ (372) $(1,338) $(7,092) $ (722) $ (4,156)
====== ======= ======= ======== =========
Net loss applicable to
common
stockholders(3)....... $ (372) $(1,338) $(7,092) $ (722) $ (4,632)
====== ======= ======= ======== =========
Basic and diluted net
loss per common share
(3).................... $(0.07) $ (0.22) $ (1.07) $ (0.11) $ (0.69)
====== ======= ======= ======== =========
Weighted average basic
and diluted common
shares
outstanding (3)........ 5,244 6,145 6,633 6,494 6,680
====== ======= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31, 1998
FEBRUARY 29, ---------------- ---------------------
1996 1997 1998 ACTUAL PRO FORMA(4)
---- ---- ---- ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 119 $ 41 $ 7,325 $ 8,510 $ 8,510
Working capital
(deficit)............... (182) (1,336) 824 11,400 11,400
Total assets............. 525 755 14,868 17,771 17,771
Capital lease
obligations, excluding
current portion......... -- 23 136 175 175
Redeemable convertible
preferred stock......... -- -- 5,991 20,125 --
Total stockholders'
(deficit) equity........ (33) (1,161) (3,671) (6,908) 13,217
</TABLE>
- --------
(1) Sales and marketing expense for the year ended February 28, 1998 includes
a charge of $703,897 representing the fair value of Common Stock warrants
issued in connection with a marketing agreement. See Note 6(a) to
Consolidated Financial Statements.
(2) Other income (expense), net for the year ended February 28, 1998 includes
a charge of $567,563 representing the amortization of the original issue
discount in connection with a note payable. See Notes 3 and 6(a) to
Consolidated Financial Statements.
(3) See Note 1 to Consolidated Financial Statements for an explanation of the
determination of the number of common shares used in computing the amount
of basic and diluted net loss per common share and net loss applicable to
common stockholders.
(4) Adjusted to reflect the Preferred Stock Conversion.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements, including the Notes thereto, of the Company included
elsewhere in this Prospectus. This Prospectus contains forward-looking
statements. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including the matters set forth in "Risk Factors."
OVERVIEW
Cyberian Outpost is a leading global Internet-only retailer of computer
hardware, software and peripheral products to the consumer and small
office/home office marketplace. With more than 130,000 SKUs, Cyberian Outpost
offers an online "superstore" at www.outpost.com that provides one-stop
shopping for domestic and international customers, 24 hours a day, seven days
a week. The Company's online store features a fun, easy to navigate interface,
competitive pricing, extensive product information and powerful search
capabilities.
The Company has grown rapidly since its inception in 1995. Net sales have
increased from $1.9 million for the year ended February 29, 1996 ("fiscal
1996") to $22.7 million for the year ended February 28, 1998. In the quarter
ending May 31, 1998, net sales totaled $11.6 million, which represented a $7.7
million increase over the quarter ending May 31, 1997. During the last four
consecutive fiscal quarters, the Company's quarterly net sales have increased
from $4.6 million to $6.1 million, $8.1 million and $11.6 million,
respectively. Of the more than 124,000 individual customers in over 140
countries worldwide who have purchased from Cyberian Outpost since inception,
more than 90,000 have become customers since March 1, 1997. In addition, the
Company has achieved high levels of average order size and repeat orders. The
Company has an average order size of approximately $250, a number that the
Company believes is significantly higher than many other online retailers.
Repeat customers accounted for approximately 48% of net sales in fiscal 1998.
The Company believes it is likely that the percentage of net sales
attributable to repeat customers will decline as the Company's customer base
increases over the next several years.
Cyberian Outpost believes that the key factor affecting its long-term
financial success is its ability to attract and retain customers in a cost
effective manner. Currently, the Company seeks to expand its customer base and
encourage repeat buying through multiple domestic and international marketing
programs. Such programs include: (i) strategic alliances with major Internet
content and portal sites, (ii) Web-based marketing and promotional campaigns,
(iii) linking programs with targeted Web sites and (iv) personalized direct
marketing programs designed to generate repeat sales from existing customers.
Cyberian Outpost recently accelerated its marketing campaign and entered into
strategic alliances with Internet content providers and portal sites such as
America Online, Lycos-Bertelsmann, StarMedia, c|net, InfoSpace, Excite,
WebCrawler, theglobe.com and MetaCrawler.
In fiscal 1998 and the quarter ended May 31, 1998, revenues from
international sources represented approximately 36% and 20% of net sales,
respectively. The Company expects that international sales will continue to
represent a significant portion of its overall revenue. The Company's
international sales are denominated in U.S. dollars and, therefore, net sales
are not affected by foreign currency translations. However, foreign currency
fluctuations may affect demand for the Company's products. In addition,
international sales are subject to diverse market factors and may decrease in
future periods depending on, among other factors, the economic conditions of a
given country or region.
Despite its growth in revenues, the Company continues to incur significant
net losses. Through the first quarter of fiscal 1999, the Company had an
accumulated deficit of $13.0 million. The Company believes that in order to
continue its growth and expansion, operating expenses will increase as a
result of the financial commitments required to form additional strategic
alliances, further develop multiple marketing channels and enhance its Web
site features and functionality. The Company expects to continue to incur
increasing losses and generate negative cash flow from operations for the near
term. Since computer retailers typically have low
21
<PAGE>
product gross margins, the Company's ability to achieve profitability is
dependent upon its ability to substantially increase net sales. To the extent
that the Company's marketing efforts do not result in significantly higher net
sales, the Company will be materially adversely affected. There can be no
assurance that sufficient revenues will be generated from the sale of the
Company's products to enable the Company to reach or maintain profitability on
a quarterly or annual basis.
The Company expects to experience significant fluctuations in its future
operating results due to a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's operating results
include the frequency of new product releases, success of strategic alliances,
mix of product sales and seasonality of sales typically experienced by
retailers. Sales in the computer retail industry are significantly affected by
the release of new products. Infrequent or delayed new product releases, when
they occur, negatively impact the overall growth in computer retail sales. The
Company anticipates that a portion of its net sales growth will be the result
of sales to new customers added through its recently formed strategic
alliances and additional alliances it intends to form in the future. Due to
the relatively recent implementation of these relationships, the Company's
sales growth to date has not yet benefited from the impact of these
relationships. Gross profit margins for hardware, software and peripheral
products vary widely, with computer hardware generally having the lowest gross
profit margins. While the Company has some ability to affect its product mix
through effective upselling of high margin products, the Company's sales mix
will vary from period to period and its gross margins will fluctuate
accordingly.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statement of operations data as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 6, 1995 YEARS ENDED THREE MONTHS ENDED
(DATE OF INCEPTION) FEBRUARY 28, MAY 31,
THROUGH --------------- ---------------------
FEBRUARY 29, 1996 1997 1998 1997 1998
------------------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 91.2 88.4 90.5 91.1 91.0
----- ------ ------ --------- ---------
Gross profit.......... 8.8 11.6 9.5 8.9 9.0
Operating expenses:
Sales and marketing... 11.8 13.0 26.2 12.0 34.7
General and
administrative....... 14.0 7.5 7.1 7.8 6.2
Technology and
development.......... 2.9 3.5 4.7 7.5 5.2
----- ------ ------ --------- ---------
Total operating
expenses........... 28.7 24.0 38.0 27.3 46.1
----- ------ ------ --------- ---------
Operating loss........ (19.9) (12.4) (28.5) (18.4) (37.1)
Other income (expense),
net.................... (0.2) -- (2.8) (0.2) 1.2
----- ------ ------ --------- ---------
Net loss.............. (20.1)% (12.4)% (31.3)% (18.6)% (35.9)%
===== ====== ====== ========= =========
</TABLE>
QUARTER ENDED MAY 31, 1998 COMPARED TO THE QUARTER ENDED MAY 31, 1997
Net Sales: Net sales are comprised of product sales, net of returns and
allowances, and advertising revenue derived from hardware manufacturers and
software publishers that pay for promotional placements on the Company's Web
site. Product sales are comprised of computer hardware, software and
peripherals. Net sales increased by $7.7 million from $3.9 million in the
quarter ending May 31, 1997 to $11.6 million in the quarter ending May 31,
1998. This increase in net sales was primarily a result of an increase in the
Company's customer base and in repeat purchases from existing customers of the
Company. Although international sales increased by 28% in absolute dollars to
$2.3 million in the quarter ended May 31, 1998 from $1.8 million in the
quarter ended May 31, 1997, international sales decreased as a percentage of
net sales from approximately 46% of sales in the first quarter of fiscal year
1998 to approximately 20% in the first quarter of fiscal year 1999. The
Company
22
<PAGE>
believes that this percentage decrease was primarily a result of the growth of
its domestic customer base due to the Company's focus on the development and
implementation of certain domestic marketing programs during fiscal 1998.
During fiscal 1999, the Company intends to use a portion of the proceeds of
this Offering to expand its international marketing program and its
international customer base. There can be no assurance that the Company's
proposed investment in its international marketing program will result in
increased international sales. Advertising revenues were not material in the
three-month periods ended May 31, 1997 and 1998.
Cost of Sales: Cost of sales consists of the cost of the merchandise sold by
the Company. Cost of sales increased $7.0 million from $3.5 million during the
quarter ended May 31, 1997 to $10.5 million in the quarter ended May 31, 1998.
This increase was primarily the result of an increase in product sales volume.
The Company's gross profit increased by $694,000 from $348,000 for the quarter
ended May 31, 1997 to $1.0 million for the quarter ended May 31, 1998 as a
result of the Company's growth in revenues. As a percentage of net sales, the
Company's gross margin was 8.9% and 9.0% for the quarters ended May 31, 1997
and May 31, 1998, respectively.
Sales and Marketing: Sales and marketing expense consists primarily of fees
paid to strategic partners, advertising and promotion costs, marketing, sales
and customer service personnel and related expenditures, as well as direct
selling expenses. Sales and marketing expenses increased by $3.5 million from
$468,000 for the quarter ended May 31, 1997 to $4.0 million for the quarter
ended May 31, 1998. As a percentage of net sales, sales and marketing expense
increased from 12.0% in the first quarter of fiscal year 1998 to 34.7% in the
first quarter of fiscal year 1999. The increase was primarily a result of
increased costs of approximately $1.5 million associated with fixed monthly
advertising and placement fees paid to strategic partners, $877,000 in
increased warehouse, shipping and related costs, $516,000 of increased
advertising and promotion costs related to building brand recognition and
increasing sales, and 530,000 of additional customer service and general
merchandising staffing to support and enhance the growth in sales. The Company
intends to continue to increase the amount of its spending for sales and
marketing in fiscal 1999, both internationally and domestically. This increase
will be principally related to increased fees paid to existing and new
strategic partners, increased spending on marketing programs, hiring
additional sales, marketing and merchandising personnel and increases in
direct selling expense. There can be no assurance that these increased
expenditures will result in increased sales.
General and Administrative: General and administrative expense includes
administrative, finance and purchasing personnel and related costs, general
office and depreciation expenses, as well as professional fees. General and
administrative expense increased by $420,000 from $302,000 in the quarter
ended May 31, 1997 to $722,000 in the quarter ended May 31, 1998. The dollar
increase in general and administrative expense was due to increases in both
executive and administrative personnel, office expenses associated with such
personnel, depreciation and professional fees. As a percentage of net sales,
general and administrative expense decreased from 7.8% in the quarter ended
May 31, 1997 to 6.2% in the quarter ended May 31, 1998. The Company
anticipates that general and administrative expense will continue to increase
in fiscal 1999 in absolute dollars, due to growth in management personnel and
administrative infrastructure, as well as costs associated with its becoming a
publicly-held company.
Technology and Development: Technology and development expense includes
systems personnel and related costs, software support, technology development
costs and Web site hosting and communications expenditures. Technology and
development expense increased by $302,000 from $294,000 in the quarter ended
May 31, 1997 to $596,000 in the quarter ended May 31, 1998. The dollar
increase in technology and development expense was primarily a result of
increases in systems personnel to maintain the Company's Web site and
technology infrastructure, as well as systems and software upgrades and
enhancements required to support the growth in visitors to the Company's Web
site. As a percentage of net sales, technology and development expense
decreased from 7.5% for the quarter ended May 31, 1997 to 5.1% in the quarter
ended May 31, 1998. The Company anticipates that technology and development
expense will increase in fiscal 1999 in absolute dollars due to combined
growth in staffing and systems support.
23
<PAGE>
Other Income (Expense), Net: Other income (expense), net consists of
interest expense attributable to short-term loans and leases offset by
interest income earned by the Company on short-term investments and overnight
investments of its cash balances in money market accounts. Other income
(expense), net increased from an expense of $6,000 in the quarter ended May
31, 1997 to an income of $129,000 in the quarter ended May 31, 1998. This
change was primarily a result of interest income from short-term investment of
the Company's cash balances resulting from the Company's sale of shares of its
Redeemable Series C Convertible Preferred Stock.
Net Loss: As a result of the foregoing factors, the company incurred a net
loss of $4.2 million in the quarter ended May 31, 1998 compared to a net loss
of $722,000 in the quarter ended May 31, 1997.
YEAR ENDED FEBRUARY 28, 1998 COMPARED TO THE YEAR ENDED FEBRUARY 28, 1997
Net Sales: Net sales increased by $11.9 million from $10.8 million in fiscal
1997 to $22.7 million in fiscal 1998. This increase in net sales was primarily
a result of an increase in the Company's customer base and in repeat purchases
from existing customers of the Company. Although international sales increased
in absolute dollars to $8.2 million in fiscal 1998 from $5.1 million in fiscal
1997, international sales decreased as a percentage of net sales from
approximately 47% in fiscal 1997 to approximately 36% in fiscal 1998. The
Company believes that this decrease was primarily a result of an increase in
domestic sales due to its focus on the development and implementation of
certain domestic marketing programs during fiscal 1998. Advertising revenues
were not material in the years ended February 28, 1997 and 1998.
Cost of Sales: Cost of sales increased by $11.0 million from $9.5 million in
fiscal 1997 to $20.5 million in fiscal 1998. This increase was primarily a
result of an increase in product sales volume. The Company's gross profit
increased by $901,000, or 71.8%, from $1.3 million in fiscal 1997 to $2.2
million in fiscal 1998 as a result of the Company's growth in revenues. As a
percentage of net sales, the Company's gross profit margin decreased from
11.6% in fiscal 1997 to 9.5% in fiscal 1998. This decrease in gross margin was
primarily due to an increase in the proportion of sales of lower margin
hardware products and the implementation of more aggressive pricing strategies
in fiscal 1998.
Sales and Marketing: Sales and marketing expense increased by $4.5 million
from $1.4 million in fiscal 1997 to $5.9 million in fiscal 1998. As a
percentage of net sales, sales and marketing expense increased from 13.0% in
fiscal 1997 to 26.2% in fiscal 1998. The increase was primarily a result of
increased costs of approximately $2.0 million associated with fixed monthly
advertising and placement fees paid to strategic partners, $468,000 of
increased warehouse, shipping and related costs, $936,080 in increased
advertising and promotional costs incurred to build brand recognition and
$880,000 of increases in sales and customer service staffing to support the
growth in sales.
General and Administrative: General and administrative expense increased by
$818,000 from $805,000 in fiscal 1997 to $1.6 million in fiscal 1998. The
dollar increase in general and administrative expense was due to increases in
both executive and administrative personnel and office expenses associated
with such personnel. As a percentage of net sales, general and administrative
expense decreased from 7.5% in fiscal 1997 to 7.1% in fiscal 1998.
Technology and Development: Technology and development expense increased by
$676,000 from $382,000 in fiscal 1997 to $1.1 million in fiscal 1998. As a
percentage of net sales, technology and development expense increased from
3.5% in fiscal 1997 to 4.7% in fiscal 1998. The increase in technology and
development expense in absolute dollars and as a percentage of net sales was
primarily a result of increases in systems personnel to maintain the Company's
Web site and technology infrastructure, as well as systems and software
upgrades required to support the growth in visitors to the Company's Web site.
Other Income (Expense), Net: Other income (expense), net consists of
interest expense attributable to a convertible debenture, a bridge loan,
short-term loans and leases offset by interest income earned by the Company on
overnight investments of its cash balances in money market accounts. Other
income (expense), net decreased from income of $630 in fiscal 1997 to an
expense of $624,000 in fiscal 1998. This change was
24
<PAGE>
primarily a result of an increase in interest expense related to the
amortization of the original issue discount in connection with the bridge
loan.
Net Loss: As a result of the foregoing factors, the Company incurred a net
loss of $7.1 million in fiscal 1998 compared to a net loss of $1.3 million in
fiscal 1997.
YEAR ENDED FEBRUARY 28, 1997 COMPARED TO THE YEAR ENDED FEBRUARY 29, 1996
Net Sales: Net sales increased by $8.9 million from $1.9 million in fiscal
1996 to $10.8 million in fiscal 1997. This increase was primarily a result of
an increase in the Company's customer base and repeat purchases from existing
customers of the Company. At the end of fiscal 1997, the Company had
approximately 32,500 customer accounts as compared to 5,500 at the end of
fiscal 1996. International sales represented approximately 47% of net sales in
fiscal 1997 as compared to 62% in fiscal 1996. The Company believes that this
decrease was primarily the result of an increase in domestic sales due to its
focus on the development and implementation of certain domestic marketing
programs during fiscal 1997. Advertising revenues were not material in the
years ended February 29, 1996 and February 28, 1997.
Cost of Sales: Cost of sales increased by $7.8 million from $1.7 million in
fiscal 1996 to $9.5 million in fiscal 1997. This increase was primarily a
result of an increase in product sales volumes. The Company's gross profit
increased by $1.1 million from $163,000 in fiscal 1996 to $1.3 million in
fiscal 1997 primarily as a result of the Company's growth in revenues. As a
percentage of net sales, the Company's gross margin increased from 8.8% in
fiscal 1996 to 11.6% in fiscal 1997. This increase was primarily due to price
increases implemented by the Company.
Sales and Marketing: Sales and marketing expense increased by $1.2 million
from $218,000 in fiscal 1996 to $1.4 million in fiscal 1997. As a percentage
of net sales, sales and marketing expense increased from 11.8% in fiscal 1996
to 13.0% in fiscal 1997. The increase in sales and marketing expense in
absolute dollars and as a percentage of net sales was primarily a result of
increased advertising and promotional costs of $306,000 incurred to build
brand recognition, increases in sales and customer service staffing of
$458,000 to support the growth in sales and warehouse, shipping and related
costs of $96,000.
General and Administrative: General and administrative expense increased by
$546,000 from $259,000 in fiscal 1996 to $805,000 in fiscal 1997. This
increase was primarily a result of increases in personnel costs and office
expenses associated with such personnel, as well as increased legal and
accounting costs. As a percentage of net sales, general and administrative
expense decreased from 14.0% in fiscal 1996 to 7.5% in fiscal 1997. This
percentage decrease was due to the Company's ability to increase revenue
without a commensurate increase in corporate expenses.
Technology and Development: Technology and development expense increased by
$328,000 from $54,000 in fiscal 1996 to $382,000 in fiscal 1997. As a
percentage of net sales, technology and development expense increased from
2.9% in fiscal 1996 to 3.5% in fiscal 1997. The increase in technology and
development expense in absolute dollars and as a percentage of net sales was
primarily a result of additional personnel to enhance the Company's Web site
and technology infrastructure and systems and software upgrades required to
support the growth in visitors to the Company's Web site.
Other Income (Expense), Net: Other income (expense), net increased from an
expense of $4,000 in fiscal 1996 to income of $630 in fiscal 1997. This
increase was primarily a result of an increase in interest income from
overnight investing, partially offset by an increase in interest paid on
short-term loans and capital leases.
Net Loss: As a result of the foregoing factors, the Company incurred a net
loss of $1.3 million in fiscal 1997 compared to a net loss of $372,000 in
fiscal 1996.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statements of operations
data for the eight quarters ended May 31, 1998. The Company believes this
unaudited information has been prepared substantially on the same basis as the
annual audited financial statements and all necessary adjustments, consisting
of only normal recurring adjustments, have been included in the amounts stated
below to present fairly the unaudited financial statements of the Company. The
operating results for any quarter are not necessarily indicative of the
operating results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------
(IN THOUSANDS)
AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31, NOV. 30, FEB. 28, MAY 31,
1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $2,362 $2,784 $3,866 $3,889 $4,622 $ 6,093 $ 8,077 $11,562
Cost of sales........... 2,062 2,481 3,442 3,541 4,146 5,420 7,418 10,520
------ ------ ------ ------ ------ ------- ------- -------
Gross profit........... 300 303 424 348 476 673 659 1,042
Operating expenses:
Sales and marketing.... 340 392 394 468 760 1,145 3,570 4,009
General and
administrative........ 199 241 237 302 438 373 510 722
Technology and
development........... 48 177 125 294 122 226 416 596
------ ------ ------ ------ ------ ------- ------- -------
Total operating
expenses............ 587 810 756 1,064 1,320 1,744 4,496 5,327
------ ------ ------ ------ ------ ------- ------- -------
Operating loss......... (287) (507) (332) (716) (844) (1,071) (3,837) (4,285)
Other income (expense),
net.................... 5 -- (3) (6) 6 (3) (621) 129
------ ------ ------ ------ ------ ------- ------- -------
Net loss............... $ (282) $ (507) $ (335) $ (722) $ (838) $(1,074) $(4,458) $(4,156)
====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES FOR THREE MONTHS ENDED
----------------------------------------------------------------------------
AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31, NOV. 30, FEB. 28, MAY 31,
1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0%
Cost of sales........... 87.3 89.1 89.0 91.1 89.7 89.0 91.8 91.0
----- ----- ----- ----- ----- ----- ----- -----
Gross profit........... 12.7 10.9 11.0 8.9 10.3 11.0 8.2 9.0
Operating expenses:
Sales and marketing.... 14.4 14.1 10.2 12.0 16.4 18.8 44.2 34.7
General and
administrative........ 8.4 8.7 6.1 7.8 9.5 6.1 6.3 6.2
Technology and
development........... 2.0 6.4 3.2 7.5 2.6 3.7 5.2 5.2
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............ 24.8 29.2 19.5 27.3 28.5 28.6 55.7 46.1
----- ----- ----- ----- ----- ----- ----- -----
Operating loss......... (12.1) (18.3) (8.5) (18.4) (18.2) (17.6) (47.5) (37.1)
Other income (expense),
net.................... 0.2 -- (0.1) (0.2) 0.2 (0.1) (7.7) 1.2
----- ----- ----- ----- ----- ----- ----- -----
Net loss............... (11.9)% (18.3)% (8.6)% (18.6)% (18.0)% (17.7)% (55.2)% (35.9)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Due to the Company's operating strategy, the Company has generally operated
with limited working capital. Most of the Company's customers pay for their
purchases by credit card over the Web and as a result, the Company typically
receives payment for shipments within two to three business days of purchase.
In addition, the Company maintains only moderate levels of the most frequently
purchased products in its inventory at its contract warehouse in Ohio. The
remainder of the Company's inventory is sourced on a just-in-time basis from
the Company's suppliers for immediate delivery to the Company's warehouse. The
Company regularly "cross docks" (i.e., receives products from third party
vendors and distributors and ships those same products out to customers the
same day) and therefore is able to ship non-inventoried products to customers
within two to three days. The Company typically pays these vendors 15 to 30
days after it has sold the products. To date, the Company has not experienced
any delays in order fulfillment that have had a material impact on the
Company. Moreover, because the Company generally keeps only the most
frequently ordered inventory in stock, it experiences rapid inventory turns.
The Company achieved 30 inventory turns in fiscal 1998. As a result of these
factors, the Company's business is capital efficient and does not experience
the liquidity constraints faced by traditional retailers who must maintain
large inventories.
26
<PAGE>
Since inception, Cyberian Outpost has financed its operations primarily
through private sales of Common Stock and Preferred Stock. The Company relied
upon Section 4(2) of the Securities Act, or Regulation D promulgated
thereunder, for its exemption from registration for these sales. Through May
31, 1998, these private financings totaled $23.0 million and included $19.6
million in net proceeds from the sale of Redeemable Series C Convertible
Preferred Stock, and from advances from related parties and certain other
short term loans.
The Company used $10.6 million in cash to fund operations during the quarter
ending May 31, 1998. The Company used $3.0 million and $129,000 in cash to
fund operations in fiscal 1998 and 1997, respectively. In fiscal 1996, the
Company generated $30,000 in cash from operations. In each of these periods,
the Company's principal operating cash requirements were to fund its net loss
and increases in accounts receivable and inventories, offset in part by
increases in accounts payable and accrued expenses.
The Company used $360,000 in cash for investing activities in the quarter
ending May 31, 1998. The Company used $1.3 million, $95,000 and $175,000 in
cash for investing activities in fiscal 1998, 1997 and 1996, respectively. In
each period, net cash used for investing activities relates primarily to the
purchase of property, equipment and systems.
The Company generated $12.2 million in cash from financing activities in the
quarter ending May 31, 1998 and $11.6 million, $146,000 and $264,000 in cash
from financing activities in fiscal 1998, 1997 and 1996, respectively. In the
quarter ending May 31, 1998, financing activities included $13.7 million from
the sale of shares of Redeemable Series C Convertible Preferred Stock. In
fiscal 1998, financing activities included short-term working capital loans of
$2.6 million, net proceeds of $6.0 million from the sale of shares of
Redeemable Series C Convertible Preferred Stock, net proceeds of $2.1 million
from the sale of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock and net proceeds of $1.0 million from the sale of Common Stock
warrants. In fiscal 1997, financing activities consisted primarily of $200,000
in borrowings. In fiscal 1996, financing activities consisted of net proceeds
of $229,000 from the sale of Common Stock and $35,000 in borrowings.
On December 1, 1997, the Company entered into an Interactive Marketing
Agreement with America Online that established Cyberian Outpost as the
exclusive third-party computer hardware and peripherals reseller in AOL's
Computer Superstore and provides that AOL will promote the Company as a non-
exclusive hardware and peripherals reseller in other key portions of the AOL
service and on AOL.COM. The Company is obligated to pay $5.0 million to AOL
during the 14-month term of this agreement. In addition, Cyberian Outpost is
required to share a small proportion of its AOL-derived revenue with AOL.
Pursuant to the agreement, the Company paid an aggregate $400,000 in the
fourth quarter of fiscal 1998 and $4.4 million to date in fiscal 1999. The
remaining $200,000 is due during fiscal 1999. AOL is required to deliver a
certain minimum number of impressions to Cyberian Outpost during the term of
the agreement. Each impression, or page view, represents a person who views a
Cyberian Outpost branded link on another service or Web site. Much like
traditional advertising, which is designed to place a brand name in front of
as many potential customers as possible through television ads, billboards, or
print ads, the goal of Internet-based advertising is to create as many branded
impressions as possible. The Company believes that contracting for impressions
in large quantities allows the Company to maximize brand awareness.
As of May 31, 1998, the Company had $8.5 million in cash and cash
equivalents. As of that date, the Company's material capital commitments
consisted of $319,000 in obligations outstanding under capital leases. The
Company plans to expend approximately $1.0 million in fiscal 1999 in
conjunction with the expansion of the Company's headquarters.
On July 7, 1998, the Company entered into a $2.0 million "flooring" credit
agreement with Deutsche Financial Services Corporation ("DFS") pursuant to
which DFS may, at its option, extend credit to the Company from time to time
to purchase inventory from DFS approved vendors or for other purposes. Under
this agreement the Company can purchase inventory from certain vendors and
elect to have these vendors invoice DFS instead of the Company. DFS pays this
invoice and in turn bills the Company on a periodic basis throughout the
month.
27
<PAGE>
If the Company pays this note within 30 days, it pays no interest. If the note
remains outstanding after 30 days, the Company must pay a .25% fee and
interest accrues at a variable rate based on the prime rate plus 2.5%. If the
note remains outstanding after 181 days, interest begins to accrue at the
prime rate plus 6.5%. The Company currently has no outstanding balance under
this facility. The credit agreement is secured by all of the Company's assets
and the pledge of a $500,000 certificate of deposit.
The Company believes that the net proceeds from this Offering, together with
its current cash and cash equivalents, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. If cash generated from operations is insufficient to
satisfy the Company's liquidity requirements, the Company may seek to sell
additional equity or debt securities or obtain a credit facility. The sale of
additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. There can be no assurance that
financing will be available in amounts or on terms acceptable to the Company,
if at all. See "Risk Factors--Need for Additional Capital."
As of February 28, 1998, the Company had a net operating loss ("NOL")
carryforward of approximately $7.3 million, which begins to expire in February
2011. The utilization of the NOL carryforward will be limited pursuant to the
Tax Reform Act of 1986, due to cumulative changes in ownership in excess of
50%.
YEAR 2000
The Company uses a significant number of computer software programs and
operating systems in its internal operations, including applications used in
order processing, inventory management, distribution, financial business
systems and various administrative functions. Although the Company believes
that its internal software applications contain source code that is able to
interpret appropriately the upcoming calendar year 2000, failure by the
Company to make any required modifications to make such software "Year 2000"
compliant could result in systems interruptions or failures that could have a
material adverse effect on the Company's business. The Company does not
anticipate that it will incur material expenses to make its computer software
programs and operating systems "Year 2000" compliant. However, there can be no
assurance that unanticipated costs necessary to update software, or potential
systems interruptions, will not exceed the Company's present expectations and
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, failure by key service providers to
the Company, such as its contract warehouse and the Company's Web hosting
service provider, to make their respective computer software programs and
operating systems "Year 2000" compliant could have a material adverse effect
on the Company. See "Risk Factors--Year 2000 Compliance."
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997 and requires reclassification of financial statements
for earlier periods provided for comparative purposes. The adoption of this
pronouncement is expected to have no impact on the Company's financial
position or results of operations.
FASB recently issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. This statement establishes standards for
reporting operating segments of publicly traded business enterprises in annual
and interim financial statements and requires that those enterprises report
selected information about operating segments. This statement supersedes SFAS
No. 14, Financial Reporting for Segments of a Business, but retains the
requirements to report information about major customers. This statement also
amends SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries. SFAS No.
131 is effective for financial statements for fiscal years beginning after
December 15, 1997 and requires that comparative information for earlier years
be restated. The adoption of this pronouncement is not expected to have a
material impact on the Company's existing disclosures.
28
<PAGE>
FASB recently issued SFAS No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits. This statement standardizes disclosure
requirements for pensions and other postretirement benefits, and is effective
for fiscal years beginning after December 15, 1997. This statement does not
apply to the Company as the Company does not currently sponsor any pension or
postretirement plans.
The AICPA Accounting Standards Executive Committee recently issued Statement
of Position ("SOP") 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This statement requires that certain
costs related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software, and
is effective for fiscal years beginning after December 15, 1998. The statement
also requires that costs related to the preliminary project stage and post
implementation/ operations stage in an internal-use computer software
development project be expensed as incurred. The Company will comply with the
provisions of SOP 98-1 in fiscal 1999. The adoption of this SOP is not
expected to have a material impact on the Company's financial position or
results of operations.
The AICPA Accounting Standards Executive Committee recently issued SOP 98-5,
Reporting on the Costs of Start-Up Activities. This statement requires that
costs incurred during start-up activities, including organization costs, be
expensed as incurred, and is effective for fiscal years beginning after
December 15, 1998. The Company will comply with the provisions of SOP 98-5 in
fiscal 1999. The adoption of this SOP is expected to have no impact on the
Company's financial position or results of operations.
29
<PAGE>
BUSINESS
Cyberian Outpost is a leading global Internet-only retailer of computer
hardware, software and peripheral products to the consumer and small
office/home office marketplace. With more than 130,000 SKUs, including 115,000
software SKUs available to customers via electronic software download ("ESD"),
Cyberian Outpost offers an online "superstore" at www.outpost.com that
provides one-stop shopping for domestic and international customers 24 hours a
day, seven days a week. The Company's online store features a fun, easy to
navigate interface, competitive pricing, extensive product information and
powerful search capabilities. The Cyberian Outpost Web site has quickly become
one of the most widely known and used e-commerce sites and has received
recognition from numerous publications, including The New York Times and
BusinessWeek. Cyberian Outpost also was named "Best Site for Computer
Equipment" by Money Magazine in September 1997 and was cited as an "e-commerce
trailblazer" by Forbes ASAP in April 1998. To enhance Cyberian Outpost's brand
recognition and increase traffic to its online store, the Company has recently
entered into strategic alliances with Internet content providers and portal
sites such as America Online, Lycos-Bertelsmann, StarMedia, c|net, InfoSpace,
Excite, WebCrawler, theglobe.com and MetaCrawler.
The Company has grown rapidly since its inception in 1995. Net sales
increased from $1.9 million for the year ended February 29, 1996 to $22.7
million for the year ended February 28, 1998. In the quarter ending May 31,
1998, net sales totaled $11.6 million, which represented a $7.7 million
increase over the quarter ending May 31, 1997. During the last four
consecutive fiscal quarters, the Company's quarterly net sales have increased
from $4.6 million to $6.1 million, $8.1 million and $11.6 million,
respectively. Of the more than 124,000 individual customers in over 140
countries worldwide who have purchased from Cyberian Outpost since inception,
more than 90,000 have become customers since March 1, 1997. In addition, the
Company has achieved high levels of average order size and repeat orders. The
Company has an average order size of approximately $250, a number that the
Company believes is significantly higher than many other online retailers.
Repeat customers accounted for approximately 48% of net sales in fiscal 1998.
INDUSTRY OVERVIEW
Electronic Commerce
The Internet is an increasingly significant global medium for communication,
information and commerce. The Company believes that growth in Internet usage
and Web commerce has been fueled by a number of factors including: (i) a large
and growing installed base of PCs in the workplace and home, (ii) advances in
the performance and speed of PCs and modems, (iii) improvements in network
infrastructure, (iv) easier and cheaper access to the Internet and (v)
increased awareness of the Internet. International Data Corporation ("IDC"), a
market research firm, has estimated that there were 69 million Web users
worldwide at the end of 1997 and anticipates that number will grow to
approximately 320 million by the end of 2002. In addition, IDC estimates that
the total value of goods and services purchased over the Internet will grow
from $12 billion in 1997 to approximately $425 billion per year by the end of
2002.
The Company believes that its target market of consumers and small
office/home office businesses represents an attractive and rapidly growing
segment of the e-commerce industry. According to Jupiter, a market research
firm, domestic online consumer purchases of goods and services (excluding cars
and real estate) are expected to grow from an estimated $2.6 billion in 1997
to approximately $37.5 billion by 2002. Jupiter also estimates that the single
largest domestic Web retail opportunity for the consumer and small office/home
office market is online sales of computer products (including hardware,
software and consumer electronics). By 2002, the online consumer market for
computer products is estimated to reach approximately $10.5 billion in the
United States alone, compared to estimated domestic online markets for travel,
books and music of $8.6 billion, $2.2 billion and $1.2 billion, respectively.
IDC estimates the worldwide consumer and small office/home office market for
computer hardware alone (excluding peripherals) will grow from approximately
$50 billion in 1997 to approximately $80 billion per year in 2001.
30
<PAGE>
Traditional Computer Retailing
The traditional computer retail industry includes both store- and catalog-
based companies. Cyberian Outpost believes that these retailers face inherent
structural limitations that may not allow them to take full advantage of the
growing worldwide market for computer hardware and software. The computer
retailing industry is characterized by a broad array of products, rapid
product obsolescence and continuous new product introductions.
Store-based retailers have limited shelf space due to costly inventory and
real estate investment considerations that limit the number of SKUs they can
offer to their customers. The Company believes that large store-based
retailers typically carry only 4,000 SKUs. As a result, hardware and software
manufacturers compete for scarce retail shelf space and access to the large
distributors who supply the store-based retailers. Thus, manufacturers incur a
significant expense to gain this access and retailers face the risk of
carrying inventory that may quickly become obsolete. In addition, the store-
based retailers' merchandising process, which requires that the retailer
physically obtain, set up and display the product, limits the speed at which
these retailers can change their merchandise mix and offer new products.
Further, because store-based retailers must make significant investments in
inventory, real estate and personnel at each location, they are not able to
expand quickly into new geographic regions. Personnel costs also limit the
hours during which store-based retailers may operate, thereby limiting
customer convenience. Moreover, store-based retailers face challenges in
hiring, training and maintaining knowledgeable sales staff conversant and up-
to-date on the broad array of hardware and software products.
While catalog retailers provide customers with the convenience of shopping
from home or the office at flexible times, the number of SKUs they can feature
and the product information they can provide are limited due to catalog
mailing, printing and other related expenses. The Company believes that a
typical catalog retailer carries up to 50,000 active SKUs, but only features
between 2,000 and 3,000 SKUs in any single catalog. Further, the catalog
shopping experience is, in general, neither interactive nor personalized, yet
requires extensive personnel support and manual intervention on behalf of the
retailer to take and process orders. The Company also believes that many
catalog retailers focus primarily on the corporate market.
The Company believes that the business model of the traditional computer
retail industry results in inefficiencies that are exacerbated by, among other
things, the broad array of products and the rapid change that characterize the
computer industry. The Company believes that Internet-based computer retailers
are well positioned to solve these inefficiencies.
THE CYBERIAN OUTPOST SOLUTION
The Company understands the key business challenges of the computer
retailing industry and uses the unique environment of the Internet to address
those challenges. The key operating advantages of the Cyberian Outpost online
store are:
Attractive economics of the "virtual" store. As an Internet-only merchant,
Cyberian Outpost enjoys structural economic advantages relative to traditional
retailers including: (i) low-cost and essentially unlimited "shelf space,"
(ii) flexible advertising and affordable merchandising opportunities, (iii)
lower personnel requirements, (iv) scaleable technology and systems that can
serve a fast-growing customer base and (v) the ability to serve a worldwide
customer base from a single, domestic location. The Company's investments in
its Web site, content, marketing and technology will be leveraged over a
growing global sales base resulting in substantial economies of scale that the
Company believes should enable it to achieve greater operating margins than
traditional computer retailers.
One-stop shop. Because Cyberian Outpost's "shelf space" is low-cost and
essentially unlimited, the Company offers a broad selection that would be
economically or physically impractical to stock in a store or to include in a
typical mail-order catalog. Cyberian Outpost currently offers more than
130,000 hardware, software and peripheral SKUs. Cyberian Outpost's product
selection includes computer hardware such as PC- and Mac-based desktops and
laptops, personal digital assistants (PDAs), printers, modems, memory and
accessories,
31
<PAGE>
packaged software for both home and office use, games and utilities. These
products are produced by a wide variety of manufacturers that include Apple
Computer, IBM, Toshiba, Hewlett Packard, 3Com, Connectix, Intel, Symantec,
Epson, Electronic Arts, Acer, Compaq and Broderbund.
Global customer base. With its global reach, the Company can deliver a broad
selection of products to customers in international, rural or other locations
that are unable to support large-scale physical stores. Orders for in-stock
items are generally processed for next morning delivery throughout the U.S.
and delivery within 48-72 hours internationally. In addition, the translation
of portions of the Web site into nine foreign languages and the accessibility
of the site 24 hours a day, seven days a week, enables the Company to offer
the same retail experience to customers around the world.
Value-added online content. In addition to offering the products themselves,
Cyberian Outpost's Web site delivers value-added content, including extensive
product descriptions. The Company's free e-mail newsletter, Cyberian Express,
delivers product information and updates to over 26,000 subscribers weekly. As
part of the Company's ongoing brand building strategy, Cyberian Outpost
intends to refine and enhance its "editorial voice" by supplementing external
content with its own commentary delivered in the Company's fun and irreverent
style.
Convenient 24 hour shopping. Purchasing items from Cyberian Outpost is more
convenient than shopping in a physical store or through a catalog. The
Cyberian Outpost Web site is open 24 hours a day, seven days a week and may be
reached from the buyer's home or office. The Company has found that its
customers access the site around the clock. Based on a sample of recent
orders, approximately 14% of orders were received from midnight to 6 a.m.
Eastern Time, 29% from 6 a.m. to 12 p.m. Eastern Time, 29% from 12 p.m. to 6
p.m. Eastern Time and 28% from 6 p.m. to midnight Eastern Time. The Company
believes that customers may buy more items because they have more hours to
shop, can act immediately on impulse purchases and can more easily locate
items that are hard to find in stores or catalogs.
Customer service. In addition to the product and order tracking information
that is available on Cyberian Outpost's Web site, the Company provides pre-
and post-sales support via both e-mail and toll-free telephone service.
Although over 85% of orders are placed directly on the Web, customers can also
contact the Company to obtain guidance for product selection, learn about
product compatibility and availability and, if they wish, place orders. Once
an order is made, customers can view order tracking information on the Web or
contact the Company's customer service department to obtain the status of
their order and, when necessary, resolve order and product questions. The
Company trains its sales and customer service representatives to offer
solutions and extend the level of service needed to satisfy the customer.
Low-cost, alternative distribution channel for manufacturers. Cyberian
Outpost offers manufacturers a direct, low-cost retail channel. In contrast to
store-based retailers that often charge for shelf space and catalog retailers
that often require up-front payments, all of Cyberian Outpost's products are
carried free of charge. In addition, the Company can offer manufacturers
special merchandising opportunities, such as bundling of products and advance
demand information on new product introductions, at very low or no cost. These
programs can be introduced with minimal lead time because of the flexibility
of the Internet as a marketing medium in publishing and disseminating new
information.
STRATEGY
In an effort to become the leading global Internet-only retailer of computer
hardware, software and peripheral products to the consumer and small
office/home office marketplace, the Company is pursuing a strategy consisting
of the following key elements:
Focus on consumer online retailing of computer products. The Company's
merchandising strategy is tailored to consumers in terms of product selection,
site design and selection of affiliate and linking programs. The Company's
online store features a wide variety of games and gaming accessories, a full
complement of
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education and entertainment software titles for children, a large selection of
desktop computers priced under $1,000, and a broad array of other hardware,
software and peripherals designed for the consumer market. The Company's
affiliate and linking programs are focused on consumer sites such as chat
groups and personal-interest Web sites. Additionally, the Company believes
that the design of the www.outpost.com store, with its cartoon graphics,
colorful environment and fun and irreverent edge, enhances its position as a
leading online consumer retail brand, making www.outpost.com the site of
choice for computer product buyers.
Build brand recognition through multiple marketing channels. To maximize
customer awareness, expand its customer base cost effectively and avoid
reliance on any one source of customers, the Company seeks to build brand
recognition through multiple marketing channels:
. Alliances with major Internet portal sites. Cyberian Outpost believes
that broad distribution alliances with Internet portal sites build brand
recognition, increase market share and attract customers to the Company.
Accordingly, the Company recently has entered into strategic alliances
with America Online, Lycos-Bertelsmann, StarMedia, c|net, InfoSpace,
Excite, WebCrawler, theglobe.com and MetaCrawler. The Company carefully
evaluates each potential alliance and strives to ensure that the fees
associated with it are cost-effective in terms of the potential customers
to be acquired, potential revenue to be generated, the level of
exclusivity and brand exposure.
. Web-based and traditional advertising. The Company utilizes aggressive
online advertising to promote both its brand name and specific
merchandising opportunities on a wide variety of Web sites, including
major content and service providers, targeted computer-related sites and
niche, special-interest sites. The Company also intends to conduct a more
traditional media-based advertising campaign that will include
television, radio and print advertising.
. Linking and affiliate programs. To direct traffic to its Web site, the
Company has created over 20,000 inbound links that connect directly to
www.outpost.com from other sites on the Web. These links, most of which
are free to Cyberian Outpost, allow potential customers to simply click
on the link and become connected to the Company's Web site from search
engines, manufacturers' Web sites and community and affinity sites. In
addition, in order to increase exposure on the Internet and directly
generate sales, the Company has recently initiated an affiliates program
pursuant to which registered affiliates are paid a referral fee for any
sale generated via their link to www.outpost.com.
. Direct online marketing. The Company markets directly to its customers
through its in-house electronic newsletters, Cyberian Express, Gamer's
Express and Beta Report, and sends targeted merchandising e-mails to
discrete segments of its customer database based on purchasing history.
The Company intends to continue to use the unique resources of the
Internet as a low-cost means of personalized marketing.
Exploit international market opportunities. Cyberian Outpost believes that
the Web offers a unique opportunity for retailers to reach the international
market for computer hardware and software products, a market that the Company
believes to be approximately equal to the size of the domestic market for such
goods. An Internet retailer like Cyberian Outpost has key advantages
internationally because it is not encumbered with inefficient, international
distribution mechanisms that lead to higher prices and lack of product breadth
and depth. By translating portions of its Web site to nine foreign languages
(French, Spanish, German, Italian, Dutch, Portuguese, Japanese, Chinese and
Korean) and arranging rapid shipping to international destinations, the
Company attracted approximately 36% of its fiscal 1998 net sales from foreign
buyers. The Company believes that catalog and store-based retailers are
typically prohibited from shipping products internationally as a result of
limitations set forth in marketing and cooperative advertising agreements they
sign with product manufacturers.
Promote repeat purchases. The Company's strategy is to build customer
loyalty and thereby promote repeat buying by providing enhanced product
information to consumers, efficient site navigation and search capabilities,
personalized services and communications, and a broad range of immediately
available products. For example, the Company intends to customize its Web site
content for repeat customers based upon order history, platform of choice and
other criteria. The Company believes that these strategies will enable it to
maintain a significant level of repeat purchases, which accounted for
approximately 48% of net sales in fiscal 1998.
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Leverage technology to maximize business impact. The Company's technology
team leverages the unique efficiencies of the Internet, such as the ability to
make changes in merchandising and content in real-time and at low cost, to (i)
personalize the user experience, (ii) increase merchandising effectiveness and
(iii) improve operating efficiency. For example, Cyberian Outpost is
developing systems to personalize visitors' shopping experiences by re-
merchandising the store in real-time for individual shoppers. By targeting
content and promotions such as e-mails, newsletters and store advertising,
www.outpost.com can deliver more compelling promotional programs. The Company
will also use such technology to lower transaction costs and improve the
customer experience through (i) the automation of customer service functions
such as automated e-mail responses and online in-stock status, (ii) product
management such as using automation to update the product database and create
upsells and links to product reviews and (iii) communications with suppliers
including Electronic Data Interchange ("EDI") for purchasing and automated
payment methods for accounting.
THE CYBERIAN OUTPOST RETAIL EXPERIENCE
The Company believes its attractive, easy-to-shop, online superstore offers
a competitive advantage. The user interface is simple, the look-and-feel is
playful and entertaining, and navigation is consistent throughout the site. As
with a physical retail store, customers can browse the departments of the
store, search for specific needs, see promoted products, obtain product
information, order products and ask for customer service. In contrast to a
physical retail store, however, the consumer can accomplish the shopping
experience in the comfort and convenience of his or her home or office. Set
forth below is a graphic illustration of the Company's homepage and the
Cyberian Outpost retail experience:
LOGO
Browsing. The Company has categorized the products that it currently offers
into a simple set of departments and sub-departments. By clicking on the
department name, the consumer can quickly target products of interest. Some of
the departments, such as Software, PC and MAC, are permanently displayed.
Others, such as digital cameras, reflect categories of hot selling products
and change opportunistically.
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Searching. A primary feature of the Cyberian Outpost Web site is its
interactive search engine. The Company provides a selection of search tools
that allows customers to find items based on pre-selected criteria such as
product type, platform, manufacturer or publisher. Customers can also use more
complex and precise search tools such as Boolean search queries.
Merchandising. The Company actively works with manufacturers to create
special bundles of products and to secure superior bargains for its customers.
These specials are featured prominently throughout the Web site and promote
"impulse buying." The promotions are displayed "in context," meaning, for
example, that promotions related to networking would be seen primarily in the
networking department.
Product Information and Ordering. For most products, detailed information is
available, including descriptions, system requirements, screen shots, product
packaging and product demonstrations. To purchase products, customers simply
click on a button to add products to their virtual shopping baskets. Customers
can add and subtract products from their shopping baskets as they browse,
prior to making a final purchase decision, just as in a physical store. To
execute orders, customers click on the "buy" button and are prompted to supply
shipping and credit card details online or by e-mail, facsimile or telephone.
Over 85% of the Company's orders are placed directly on the Web by customers.
Customers are then offered a variety of shipping options, although most
domestic customers choose overnight delivery due to the low rates the Company
has negotiated. Overseas customers receive delivery via DHL. Prior to
finalizing an order, customers are shown the actual shipping charges for their
order and, for domestic orders, can choose less expensive shipping methods.
The Company's system automatically confirms each order via e-mail and advises
customers about any backorders. International customers receive an additional
notification when their order is shipped.
Customer Service. The Customer Service area of the Company's Web site
contains extensive information about shopping for, ordering and returning
products. Shipping charges, payment options, and other policies are explained
for the customer. Help buttons on every page of the site take customers to the
specific customer service topic they need. Customers can track the current
status of their orders, including getting the shipper tracking numbers.
Because the concept of Internet retail is new to many people, the Company
prominently displays its toll-free number throughout the site. A team of
customer service agents is available to answer customer questions about
products and the shopping process.
Editorial Content. One of the unique advantages of an Internet retail store
is the ability to interweave editorial content and product information. The
Company has a small team of writers that creates product information, reviews
and informational content for the site. Discussions are currently underway
with third party content providers to link the Company's Web site to reviews
of thousands of the Company's products in order to enable the Company's
customers to make more informed purchasing decisions. The Company believes
that fresh, entertaining content adds to the customer experience, increases
conversion rate (the number of visitors to the site who make purchases) and
differentiates the Company from other online retailers.
International Sites. The Company has translated its Home Page and all
customer service and ordering information on its Web site into nine foreign
languages. These pages are accessed by selecting a national flag representing
the language of choice and a currency converter is available to provide
immediate local pricing information. The Company believes that international
markets will continue to represent a significant portion of the Company's
sales since many products offered by Cyberian Outpost are not otherwise
available in these markets. IDC projects that in 2001 approximately 60% of PCs
will be sold outside North America. The Company generated approximately 36% of
its fiscal 1998 net sales from foreign buyers.
BEHIND THE SCENES
Tracking and Information Gathering. Once a customer places an order, the
process for tracking and fulfilling the order occurs with limited human
intervention. The Company provides its customers with e-mail verification of
order placement, backorders and shipping confirmation. Order tracking
information is available 24 hours a day for all customers. In addition,
Internet software technology allows the Company to gather much
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more detailed information about the purchase and the customer. For example,
the Company tracks the source of each order to identify which Web sites are
generating the most business for the Company. This information, combined with
customer profile information gathered throughout the ordering process, creates
a very powerful direct marketing database. The Company utilizes this database
to create repeat business.
Personalization and Targeting. The Company offers its customers a free,
weekly e-mail newsletter with news about new product releases, specials,
advance orders and industry events. The Company is currently developing and
implementing systems that will (i) customize the content of newsletters and
targeted e-mails based on order history, platform of choice and other buying
criteria and (ii) provide the Company with the browsing and buying history of
visitors to its site. The Company intends to use this data to personalize the
shopping experience, including re-merchandising the site for customers with
differing buying and shopping histories.
Distribution and Fulfillment. The vast majority of product shipped by the
Company passes through its contract warehouse, located in Wilmington, Ohio,
which stores the Company's most popular inventory for immediate shipment to
customers. Since the warehouse is located at Airborne Express's hub and only
one hour from the Cincinnati-based hub of the Company's primary international
shipper, DHL, Cyberian Outpost is able to process orders late into the day.
Orders for in-stock items placed by midnight Eastern Time are processed for
next morning delivery in the United States and delivery within 48 to 72 hours
overseas. Orders for released products not in the Company's warehouse are
usually available for shipment within 24 to 48 hours. The Company also takes
advance orders for not yet released products and ships them immediately upon
release from the manufacturer. Some orders are drop-shipped directly to
customers from the manufacturer.
Site Development and Enhancement. Cyberian Outpost strives to keep its site
one of the most innovative, creative and fun destinations on the Web through
the use of technology and the creative talent of its employees. Among other
technology objectives, the Company intends to provide increasingly valuable
personalized service programs and make the user interface even more intuitive,
engaging and fast. The Company has technology and systems plans in place to
support the Company's evolving merchandising and operational needs and to keep
the overall Cyberian Outpost shopping experience at the forefront of Web
retailing.
MARKETING AND PROMOTION
The Company's marketing strategy is to promote, advertise and increase its
brand visibility and acquire new customers through multiple channels,
including: (i) developing strategic alliances with major portal sites, (ii)
advertising on leading Web sites and other media worldwide, (iii) expanding
the Company's affiliates network and linking programs and (iv) direct
marketing to existing and potential customers. The Company believes that the
use of multiple marketing channels reduces reliance on any one source of
customers, lowers customer acquisition costs and maximizes brand awareness.
Strategic Alliances. Forming strategic alliances with Internet service and
content providers can be a source of significant new Web site traffic and
customers. These strategic alliances generally provide for the Company to be
the most prominent computer retailer on certain of the Web sites of these
providers with the exclusive right to place computer banner advertisements and
integrated links to the Cyberian Outpost Web site on certain computer related
pages. The alliances generally require the Company to pay either up-front or
periodic fees and payments based upon a percentage of the net revenue
generated through the alliance. The agreements are typically entered into for
an initial term of one year with the Company having a right to renew at
specified times on certain conditions, or for additional fees and/or increased
revenue sharing. The Company believes that the agreements provide it several
key benefits, including (i) enhancing awareness of the Cyberian Outpost brand
and extending the Company's market reach, (ii) building the Company's customer
base and (iii) generating sales. Typically, these agreements guarantee the
Company a certain number of impressions per year. The Company has the
following strategic alliances in place:
. AMERICA ONLINE. In December 1997, the Company entered into an agreement
with America Online establishing the Company as the exclusive third-party
computer hardware and peripherals retailer in
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America Online's Computer Superstore. AOL has also agreed to promote the
Company as a hardware, software and peripherals retailer in other key
areas of the America Online service, including the Buyer's Guide and
Shopping Channel, on a non-exclusive basis. The Company also has a
significant presence on www.aol.com, AOL's primary Web site. Further, AOL
is required to deliver a certain minimum number of impressions to
Cyberian Outpost during the term of the agreement. The Company is
obligated to pay $5.0 million to AOL during the 14-month term of this
agreement, $4.8 million of which has been paid to date. In addition, the
Company is required to share a small portion of its AOL-derived revenue
with AOL, and the Company also granted a warrant to AOL. The Company has
agreed to provide a comprehensive offering of its products and content
through AOL; offer products that are competitive in price; and manage,
operate and support such products and content. The agreement is renewable
at the option of either the Company or AOL upon satisfaction of certain
conditions. Upon renewal, the Company is obligated to pay AOL additional
fees and an additional portion of the warrant granted to AOL becomes
exercisable. AOL may terminate the agreement in the event of a material
breach or the Company's failure to deliver satisfactory products or
content.
. LYCOS-BERTELSMANN. In March 1998, the Company entered into an agreement
with Lycos-Bertelsmann, a leading European operator of Web sites.
Pursuant to the agreement, the Company is the premier computer retailer
in the "Shopping" area and the exclusive online computer hardware and
software retailer in all other areas of the Lycos-Bertelsmann Web sites.
Lycos-Bertelsmann is required to deliver a certain minimum number of
impressions over the one-year term of the agreement. The Company is
obligated to pay both an initial fee and monthly fees. In addition, the
Company is obligated to share a small portion of its Lycos-Bertelsmann
derived revenue with Lycos-Bertelsmann once such revenue exceeds a
specified amount.
. STARMEDIA. In May 1998, the Company signed a non-binding letter of intent
with StarMedia, a proprietary on-line service for Latin America, pursuant
to which the Company and StarMedia have agreed to execute a definitive
agreement whereby the Company will be the exclusive broad-based reseller
of new PC computer hardware, software and peripherals in the StarMedia
Network. If a definitive agreement is entered into, StarMedia will be
required to deliver a certain minimum number of impressions to Cyberian
Outpost during the term of the agreement. The agreement will provide for
a one-year term; however, the parties will agree to negotiate for a
renewal term six months following commencement of the agreement, subject
to the right of the Company to terminate the agreement at the end of the
initial term. StarMedia may terminate the agreement upon 60 days notice
if it receives a certain number of customer complaints regarding the
Company for two consecutive months. In addition to paying monthly fees,
the Company will be required to share a small portion of its StarMedia-
derived revenue with StarMedia once such revenue exceeds a specified
amount.
. C|NET. In January 1998, the Company entered into an agreement with c|net,
an operator of Web sites that are estimated to have had over nine million
visitors in March 1998 alone. Pursuant to the agreement, c|net will
provide the Company with banner advertisements and links on certain of
c|net's Web sites. Pursuant to the agreement, the Company will be
prominently featured throughout the c|net Web sites and is one of only
three computer retailers featured on any c|net site. c|net is required to
deliver a certain minimum number of impressions to the Company during the
one-year term of the agreement. The Company is obligated to pay c|net
monthly fees and is required to share a small portion of its c|net-
derived revenue with c|net. Either party may terminate the agreement upon
30 days notice at any time after the first three months of the term.
. INFOSPACE. In January 1998, the Company entered into an agreement to be
featured on InfoSpace, a Web directory site with approximately 6.5
million visitors per month. InfoSpace is obligated to provide links to
the Company's Web site in various locations throughout its site including
its E-shopping site. InfoSpace is also required to deliver a certain
minimum number of impressions to Cyberian Outpost during each month of
the one-year term. The Company is required to pay monthly fees and is
obligated to share a small portion of its InfoSpace-derived revenue once
such revenue exceeds a specified amount
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in any given month. Beginning six months after commencement of the
agreement, either party may terminate the agreement at any time.
. EXCITE AND WEBCRAWLER. In December 1997, the Company entered into an
agreement with Excite giving it featured placement on the Excite Network
and Webcrawler Shopping Channel main pages, as well as targeted
promotions in various locations throughout these Web sites. Excite is
required to deliver a certain minimum number of impressions to the
Company during the one-year term of the agreement. The Company is
obligated to pay a one-time sponsorship fee at the commencement of the
agreement and an annual fee in equal monthly installments. In addition,
the Company is obligated to share a small portion of its Excite Network-
derived revenues with Excite.
. THEGLOBE.COM. In May 1998, the Company entered into an agreement with
theglobe.com, a leading usenet (bulletin board) posting site with
approximately 1.3 million members. Pursuant to the agreement, the Company
will be the exclusive retailer of computer products in theglobe.com's
Marketplace. theglobe.com is required to deliver a certain minimum number
of impressions to the Company during each month of the six-month term of
the agreement. The Company is obligated to pay monthly fees to
theglobe.com, and the parties have agreed to negotiate for possible
additional revenue sharing to be paid to theglobe.com beginning three
months after the commencement of the agreement. The agreement will
continue after the initial six month term until terminated by either
party upon 60 days notice.
. METACRAWLER. In May 1998, the Company renewed its agreement with go2net
to be the exclusive computer products retailer on go2net's MetaCrawler
home page. go2net is required to deliver a certain minimum number of
impressions to the Company during each month of the three month term of
the agreement. The Company is obligated to pay monthly fees to go2net.
go2net may terminate the agreement at any time.
Online and Traditional Advertising. The Company drives Web traffic directly
to its site by advertising on other Web sites worldwide such as The Microsoft
Plaza, HotBot, ComputerESP, PC Guide, MacCentral, TidBits/NetBits, Filez,
Angelfire, Bargain America and FamilyPC. The Company uses ad-server
technology, which allows it to change its advertising on-the-fly by delivering
program code directly to the ad site which the Company then changes at will
from its own site. To date, nearly all advertising has been developed in-
house. Advertising sites are chosen based on the cost relative to their
ability to generate traffic for Cyberian Outpost and the likely audience. The
Company also participates in numerous in-house and manufacturer sponsored
promotions. These promotions are all Web-based and are geared to time of year,
specific manufacturers, product categories and buyer segments. Cyberian
Outpost believes that traditional advertising including television, radio and
print, will become a component of its marketing mix in the future. These
traditional advertising venues can build brand awareness and promote the
benefits of e-commerce.
Linking and Affiliate Programs. To direct traffic to its Web site, Cyberian
Outpost has aggressively pursued a grass roots marketing program, the
cornerstone of which is the Company's linking program, to create inbound links
to its Web site from other sites on the Web. These links allow potential
customers to simply click on the link and be connected to the Company's Web
site from other search engines, manufacturers' Web sites, community and
affinity sites and home pages. According to The Visibility Index produced by
Word of Net Promotions (www.wordofnet.com), the Company has over 20,000 such
inbound links to its Web site. In addition, the Company has recently created
the Outpost Affiliate Network, a marketing tool that increases exposure on the
Internet and directly generates sales. Registered affiliates are paid a
referral fee, in most cases 3% of the net invoice value for any sale generated
via the affiliate's link to the Company's Web site, less any returns. Cyberian
Outpost currently has 300 registered affiliates with over 500 unique domains
displaying the Company's logos and banners, of which nearly 50% are either
computer or shopping related sites. In addition to these paid affiliates,
manufacturers and other affinity sites link directly to the Company's home
page. In order to join the Outpost Affiliate Network, prospective affiliates
complete an automated application form online that is generally approved
within 48 hours by a member of the Company's staff. The Company promotes the
program via links on its Web page and through LinkShare, its affiliate
marketing partner. In fiscal 1998, no single affiliate accounted for in excess
of 1% of the Company's net sales. These agreements are terminable at will by
either party.
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Direct Marketing. The Company's in-house newsletters, Cyberian Express,
Gamer's Express and Beta Report, allow it to communicate on a regular basis
with its customers who have requested to be updated on new arrivals and other
product news. To satisfy the wide breadth of interests of the Cyberian Express
recipients, featured and special products are presented in both PC and Mac
formats and in a wide variety of product categories. The Gamer's Express is
more narrowly focused on game-playing enthusiasts in both the PC and Mac
formats. This proactive marketing approach allows the Company to alert
existing customers to new buying opportunities. Cyberian Express is also
translated into Kanji and sent to more than 20,000 subscribers in Japan.
WAREHOUSING AND FULFILLMENT
The Company obtains products from a network of distributors, hardware
manufacturers and software publishers. It carries a moderate level of
inventory and relies to a large extent on rapid fulfillment from major
distributors and wholesalers that carry a broad selection of titles. The
Company purchases a substantial portion of its products from large
distributors such as Ingram Micro and MicroAge who have inventory at
distribution centers around the country.
In July 1997, the Company moved its inventory, warehousing and fulfillment
operations to a 120,000 square-foot facility located in Wilmington, Ohio that
is leased and managed by an unaffiliated third-party fulfillment company. In
addition to warehousing services, the manager of the warehouse also provides
order fulfillment services for the Company. The warehouse, which is located at
the Airborne Express hub, can accept orders until midnight Eastern Time for
next morning delivery in the United States and two day international delivery
(via the DHL hub in Cincinnati, one hour away) for products that are in-stock.
This arrangement has enabled the Company to add seven hours to its shipping
day, deliver Friday orders on Saturday and lower its expected warehousing and
shipping costs. The Company regularly "cross docks" (i.e., receives products
from third party vendors and distributors and ships those same products out to
customers the same day) and therefore is able to ship non-inventoried products
to customers within two to three days.
The Wilmington warehouse is connected to the Company's information systems
via a dedicated 56K frame relay connection provided by AT&T. A backup circuit
is maintained by Sprint. This gives the Company real-time data on inventory
receiving, shipping, inventory quantities and inventory location. In addition,
the Company offers a real-time order tracking system for its customers on the
Web. The moment a package is shipped and assigned an Airborne, UPS or DHL
airbill tracking number, the customer's order information is updated. Returns
processing is also handled using this system, allowing returned products to be
promptly returned to the manufacturer for credit.
This high level of automation and the Company's ability to maintain moderate
levels of inventory helps the Company maintain rapid inventory turns. In
fiscal 1998, the Company achieved 30 inventory turns. The Company has
negotiated special shipping terms with its major distributor suppliers with no
freight charged on UPS Ground or FedEx second day delivery. Thus, most
purchase orders placed with its major suppliers for in-stock items are
received within 48 hours of order. To help maintain its ability to turn
inventory quickly, the Company is now in discussions with two of its top
vendors to establish EDI connections to the vendors' inventory information.
Such connections will (i) help to automate the ordering process between the
Company and its vendors and (ii) allow the Company to provide real-time,
online in-stock status information to customers that details product
availability not only in the Company's warehouse, but also at these vendor
locations.
TECHNOLOGY AND SYSTEMS
The Company has implemented a broad array of site management, search,
customer support, transaction-processing and fulfillment systems using a
combination of proprietary technologies and commercially available, licensed
technologies.
The Company's Web front-end is built on industry standard technologies,
including Sun UltraSparc servers, the Solaris operating system, Netscape Web
Servers and Oracle databases. The business logic of the site is contained in a
variety of proprietary programs. A portion of these are written in PERL, a
well known and widely used scripting language. These programs handle user
interface, ordering and customer communications. Other programs, which handle
searching and product description, are implemented with Allaire's Cold Fusion
product, a widely used Web application toolkit.
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These systems run on over 20 redundant Sun Sparc and HP Vectra servers. The
Company's system includes redundant hardware on mission critical components
and the Company believes it can survive the failure of several entire servers
with little or no downtime. Capacity can be quickly and easily expanded
without additional development. The Company's policy is to run key systems at
no more than 60% of capacity to support rapid growth.
Back-end transaction processing is primarily handled by Smith-Gardner and
Associates' MACS II system. MACS II is a mature, widely used application which
(i) accepts and validates orders, (ii) organizes and manages orders with
suppliers, (iii) receives product and assigns it to customer orders, (iv)
manages shipments and (v) integrates inventory management, purchasing and
accounting. The system handles multiple shipment methods, credit card
transaction processing and automated customer communications and allows the
customer to choose whether to receive single or multiple shipments based on
availability. The MACS II system runs on an HP/3000 running MPE/IX and is
highly scaleable.
The Company subcontracts the hosting of its Web servers to an Internet data
center specialist (the "Data Center") with an extensive national network
backbone. The Data Center provides redundant Internet connections to multiple
Internet access points, a secure physical environment, climate control and
redundant power. In addition, the Data Center provides the Company with 24
hour a day, seven days a week system monitoring and escalation. It currently
hosts the Company's Web operations in its New Jersey data center and has more
than adequate available floor space to support the Company's growth in this
facility. Additionally, the Company will be able to support a distributed,
redundant site by placing some of its servers in the Data Center's other
locations around the world. The Data Center currently provides the Company a
dedicated 5 Megabits per second ("MBPS") connection to the Internet, which can
be upgraded to 10 MBPS or beyond quickly and easily. In the near future, the
Company intends to implement a systems plan that may include replacing or
supplementing existing systems with newer technologies. This systems plan will
provide closer integration between front-end and back-end processing, the
ability to add new system features and functionality and improved scaling and
redundancy.
In response to capacity concerns, in fiscal 1998, the Company increased the
number of Web servers from five to 13 and installed one considerably more
powerful server for database functions. The Company also reengineered the
software code for the search engine and the product display engine. Since the
last quarter of fiscal 1998, the Company has rolled out six additional large
servers and believes that it now has adequate capacity for traffic increases.
See "Risk Factors--Risk of Capacity Constraints; Reliance on Internally
Developed Systems."
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. Current and new competitors can launch new sites at a relatively
low cost. In addition, the computer products retail industry is intensely
competitive. The Company currently or potentially competes with a variety of
other companies. These competitors include (i) various traditional computer
retailers including CompUSA and MicroCenter, (ii) various mail-order retailers
including CDW, MicroWarehouse, Insight, PC Connection and Creative Computers,
(iii) various Internet-focused computer retailers including Egghead.com,
software.net and BuyComp.com, (iv) various manufacturers that sell directly
over the Internet including Dell, Gateway, Apple and many software companies,
(v) a number of online service providers including America Online and the
Microsoft Network that offer computer products directly or in partnership with
other retailers, (vi) some non-computer retailers such as Wal-Mart that sell a
limited selection of computer products in their stores and (vii) computer
products distributors which may develop direct channels to the consumer
market. Increased competition from these and other sources could require the
Company to respond to competitive pressures by establishing pricing, marketing
and other programs or seeking out additional strategic alliances or
acquisitions, any of which could have a material adverse effect on the
business, prospects, financial condition and results of operations of the
Company.
40
<PAGE>
The Company believes that the principal competitive factors in its market
are brand recognition, selection, price, variety of value-added services, ease
of use, site content, fulfillment, reliability, quality of search tools,
customer service and technical expertise. Many of the Company's current and
potential competitors have longer operating histories, larger customer bases,
greater brand recognition, and significantly greater financial, marketing and
other resources than the Company. In addition, online retailers may be
acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. The Company is aware that
certain of its competitors have and may continue to adopt aggressive pricing
or inventory availability policies and devote substantially more resources to
Web site and systems development than the Company. Increased competition may
result in reduced operating margins, loss of market share and a diminished
brand franchise, any of which would have a material adverse effect on the
Company. Moreover, companies that control access to transactions through
network access or Web browsers currently promote, and will likely continue to
promote competitors of the Company. There can be no assurance that the Company
will be able to respond effectively to increasing competitive pressures or to
compete successfully with current and future competitors. See "Risk Factors--
Competition."
INTELLECTUAL PROPERTY
Cyberian Outpost has been granted a registered service mark for the name
"Cyberian Outpost," registration date July 2, 1996. The Company claims a
common law trademark for its newsletter name "Cyberian Express." The Company
also has rights to numerous Internet domain names including outpost.com,
cybout.com and cyberianoutpost.com.
EMPLOYEES
The Company believes its success depends to a significant extent on its
ability to attract, motivate and retain highly skilled management and
employees. To this end, the Company focuses on incentive programs such as
employee stock options, competitive compensation and benefits for its
employees and fosters a corporate culture which is challenging, rewarding and
fun. As of June 30, 1998, the Company had 87 full-time and 11 part-time
employees. The Company also employs a limited number of independent
contractors and temporary employees on a periodic basis. None of the Company's
employees is represented by a labor union and the Company considers its labor
relations to be good.
FACILITIES
The Company leases 7,425 square feet of office space in Kent, Connecticut
pursuant to leases expiring in November 1998 and November 1999. These
facilities currently house the Company's executive offices. In addition, in
May 1998, the Company entered into a seven-year lease for an additional 18,000
square feet of office space in a building which is being constructed adjacent
to its present facilities.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to the Company's
knowledge, threatened against the Company.
41
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their ages as of July
7, 1998, and their positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Darryl Peck...................... 39 President, Chief Executive Officer and
Director
Katherine N. Vick ............... 46 Executive Vice President, Chief Financial
Officer and Director
Michael R. Starkenburg........... 26 Chief Technology Officer
Louise R. Cooper................. 51 Vice President of Worldwide Marketing
Larry Berk....................... 44 Vice President and General Merchandise
Manager
Philip J. Rello.................. 37 Vice President of Sales
Charles H. Jackson, IV (2)....... 49 Director
Michael Murray (1)(2)............ 36 Director
William C. Mulligan (2).......... 44 Director
David Yarnell (1)................ 43 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mr. Peck founded the Company in March 1995 and has been President and a
Director since that time. He has served as Chief Executive Officer since April
1998. In 1989, he formed Inline Software, a publisher of game and utility
software titles primarily for the Macintosh platform, and served as its
President until the company was sold to Focus Enhancements in May 1994. From
1989 to 1990, Mr. Peck was President of the New York Mac User's group, which
at the time was the third largest Mac user group in the world.
Ms. Vick has served as Vice President and Chief Financial Officer of the
Company since June 1997 and as a Director since May 1997. She was named
Executive Vice President in May 1998. From January 1997 until June 1997, she
served as a consultant to the Company. From 1986 to June 1997, Ms. Vick was
President of her own strategic and financial planning consulting firm,
Katherine Vick, Ltd. From 1978 to 1986, she was a Principal with Arthur Young
(now Ernst & Young LLP) where she helped develop and lead the Entrepreneurial
Services Consulting Group in New York City.
Mr. Starkenburg has served as Chief Technology Officer of the Company since
July 1997. From December 1996 until July 1997, he led the Web development and
operations team of Digital City, Inc., a content based Internet company. From
August 1995 to December 1996, Mr. Starkenburg worked for America Online, an
Internet service provider, where he was responsible for the development and
operations of several large Internet sites. From November 1991 until joining
America Online, he was an Internet and networking consultant to a variety of
clients, including the International Monetary Fund, the National Academy of
Sciences, and the Information Technology Association of America.
Ms. Cooper will join the Company as Vice President of Worldwide Marketing on
July 13, 1998. From April 1997 until July 1998, she was Vice President,
Marketing Director at Strategic Interactive Group, a subsidiary of Bronner
Slosberg Humphrey, a direct marketing agency, where she was responsible for
the development and execution of strategic Internet initiatives for IBM's
customer base of key and large accounts. From 1993 until April 1997, Ms.
Cooper held several executive positions at Prodigy Services Company, a
consumer online interactive service, including Vice President, OEM Sales. At
Prodigy she was responsible for developing strategic partnerships. From 1995
until 1997 Ms. Cooper held the position of Vice President, Electronic Commerce
and Marketing Services and oversaw Prodigy's entire electronic commerce
initiative.
42
<PAGE>
Mr. Berk has served as Vice President and General Merchandise Manager for
Cyberian Outpost since May 1998. From November 1996 until joining the Company,
he was Worldwide Manager of Electronic Commerce, Marketing and Merchandising
for IBM. From May 1995 until October 1996, Mr. Berk was President of
Mediaphiles, Inc., a catalog retailer of CD-ROM computer software, and from
January 1993 to May 1995 he served as Vice President and General Merchandise
Manager of Staples, Inc., an office products retailer.
Mr. Rello has served as Vice President of Sales of the Company since July
1997. From August 1990 until July 1997, he worked at Micro Warehouse, Inc., a
retailer of computer software and peripherals, where he last served as
Director of Education Sales.
Mr. Jackson has served as a Director of the Company since August 1996. He is
a computer industry entrepreneur and invests in start-up companies at their
earliest stages. In 1993, he co-founded FutureWave Software which was acquired
by MacroMedia in 1996. In 1984, Mr. Jackson founded Silicon Beach Software, a
developer and publisher of Macintosh consumer titles which was sold to Aldus
Corporation in 1990.
Mr. Murray has served as a Director of the Company since May 1997. Since
July 1996, he has been the Managing Director of the Online Venture Fund for
Broderbund Software ("Broderbund"), a software development company, and since
September 1997, he has been the General Manager of the Online Business Unit
for Broderbund. In addition to managing the business unit, Mr. Murray leads
Broderbund's Internet strategy and implementation, and manages an external
Internet incubator facility for Internet startups.
Mr. Mulligan has served as a Director of the Company since February 1998. He
has been a Managing Director of Primus Venture Partners since June 1987. From
June 1985 until June 1987, he was with the Cleveland office of McKinsey &
Company, Inc. Mr. Mulligan also serves on the Board of Directors of Universal
Electronics, Inc., a publicly held company.
Mr. Yarnell has served as a Director of the Company since February 1998. He
has been a General Partner of Brand Equity Ventures since March 1997 and a
Vice President of Consumer Venture Partners since July 1993. From June 1991 to
June 1993 he served as President of Mexx USA, Inc., a contemporary apparel
company.
The Board of Directors of the Company will be divided into three classes as
nearly equal in number as possible upon consummation of this Offering. Each
year the stockholders will elect the members of one of the three classes to a
three-year term of office. Messrs. Mulligan and Yarnell will serve in the
class whose term expires in 1999; Ms. Vick and Mr. Jackson will serve in the
class whose term expires in 2000; and Messrs. Peck and Murray will serve in
the class whose term expires in 2001.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees
of and consultants to the Company, establishes and approves salaries and
incentive compensation for executive officers and administers the Company's
Stock Plans, and an Audit Committee, which reviews the results and scope of
audits and other services provided by the Company's independent public
accountants. See "--Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Jackson, Mulligan and Murray, all non-employee directors, constitute
the Company's Compensation Committee. No executive officer of the Company will
serve as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company do not receive an annual
retainer or any fees for attending regular meetings of the Board of Directors.
Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending such meetings. Non-employee directors are, however, eligible for
participation in the Company's Stock Plans, and the Company may, in the
future, grant non-qualified stock options to non-employee directors as an
incentive to join or remain on the Board of Directors. See "--Stock Plans."
43
<PAGE>
KEY PERSON LIFE INSURANCE
The Company presently maintains key person life insurance in the amount of
$2.0 million on Darryl Peck, the Company's President and Chief Executive
Officer.
EXECUTIVE COMPENSATION
Summary Compensation. The following table presents certain information
concerning compensation paid or accrued for services rendered to the Company
in all capacities during the fiscal year ended February 28, 1998, for the
Company's Chief Executive Officer (the "Named Executive Officer"). .No other
executive officers of the Company earned greater than $100,000 in the fiscal
year ended February 28, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- --------------------------- ---------- --------- ---------------
<S> <C> <C> <C>
Darryl Peck................................ $ 130,539 $ 11,000 $8,150
President and Chief Executive Officer
</TABLE>
- --------
(1)Consists of premiums paid by the Company under a $1.0 million term life
insurance policy for Mr. Peck.
Option Grants. There were no options granted by the Company during the
fiscal year ended February 28, 1998 to the Named Executive Officer.
Option Exercises and Year-End Option Values. The Named Executive Officer did
not exercise any options during the fiscal year ended February 28, 1998 and
did not hold any stock options at February 28, 1998.
EMPLOYMENT AGREEMENTS
On June 2, 1998, the Company entered into employment agreements
(collectively, the "Employment Agreements") with Mr. Peck and Ms. Vick. The
Employment Agreements provide for an initial term of two years and
automatically renew for successive two year terms unless notice of non-renewal
is given by either the Company or the executive. Pursuant to the Employment
Agreements, Mr. Peck and Ms. Vick initially receive annual base salaries of
$175,000 and $150,000, respectively. Each executive is eligible to participate
in any bonus and employee benefit plans provided by the Company for senior
executives. Mr. Peck is also provided a $1.0 million term life insurance
policy. In the event of a termination by the Company without cause, a
termination by the executive as a result of a constructive termination, or the
Company's non-renewal of the agreement at the end of a two-year term (each, a
"Company Termination"), Mr. Peck will receive a lump-sum payment equal to two
years' base salary plus any earned but unpaid bonus for the prior fiscal year.
In the event of a Company Termination, other than as a result of the Company's
non-renewal of the agreement at the end of the two-year term, Ms. Vick will
receive a lump sum payment equal to the greater of one year's base salary or
the amount of base salary otherwise payable in the remainder of such two-year
term. In the event of the Company's non-renewal of the agreement at the end of
the two-year term, Ms. Vick will receive one year's base salary plus any
earned but unpaid bonus for the prior fiscal year. Both executives are also
entitled to the continuation of certain benefits following a Company
Termination. The Employment Agreements provide for option grants to Mr. Peck
and Ms. Vick covering 1,200,000 shares and 300,000 shares, respectively. The
options were granted effective July 7, 1998, and will be exercisable at the
initial public offering price. One-fifth of such options will become
exercisable on July 7, 1999, and the remainder will vest in 48 equal monthly
installments thereafter. In the event of a Company Termination following a
change of control of the Company, the executive will receive a lump sum
payment equal to three years' base salary plus any earned but unpaid bonus for
the prior fiscal year, the options granted pursuant to the Employment
Agreements will become fully exercisable and the executive will be entitled to
the continuation of certain benefits. The Employment Agreements also contain a
one year post termination non-compete and non-solicitation provision on the
part of each executive.
44
<PAGE>
STOCK PLANS
1998 Employee, Director and Consultant Stock Plan
The Company's 1998 Employee, Director and Consultant Stock Plan was approved
by the Company's Board of Directors in June 1998 and by its stockholders in
July 1998 (the "Stock Plan"). The Stock Plan authorizes the grant of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), nonqualified stock options and stock grants
("stock awards"). As of July 7, 1998, a total of 3,186,000 shares of Common
Stock have been reserved for issuance under the Stock Plan, and no shares had
been issued pursuant to stock awards granted under the Stock Plan, 2,102,700
shares were subject to outstanding options and 1,083,300 shares were available
for future grant.
The Stock Plan is administered by the Compensation Committee, which
determines the terms of stock awards granted, including: (i) the exercise or
purchase price and the number of shares subject to each stock award; (ii) the
schedule upon which options become exercisable; (iii) the termination or
cancellation provisions applicable to stock awards; and (iv) the conditions
relating to the right of the Company to reacquire shares subject to stock
awards. The maximum term of options granted under the Stock Plan is ten years.
In the event of an acquisition of the Company, the Compensation Committee
will provide that outstanding options under the Stock Plan be: (i) assumed by
the successor or acquiring entity; (ii) exercised within a specified number of
days, at the end of which period the options will terminate; or (iii)
terminated in exchange for a cash payment equal to the difference between the
option exercise price and the fair market value of the Common Stock at the
time of the acquisition. In the event of an acquisition, the Compensation
Committee may also provide for the full vesting of outstanding stock awards.
1997 and 1998 Incentive Stock Plans
The Company adopted the 1997 Incentive Stock Plan and the 1998 Incentive
Stock Plan (the "Incentive Stock Plans") on July 8, 1997 and January 7, 1998,
respectively. The Incentive Stock Plans authorize the grant of incentive stock
options within the meaning of Section 422 of the Code and nonqualified stock
options. As of July 7, 1998, an aggregate of 1,824,000 shares of Common Stock
has been reserved for issuance under the Incentive Stock Plans. As of July 7,
1998, no shares had been issued upon the exercise of stock options granted
under the Incentive Stock Plans, 1,824,000 shares were subject to outstanding
options and no shares were available for future grant.
The Incentive Stock Plans are administered by the Compensation Committee
which determines the terms of stock options granted, subject to the provisions
of the Incentive Stock Plans, including: (i) the exercise price and the number
of shares subject to each option; (ii) the schedule upon which options become
exercisable; and (iii) the termination or cancellation provisions applicable
to stock options. The maximum term of options granted under the Incentive
Stock Plans is ten years.
In the event of the acquisition of the Company, pursuant to a merger, sale
of assets or otherwise, unless otherwise provided by the Board of Directors,
outstanding options under the Incentive Stock Plans will terminate. If the
acquiring entity does not provide for the grant to optionees of substitute
options on an equitable basis, the Board of Directors may provide for the full
vesting of outstanding options which may then be exercised prior to the
acquisition.
The Stock Plan and the Incentive Stock Plans are collectively referred to
herein as the "Stock Plans."
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The Delaware General Corporation Law (the "DGCL") authorizes corporations to
limit or eliminate the personal liability of directors to corporations and
their stockholders for monetary damages for breach of directors' fiduciary
duty of care. The Certificate of Incorporation limits the liability of
directors of the Company to the Company or its stockholders to the fullest
extent permitted by Delaware law. See "Description of Capital Stock--Delaware
Law and Certain Charter and Bylaw Provisions."
45
<PAGE>
The Certificate of Incorporation provides mandatory indemnification rights
to any officer or director of the Company who, by reason of the fact that he
or she is an officer or director of the Company, is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement
for expenses incurred by such officer or director in advance of the final
disposition of such proceeding in accordance with the applicable provisions of
the DGCL. Such limitation of liability and indemnification may not apply to
liabilities arising under the Federal securities laws and does not affect the
availability of equitable remedies.
There is no pending litigation or proceeding involving a director, officer,
employee or agent of the Company in which indemnification by the Company will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
46
<PAGE>
CERTAIN TRANSACTIONS
PREFERRED STOCK OFFERINGS
In May 1997 and July 1997, the Company raised aggregate gross proceeds of
approximately $2.3 million by completing a private placement of 682,737 shares
of Series A Convertible Preferred Stock with 22 investors at a price of $3.40
per share. 117,646 shares of the Series A Convertible Preferred Stock were
issued to The Jackson Living Trust, a trust for the benefit of Charles H.
Jackson, IV and his wife, in exchange for approximately $400,000 in debt
obligations payable to Mr. Jackson by the Company, as described below. Mr.
Jackson is a Director of the Company and co-trustee of the Jackson Living
Trust. Connecticut Innovations, Incorporated ("CII"), a five-percent
beneficial stockholder of the Company, purchased 183,823 shares of the Series
A Convertible Preferred Stock at a price of $3.40 per share.
In October 1997, the Company raised gross proceeds of $750,000 by completing
a private placement of 163,043 shares of Series B Convertible Preferred Stock
with two investors at a price of $4.60 per share. Winfield Capital Corp., a
five-percent beneficial stockholder of the Company, purchased 155,443 shares
of the Series B Convertible Preferred Stock at a price of $4.60 per share. In
addition, in connection with the Series B Convertible Preferred Stock
financing, Winfield Capital Corp. purchased a $750,000 convertible debenture
from the Company that was convertible into shares of Series B Convertible
Preferred Stock at a conversion price of $4.60 per share. This debenture was
converted into 163,043 shares of Series B Convertible Preferred Stock in April
1998.
In February 1998 and March 1998, the Company raised aggregate gross proceeds
of approximately $22.0 million by completing a private placement of 2,770,125
shares of Redeemable Series C Convertible Preferred Stock with 58 investors at
a price of $7.96 per share. Primus Capital Fund IV Limited Partnership
("Primus"), a five-percent beneficial stockholder of the Company, purchased
500,000 shares of the Redeemable Series C Convertible Preferred Stock at a
price of $7.96 per share. William C. Mulligan, a Director of the Company, is a
Managing Director of Primus. Brand Equity Ventures I, L.P. ("Brand"), a five-
percent beneficial stockholder of the Company, purchased 375,000 shares of the
Redeemable Series C Convertible Preferred Stock at a price of $7.96 per share.
David Yarnell, a Director of the Company, is a General Partner of Brand. CII,
a five-percent beneficial stockholder of the Company, purchased 125,000 shares
of the Redeemable Series C Convertible Preferred Stock at a price of $7.96 per
share. Winfield Capital Corp., a five-percent beneficial stockholder of the
Company, purchased 125,000 shares of the Redeemable Series C Convertible
Preferred Stock at a price of $7.96 per share.
Upon consummation of the Offering, pursuant to the Preferred Stock
Conversion, each outstanding share of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Redeemable Series C Preferred Stock
will be converted into three shares of Common Stock.
OTHER RELATED PARTY TRANSACTIONS
In November 1995, Charles H. Jackson, IV, purchased 600,000 shares of Common
Stock for an aggregate purchase price of $200,000. In addition, in November
1996, December 1996 and May 1997, Mr. Jackson loaned the Company $50,000,
$100,000 and $250,000, respectively. All of such loans were converted into an
aggregate of 117,646 shares of Series A Convertible Preferred Stock in May
1997.
In March 1997, Stanley Peck, father of Darryl Peck, loaned the Company
$100,000 at an annual interest rate of 9%. The loan, plus accrued interest,
was repaid in full in May 1997.
In January 1998, Winfield Capital Corp., a five-percent beneficial
stockholder of the Company, loaned the Company $2.0 million at an interest
rate of 12.5%. The loan, plus accrued interest, was repaid in full in March
1998. In connection with this loan, Winfield Capital Corp. was issued a
warrant, exercisable as of February 27, 1998, to purchase 376,884 shares of
the Company's Common Stock at $2.65 per share. The shares of Common Stock to
be issued upon exercise of this warrant will not be registered under the
Securities Act. However, Winfield Capital Corp. will have certain registration
rights with respect to these shares. See "Description of Capital Stock--
Registration Rights."
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of Common Stock as of July 7, 1998, and as
adjusted to reflect the sale of shares offered hereby, by (i) each director of
the Company, (ii) the Named Executive Officer, (iii) all directors and
executive officers of the Company as a group and (iv) each person known to the
Company to be the beneficial owner of more than 5% of its outstanding shares
of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
---------------------------------
PERCENTAGE OWNED(2)
-----------------------
BEFORE
NUMBER OFFERING AFTER OFFERING
--------- -------- --------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Darryl Peck(3)......................................... 4,433,042 24.6% 20.1%
Katherine N. Vick (4).................................. 79,689 * *
Charles M. Jackson, IV (5)............................. 839,703 4.7% 3.8%
Michael Murray(6)...................................... 441,177 2.4% 2.0%
William C. Mulligan (7)................................ 1,500,000 8.3% 6.8%
David Yarnell (8)...................................... 1,125,000 6.2% 5.1%
All current directors and executive officers as a group
(10 persons) (9)...................................... 8,506,811 46.8% 38.4%
FIVE PERCENT STOCKHOLDERS
Winfield Capital Corp. (10)............................ 1,707,344 9.3% 7.6%
237 Mamaroneck Avenue
White Plains, New York 10605
Primus Funds (7)....................................... 1,500,000 8.3% 6.8%
c/o Primus Venture Partners IV, Inc.
5900 Landerbrook Drive, Suite 200
Cleveland, Ohio 44124
Brand Equity Ventures I, L.P. (11)..................... 1,125,000 6.2% 5.1%
Three Pickwick Plaza
Greenwich, Connecticut 06830
T. Rowe Price Threshold Fund III, L.P.................. 1,125,000 6.2% 5.1%
100 East Pratt Street
Baltimore, Maryland 21202
Connecticut Innovations, Incorporated.................. 926,470 5.1% 4.2%
999 West Street
Rocky Hill, Connecticut 06067
</TABLE>
- --------
* Less than 1%
(1) Shares of Common Stock that an individual or group has the right to
acquire within 60 days of July 7, 1998, pursuant to the exercise of
options or warrants are deemed to be outstanding for the purposes of
computing the percentage ownership of such individual or group, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table. Except as indicated in
footnotes to this table, the Company believes that the stockholders named
in this table have sole voting and investment power with respect to all
shares of Common Stock shown to be beneficially owned by them based on
information provided to the Company by such stockholders.
(2) Percentage of ownership is based on 18,017,133 shares of Common Stock
outstanding on July 7, 1998 and 22,017,133 shares of Common Stock
outstanding after the completion of this Offering and assumes the
Preferred Stock Conversion.
(3) Includes 185,000 shares of Common Stock held by a limited partnership for
the benefit of Mr. Peck's children. Mr. Peck is the general partner of the
limited partnership and has sole voting and investment
48
<PAGE>
power with respect to these shares. Does not include an additional
1,200,000 shares subject to options which are not currently exercisable.
If the Underwriters exercise the over-allotment option to purchase up to
35,714 shares from Mr. Peck in full, Mr. Peck will beneficially own
4,397,328 shares of Common Stock, or 19.4% of the outstanding Common
Stock, after this Offering. Mr. Peck, the only selling stockholder in the
Offering, will only sell shares if the Underwriters' over-allotment option
is exercised.
(4) Includes 67,200 shares of Common Stock subject to currently exercisable
options held by Ms. Vick. Does not include an additional 763,800 shares
subject to options which are not currently exercisable.
(5) Consists of 839,703 shares of Common Stock owned by a trust for the
benefit of Mr. Jackson and his wife. Mr. Jackson and his wife are co-
trustees of the trust and share voting and investment power with respect
to these shares of Common Stock. Excludes 105,738 shares of Common Stock
held by a trust for the benefit of Mr. Jackson's minor children. Mr.
Jackson disclaims beneficial ownership of the shares of Common Stock owned
by this trust.
(6) Consists of 441,177 shares of Common Stock owned by Broderbund. Mr. Murray
is the General Manager of Broderbund. Broderbund has sole voting and
investment power with respect to these shares, and Mr. Murray expressly
disclaims beneficial ownership of such shares.
(7) Consists of 1,440,000 shares of Common Stock owned by Primus Capital Fund
IV Limited Partnership ("PCF IV") and 60,000 shares of Common Stock owned
by Primus Executive Fund Limited Partnership ("PEF"). Mr. Mulligan is a
Director of Primus Venture Partners IV, Inc. ("Primus"). Primus is the
sole general partner of Primus Venture Partners IV Limited Partnership
("PVP IV") and PVP IV is the sole general partner of each of PCF IV and
PEF. Mr. Mulligan shares voting and investment power with respect to such
shares with five other Directors of Primus. Mr. Mulligan expressly
disclaims beneficial ownership of such shares, except to the extent of his
pecuniary interest therein.
(8) Consists of 1,125,000 shares of Common Stock owned by Brand Equity
Ventures I, L.P. ("Brand"). Mr. Yarnell is a General Partner of Brand.
Brand Equity Partners I, LLC, the general partner of Brand, has sole
voting and investment power with respect to these shares, and Mr. Yarnell
expressly disclaims ownership of such shares.
(9) Includes 37,200 shares of Common Stock subject to currently exercisable
options held by Michael R. Starkenburg, 30,000 shares of Common Stock
subject to currently exercisable options held by Larry Berk, 6,000 shares
of Common Stock subject to currently exercisable options held by Philip J.
Rello and 15,000 shares of Common Stock that will be subject to currently
exercisable options held by Louise R. Cooper. See also footnotes 3 through
8 above.
(10) Includes 375,000 shares of Common Stock subject to a currently
exercisable warrant.
(11) Brand Equity Partners I, LLC, the general partner of Brand, has sole
voting and investment power with respect to these shares.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.01 per share ("Common Stock"), and 10,000,000 shares
of Preferred Stock, par value $.01 per share ("Preferred Stock"). Upon
completion of this Offering, there will be 22,017,133 shares of Common Stock
and no shares of Preferred Stock outstanding. As of July 7, 1998, there were
18,017,133 shares of Common Stock outstanding, held of record by 112
stockholders. In addition, as of July 7, 1998 there were outstanding options
to purchase 3,926,700 shares of Common Stock and warrants to purchase
2,359,794 shares of Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to the
rights and preferences of the holders of any outstanding Preferred Stock, the
holders of Common Stock are entitled to receive ratably such dividends as are
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders
of Common Stock have the right to a ratable portion of assets remaining after
the payment of all debts and other liabilities of the Company, subject to the
liquidation preferences of the holders of any outstanding Preferred Stock.
Holders of Common Stock have neither preemptive rights nor rights to convert
their Common Stock into any other securities and are not subject to future
calls or assessments by the Company. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and the shares offered hereby upon issuance and sale will be, fully
paid and non-assessable. The rights, preferences and privileges of the holders
of Common Stock are subject to, and may be adversely affected by, the rights
of the holders of shares of Preferred Stock that the Company may designate and
issue in the future.
PREFERRED STOCK
Upon the closing of this Offering, all of the outstanding shares of the
Company's Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock and Redeemable Series C Convertible Preferred Stock will be
automatically converted into an aggregate of 11,336,847 shares of Common Stock
pursuant to the Preferred Stock Conversion. The Preferred Stock so converted
will be retired and may not be reissued. See Notes 4, 5 and 10(a) of Notes to
the Consolidated Financial Statements.
The Board of Directors is authorized, subject to certain limitations
prescribed by Delaware law, without further action by the stockholders, to
issue shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms, the number of shares constituting any series
and the designation of such series. The Company believes that the Board of
Directors' power to set the terms of, and the Company's ability to issue,
Preferred Stock will provide flexibility in connection with possible financing
transactions in the future. The issuance of Preferred Stock, however, could
adversely affect the voting power of holders of Common Stock and decrease the
amount of any liquidation distribution to such holders. The presence of
outstanding Preferred Stock could also have the effect of delaying, deterring
or preventing a change in control of the Company. The Company has no present
plans to issue any shares of Preferred Stock.
WARRANTS
As of July 7, 1998, there were outstanding warrants to purchase 2,359,794
shares of Common Stock held by six investors. Advest, Inc., a former placement
agent for the Company, holds a warrant, exercisable as of July 18, 1996 to
purchase 180,000 shares of Common Stock at an exercise price of $.0041 per
share. This warrant will expire on July 18, 2001. Pennsylvania Merchant Group,
Ltd. ("PMG"), the Company's Series A Convertible Preferred Stock placement
agent, and Richard Liebman, Senior Vice President of Corporate Finance of PMG,
hold warrants to purchase an aggregate of 217,899 and 43,579 shares of Common
Stock, respectively. These warrants, exercisable as of May 30, 1997 and July
28, 1997, respectively, at an exercise price of $1.13 per share, will expire
on May 30, 2002. Winfield Capital Corp. was granted a warrant to purchase
376,884 shares of Common Stock in connection with a $2.0 million bridge loan
granted to the Company. This warrant, which was
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<PAGE>
exercisable as of January 13, 1998, has an exercise price of $2.65 per share
and expires on February 27, 2003. On December 1, 1997, the Company granted a
warrant to AOL to purchase 1,067,121 shares of Common Stock at $2.65 per share
in connection with a strategic marketing agreement entered into between the
Company and AOL. One-third of the shares underlying this warrant were
immediately exercisable. One-third of the shares will become exercisable if
the marketing agreement is renewed and one-third of the shares will become
exercisable if certain revenue targets are reached by the Company. The warrant
will expire on December 1, 2007. Pursuant to an engagement letter signed by
the Company in November 1997 in connection with the Redeemable Series C
Convertible Preferred Stock financing, BT Alex. Brown Incorporated, the
placement agent, was granted warrants to purchase an aggregate of 474,311
shares of Common Stock at an exercise price of $2.67 per share. The warrants
became exercisable in February and March of 1998 and will expire in February
and March 2003. The number of shares for which the warrants are exercisable is
subject to adjustment for stock splits, combinations or dividends and
reclassifications, exchanges or substitutions. Upon the closing of this
Offering, contingent warrants to purchase an additional 1,246,556 shares of
Common Stock will terminate.
REGISTRATION RIGHTS
Following this Offering, the holders of 11,336,847 shares of Common Stock
and of warrants to purchase a total of 1,705,483 shares of Common Stock will
have certain rights to cause the Company to register those shares under the
Securities Act beginning between three and six months after the closing date
of this Offering. These holders currently hold the Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Redeemable Series C
Convertible Preferred Stock that will be automatically converted into Common
Stock in the Preferred Stock Conversion. The Company may be required to effect
up to two registrations requested by each of these groups of equity holders.
In addition, 90 days following this Offering, the foregoing holders will have
certain rights to cause the Company to register the aforementioned shares on
Forms S-2 and S-3 under the Securities Act, provided that the Company is
eligible to use such Forms. There is no limit to the number of registrations
on Form S-3 that the Company may be required to effect, except that the
Company will in no event be obligated to effect more than two such
registrations in any calendar year. Stockholders with registration rights who
are not part of an initial registration demand are entitled to notice of such
registration and are entitled to include their shares of Common Stock therein.
These registration rights are subject to certain conditions and limitations,
including the right, under certain circumstances, of underwriters to limit the
number of shares included in any such registration.
In addition, if the Company proposes to register any of its equity
securities under the Securities Act, whether or not for sale for its own
account, other than in connection with a Company employee benefit plan or
certain business combinations involving the Company, the foregoing holders of
11,336,847 shares of Common Stock and warrants to purchase 1,705,483 shares of
Common Stock, along with the holders of warrants to purchase 654,311 shares of
Common Stock, are entitled to notice of such registration and are entitled to
include their Common Stock therein. These rights are subject to certain
conditions and limitations, including the right of the underwriters of an
offering to limit the number of shares included in any such registration under
certain circumstances.
All expenses incurred in connection with such registrations (other than
underwriters' discounts and commissions and stock transfer fees or expenses)
and the fees and expenses of a single counsel to the selling stockholders will
be borne by the Company.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Upon the consummation of this Offering, the Company will be subject to the
anti-takeover provisions of Section 203 of the DGCL. In general, Section 203
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 business combination is, or the transaction in which
the person became an interested stockholder was, approved in a prescribed
manner or another prescribed exception applies. For purposes of Section 203, a
"business combination" is defined broadly
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<PAGE>
to include a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and, subject to certain exceptions, an
"interested stockholder" is a person who, together with his or her affiliates
and associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Board of Directors of the Company will be divided into three classes as
nearly equal in number as possible upon consummation of this Offering. Each
year the stockholders will elect the members of one of the three classes to a
three-year term of office. Messrs. Mulligan and Yarnell will serve in the
class whose term expires in 1999; Ms. Vick and Mr. Jackson will serve in the
class whose term expires in 2000; and Messrs. Peck and Murray will serve in
the class whose term expires in 2001. All directors elected to the Company's
classified Board of Directors will serve until the election and qualification
of their respective successors or their earlier resignation or removal. The
Board of Directors is authorized to create new directorships and to fill such
positions so created and is permitted to specify the class to which any such
new position is assigned. The person filling such position would serve for the
term applicable to that class. The Board of Directors (or its remaining
members, even if less than a quorum) is also empowered to fill vacancies on
the Board of Directors occurring for any reason for the remainder of the term
of the class of directors in which the vacancy occurred. Members of the Board
of Directors may only be removed for cause. These provisions are likely to
increase the time required for stockholders to change the composition of the
Board of Directors. For example, in general, at least two annual meetings will
be necessary for stockholders to effect a change in a majority of the members
of the Board of Directors.
The Company's Bylaws provide that, for nominations to the Board of Directors
or for other business to be properly brought by a stockholder before a meeting
of stockholders, the stockholder must first have given timely notice thereof
in writing to the Secretary of the Company. To be timely, a stockholder's
notice generally must be delivered not less than 60 days nor more than 90 days
prior to the annual meeting. If the meeting is not an annual meeting, the
notice must generally be delivered not more than 90 days prior to the special
meeting and not later than the later of 60 days prior to the special meeting
or ten days following the day on which public announcement of the meeting is
first made by the Company. Only such business shall be conducted at a special
meeting of stockholders as is brought before the meeting pursuant to the
Company's notice of meeting. The notice by a stockholder must contain, among
other things, certain information about the stockholder delivering the notice
and, as applicable, background information about the nominee or a description
of the proposed business to be brought before the meeting.
The Certificate of Incorporation also requires that any action required or
permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of stockholders and may not be effected
by a consent in writing. Special meetings of the stockholders may be called
only by the Board of Directors of the Company pursuant to a resolution adopted
by a majority of the total number of directors authorized.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless the corporation's certificate
of incorporation or bylaws, as the case may be, requires a greater percentage.
The Certificate of Incorporation requires the affirmative vote of the holders
of at least 70% of the outstanding voting stock of the Company, voting
together as a single class, to amend or repeal any of the provisions discussed
in this section entitled "Delaware Law and Certain Charter and Bylaw
Provisions" or to reduce the number of authorized shares of Common Stock or
Preferred Stock. Such 70% stockholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any preferred stock that might then be outstanding. Such 70% vote is also
required for any amendment to, or repeal of, the Company's Bylaws by the
stockholders. The Bylaws may also be amended or repealed by a simple majority
vote of the Board of Directors.
The provisions of the Certificate of Incorporation and Bylaws discussed
above could make more difficult or discourage a proxy contest or other change
in the Company's management or the acquisition or attempted acquisition of
control by a holder of a substantial amount of the Company's voting stock. It
is possible that such
52
<PAGE>
provisions could make it more difficult to accomplish, or could deter,
transactions that stockholders may otherwise consider to be in their best
interests or those of the Company.
As permitted by the DGCL, the Certificate of Incorporation provides that
directors of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of the director's fiduciary
duties 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) for unlawful payments of dividends or unlawful
stock repurchases or redemptions, as provided in Section 174 or successor
provisions of the DGCL or (iv) for any transaction from which the director
derives an improper personal benefit.
The Certificate of Incorporation and Bylaws provide that the Company shall
indemnify its directors and officers to the fullest extent permitted by
Delaware law (except, in some circumstances, with respect to suits initiated
by the director or officer) and advance expenses to such directors or officers
to defend any action for which rights of indemnification are provided. In
addition, the Certificate of Incorporation and Bylaws also permit the Company
to grant such rights to its employees and agents. The Bylaws also provide that
the Company may enter into indemnification agreements with its directors and
officers and purchase insurance on behalf of any person whom it is required or
permitted to indemnify. The Company believes that these provisions will assist
the Company in attracting and retaining qualified individuals to serve as
directors, officers and employees.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission (the
"Commission"), such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company. The transfer agent's telephone number is (212) 936-
5100.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of the
Company. The Company can make no prediction as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
significant amounts of the Common Stock in the public market, or the
perception that such sales may occur, could adversely affect prevailing market
prices. See "Risk Factors--Shares Eligible for Future Sale."
Upon completion of this Offering, the Company expects to have 22,017,133
shares of Common Stock outstanding (excluding 3,926,700 and 2,359,794 shares
reserved for issuance upon the exercise of outstanding stock options and
warrants, respectively) (22,581,419 shares of Common Stock outstanding if the
Underwriters' over-allotment option is exercised in full). Of these shares,
the 4,000,000 shares offered hereby will be freely tradable without
restrictions or further registration under the Securities Act, except for any
shares purchased by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act ("Rule 144"), which shares will be subject
to the resale limitations imposed by Rule 144, as described below.
All of the remaining 18,017,133 shares of Common Stock outstanding will be
"restricted securities" within the meaning of Rule 144 and may not be resold
in the absence of registration under the Securities Act, except pursuant to
exemptions from such registration including, among others, the exemption
provided by Rule 144. Of the restricted securities, 958,092 shares are
eligible for sale in the public market immediately after this Offering
pursuant to Rule 144(k) under the Securities Act ("Rule 144(k)"). A total of
8,669,348 additional restricted securities will be eligible for sale in the
public market in accordance with Rule 144 beginning 90 days after the date of
this Prospectus. Taking into consideration the effect of the lock-up
agreements described below and the provisions of Rules 144 and 144(k), no
restricted shares will be eligible for sale in the public market immediately
after this Offering, 8,117,751 restricted shares (excluding 3,926,700 and
2,359,794 shares issuable upon the exercise of outstanding stock options and
warrants, respectively) will be eligible for sale beginning 90 days after the
date of this Prospectus, and the remaining restricted shares will be eligible
for sale upon the expiration of the lock-up agreements 180 days after the date
of this Prospectus, subject to the provisions of Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are required to
be aggregated) whose restricted securities have been outstanding for at least
one year, including a person who may be deemed an "affiliate" of the Company,
may only sell a number of shares within any three-month period which does not
exceed the greater of (i) one percent of the then outstanding shares of the
Company's Common Stock (approximately 220,171 shares after this Offering) or
(ii) the average weekly trading volume in the Company's Common Stock in the
four calendar weeks immediately preceding such sale. Sales under Rule 144 are
also subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. A person who is
not an affiliate of the issuer, has not been an affiliate within three months
prior to the sale and has owned the restricted securities for at least two
years is entitled to sell such shares under Rule 144(k) without regard to any
of the limitations described above.
Beginning 90 days after the date of this Prospectus, certain shares issued
or issuable upon the exercise of options granted by the Company prior to the
date of this Prospectus will also be eligible for sale in the public market
pursuant to Rule 701 under the Securities Act ("Rule 701"). In general, Rule
701 permits resales of shares issued pursuant to certain compensatory benefit
plans and contracts, commencing 90 days after the issuer becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended,
in reliance upon Rule 144, but without compliance with certain restrictions of
Rule 144, including the holding period requirements. As of July 7, 1998, the
Company has granted options covering 3,926,700 shares of Common Stock, none of
which have been exercised and which become exercisable at various times in the
future. Any shares of Common Stock issued upon the exercise of these options
will be eligible for sale pursuant to Rule 701.
The executive officers and directors and certain other existing stockholders
of the Company, who beneficially own in the aggregate 17,269,530 shares of
Common Stock and holders of options and warrants to purchase 5,001,474 shares
of Common Stock, have agreed that they will not, without the prior written
consent
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<PAGE>
of BT Alex. Brown Incorporated, (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
such Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date of
this Prospectus.
Upon completion of this Offering, the holders of 11,336,847 shares of Common
Stock and warrants to purchase 1,705,483 shares of Common Stock are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. Registration of such shares under the Securities Act would
result in such shares becoming freely tradeable without restriction under the
Securities Act (except for shares purchased by affiliates of the Company)
immediately upon the effectiveness of such registration. Certain of these
existing stockholders who beneficially own in the aggregate 10,940,634 shares
of Common Stock and warrants to purchase 1,074,774 shares of Common Stock have
agreed that, without the prior written consent of BT Alex. Brown Incorporated,
they will not, for a period of 180 days after the date of the Prospectus, make
any demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security exercisable for Common Stock. See
"Underwriting."
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement between
the Company and the Underwriters (the "Underwriting Agreement"), the
Underwriters named below, through their representatives, BT Alex. Brown
Incorporated, NationsBanc Montgomery Securities LLC and Dain Rauscher Wessels,
a division of Dain Rauscher Incorporated ("Dain Rauscher Wessels")
(collectively, the "Representatives"), have severally agreed to purchase from
the Company the number of shares of Common Stock set forth opposite the name
of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
BT Alex. Brown Incorporated.......................................
NationsBanc Montgomery Securities LLC.............................
Dain Rauscher Wessels.............................................
----
Total...........................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby if any of such
shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus and through the
Representatives to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may re-
allow, a concession not in excess of $ per share to certain other dealers.
After commencement of this Offering, the offering price and other selling
terms may be changed by the Representatives.
The Company and Darryl Peck, the Company's Chief Executive Officer,
President and principal stockholder, have granted the Underwriters an option,
exercisable by the Representatives not later than 30 days after the date of
this Prospectus, to purchase up to 564,286 and 35,714 additional shares of
Common Stock, respectively, at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. Mr. Peck, the only selling stockholder in the Offering, will only
sell shares if this option is exercised by the Underwriters. To the extent
that the Underwriters exercise such option, each of the Underwriters will have
a firm commitment to purchase approximately the percentage thereof that the
number of shares of Common Stock to be purchased by it in the above table
bears to 4,000,000, and the Company and Mr. Peck will be obligated, pursuant
to the option, to sell such shares to the Underwriters. If the Underwriters
exercise this option but not in full, the shares to be sold by Mr. Peck
pursuant to such option will be purchased by the Underwriters prior to any
shares to be sold by the Company pursuant to such option. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the Common Stock offered hereby. If purchased, the Underwriters will
offer such additional shares on the same terms as those on which the 4,000,000
shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company and Mr. Peck regarding certain
liabilities, including liabilities under the Securities Act.
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<PAGE>
To facilitate this Offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price
of the Common Stock. Specifically, the Underwriters may over-allot shares of
the Common Stock in connection with this Offering, thereby creating a short
position in the Underwriters' syndicate account. Additionally, to cover such
over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period
of 180 days after the date of this Prospectus without the prior written
consent of BT Alex. Brown Incorporated, except for shares issued: (i) in
connection with acquisitions, provided that the recipients agree not to sell
or dispose of such shares during such 180-day period; (ii) pursuant to the
exercise of options granted under the Company's Stock Plans and (iii) upon the
Preferred Stock Conversion. Further, the Company's directors, officers, and
certain other stockholders, who beneficially own 17,269,530 shares in the
aggregate, have agreed not to directly or indirectly sell or offer for sale or
otherwise dispose of any Common Stock for a period of 180 days after the date
of this Prospectus, except for certain permitted transfers or with the prior
written consent of BT Alex. Brown Incorporated.
Pursuant to an engagement letter signed by the Company in November 1997, BT
Alex. Brown Incorporated acted as the placement agent for the Redeemable
Series C Convertible Preferred Stock financing and in connection with such
service received warrants to purchase 474,311 shares of Common Stock at an
exercise price of $2.67 per share. In addition, certain persons related to BT
Alex. Brown Incorporated purchased shares of Redeemable Series C Convertible
Preferred Stock, together with contingent warrants to purchase Common Stock,
in connection with such financing.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalization and stages of development of other
companies which the Company and the Representatives believe to be comparable
to the Company, estimates of the business potential of the Company, the
present state of the Company's development and other factors deemed relevant
by the Company and the Representatives.
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<PAGE>
LEGAL MATTERS
The validity of issuance of the Common Stock offered hereby will be passed
upon for the Company by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
Boston, Massachusetts. Certain legal matters will be passed upon for the
Underwriters by Reboul, MacMurray, Hewitt, Maynard & Kristol, New York, New
York.
EXPERTS
The Consolidated Financial Statements of Cyberian Outpost, Inc. and
Subsidiary as of February 28, 1997 and 1998 and for the period from March 6,
1995 (date of inception) through February 29, 1996, and for the years ended
February 28, 1997 and 1998, have been included in this Prospectus and
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, which report is included elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus,
which is part of the Registration Statement, omits certain information,
exhibits, schedules and undertakings set forth in the Registration Statement.
For further information pertaining to the Company and the Common Stock,
reference is made to such Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
or provisions of any documents referred to herein are not necessarily
complete, and in each instance where a copy of the document has been filed as
an exhibit to the Registration Statement, reference is made to the exhibit so
filed. The Registration Statement may be inspected without charge at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the Registration Statement may be obtained from the Commission at
prescribed rates from the Public Reference Section of the Commission at such
address, and at the Commission's regional offices located at 7 World Trade
Center, 13th Floor, New York, New York 10048, and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants,
and will make available quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information and such other periodic
reports as the Company may determine to be appropriate or as may be required
by law.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of February 28, 1997 and 1998, and May 31,
1998 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the period from March 6, 1995
(date of inception) through February 29, 1996, for the years ended
February 28, 1997 and 1998, and for the three months ended May 31, 1997
(unaudited) and 1998 (unaudited)......................................... F-4
Consolidated Statements of Redeemable Preferred Stock and Stockholders'
Deficit for the period from March 6, 1995 (date of inception) through
February 29, 1996, for the years ended February 28, 1997 and 1998, and
for the three months ended May 31, 1997 (unaudited) and 1998
(unaudited).............................................................. F-5
Consolidated Statements of Cash Flows for the period from March 6, 1995
(date of inception) through February 29, 1996, for the years ended
February 28, 1997 and 1998, and for the three months ended May 31, 1997
(unaudited) and 1998 (unaudited)......................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cyberian Outpost, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Cyberian
Outpost, Inc. and subsidiary as of February 28, 1997 and 1998, and the related
consolidated statements of operations, redeemable preferred stock and
stockholders' deficit, and cash flows for the period from March 6, 1995 (date
of inception) through February 29, 1996, and for the years ended February 28,
1997 and 1998. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cyberian
Outpost, Inc. and subsidiary as of February 28, 1997 and 1998, and the results
of their operations and their cash flows for the period from March 6, 1995
(date of inception) through February 29, 1996, and for the years ended
February 28, 1997 and 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Providence, Rhode Island
April 24, 1998, except for note 10(d),
which is as of July 7, 1998
F-2
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
CONVERSION
OF
CONVERTIBLE
FEBRUARY 28, PREFERRED
------------------------ MAY 31, STOCK
1997 1998 1998 MAY 31, 1998
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 40,970 $ 7,325,317 $ 8,510,062
Accounts receivable,
less allowance for
doubtful accounts of
$4,000 in 1997 and
$47,000 in 1998...... 197,779 474,340 709,369
Inventories........... 313,932 1,410,545 3,190,111
Prepaid expenses and
other current assets
(note 2)............. 3,175 4,026,650 3,369,451
----------- ----------- ------------
Total current
assets............. 555,856 13,236,852 15,778,993
----------- ----------- ------------
Property and
equipment, net
(note 2)........... 198,729 1,611,463 1,962,852
Other assets............ -- 19,776 29,164
----------- ----------- ------------
Total assets........ $ 754,585 $14,868,091 $ 17,771,009
=========== =========== ============
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable (note
3)................... $ 200,000 $ 2,750,000 $ --
Current portion of
capital lease
obligations (note
7(b))................ 10,836 107,983 144,319
Accounts payable...... 1,544,701 3,420,590 2,658,672
Accrued expenses
(notes 2 and 1(h))... 136,675 6,134,342 1,576,087
----------- ----------- ------------
Total current
liabilities........ 1,892,212 12,412,915 4,379,078
----------- ----------- ------------
Capital lease
obligations, excluding
current portion (note
7(b)).................. 22,938 135,517 174,580
----------- ----------- ------------
Total liabilities... 1,915,150 12,548,432 4,553,658
----------- ----------- ------------
Commitments (note 7)
Redeemable Series C
convertible preferred
stock, no par value,
875,000 and 2,770,125
shares issued and
outstanding at February
28, 1998 and May 31,
1998, respectively
(liquidation value of
$7,000,000 and
$22,161,000 at February
28, 1998 and May 31,
1998, respectively)
(notes 5 and 10)....... -- 5,990,758 20,124,780 $ --
Stockholders' (deficit)
equity (notes 4, 6 and
10):
Preferred stock, $.01
par value, 10,000,000
shares authorized,
682,738 Series A
Convertible shares
(liquidation value of
$2,321,309) issued and
outstanding at February
28, 1998 and May 31,
1998, and 163,043 and
326,087 Series B
Convertible Shares
(liquidation value of
$750,000 and
$1,500,000) issued and
outstanding at February
28, 1998 and May 31,
1998, respectively -- 2,613,776 3,363,776 --
Common stock, $.01 par
value, 50,000,000
shares authorized,
6,451,648 shares issued
and outstanding at
February 28, 1997 and
6,680,286 shares issued
and outstanding at
February 28, 1998 and
May 31, 1998........... 64,516 66,803 66,803 180,171
Additional paid-in
capital................ 484,763 2,449,995 2,619,499 25,994,687
Accumulated deficit..... (1,709,844) (8,801,673) (12,957,507) (12,957,507)
----------- ----------- ------------ ------------
Total stockholders'
(deficit) equity... (1,160,565) (3,671,099) (6,907,429) $ 13,217,351
----------- ----------- ------------ ============
Total liabilities
and stockholders'
deficit ........... $ 754,585 $14,868,091 $ 17,771,009
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 6, 1995
(DATED THREE MONTHS ENDED
INCEPTION) YEAR ENDED FEBRUARY 28, MAY 31,
THROUGH ------------------------ -----------------------
FEBRUARY 29, 1996 1997 1998 1997 1998
----------------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $1,851,793 $10,790,054 $22,681,043 $3,888,958 $11,561,529
Cost of sales........... 1,688,455 9,535,116 20,525,034 3,540,575 10,519,824
---------- ----------- ----------- ---------- -----------
Gross profit.......... 163,338 1,254,938 2,156,009 348,383 1,041,705
Operating expenses:
Sales and marketing
(note 1(h)).......... 217,675 1,407,218 5,942,565 468,601 4,008,824
General and
administrative....... 258,853 804,711 1,623,113 301,966 722,230
Technology and
development.......... 54,402 381,960 1,057,893 293,851 595,802
---------- ----------- ----------- ---------- -----------
Total operating
expenses........... 530,930 2,593,889 8,623,571 1,064,418 5,326,856
---------- ----------- ----------- ---------- -----------
Operating loss........ (367,592) (1,338,951) (6,467,562) (716,035) (4,285,151)
---------- ----------- ----------- ---------- -----------
Other income (expense):
Interest expense (note
3)................... (1,535) (4,126) (657,743) (7,241) (25,983)
Other, net............ (2,396) 4,756 33,476 1,471 155,300
---------- ----------- ----------- ---------- -----------
Other income
(expense), net..... (3,931) 630 (624,267) (5,770) 129,317
---------- ----------- ----------- ---------- -----------
Net loss.............. $ (371,523) $(1,338,321) $(7,091,829) $ (721,805) $(4,155,834)
========== =========== =========== ========== ===========
Net loss applicable to
common stockholders
(note 1(l)).......... $ (371,523) $(1,338,321) $(7,091,829) $ (721,805) $(4,631,880)
========== =========== =========== ========== ===========
Basic and diluted net
loss per common share.. $ (0.07) $ (0.22) $ (1.07) $ (0.11) $ (0.69)
========== =========== =========== ========== ===========
Weighted average basic
and diluted common
shares outstanding..... 5,243,766 6,144,774 6,633,282 6,493,938 6,680,286
========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
-------------------------------------------------------------------------------
REDEEMABLE
PREFERRED
STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
--------------------- -------------------- ------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- ----------- --------- ---------- --------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 6,
1995
(inception)...... -- -- -- -- -- -- -- -- --
Issuance of common
stock............ -- -- -- -- 5,430,000 $ 54,300 $ 174,430 -- $ 228,730
Issuance of common
stock awards to
employees........ -- -- -- -- 210,000 2,100 47,900 -- 50,000
Issuance of common
stock for
services
rendered......... -- -- -- -- 360,000 3,600 56,400 -- 60,000
Net loss.......... -- -- -- -- -- -- -- $ (371,523) (371,523)
--------- ----------- --------- ---------- --------- -------- ---------- ------------ -----------
Balance, February
29, 1996......... -- -- -- -- 6,000,000 60,000 278,730 (371,523) (32,793)
Value of warrants
issued for
services
rendered......... -- -- -- -- -- -- 60,000 -- 60,000
Issuance of common
stock awards to
employees........ -- -- -- -- 418,582 4,186 135,341 -- 139,527
Issuance of common
stock for
services
rendered......... -- -- -- -- 33,066 330 10,692 -- 11,022
Net loss.......... -- -- -- -- -- -- -- (1,338,321) (1,338,321)
--------- ----------- --------- ---------- --------- -------- ---------- ------------ -----------
Balance, February
28, 1997......... -- -- -- -- 6,451,648 64,516 484,763 (1,709,844) (1,160,565)
Issuance of common
stock awards to
employees........ -- -- -- -- 216,149 2,162 242,806 -- 244,968
Issuance of common
stock for
services
rendered......... -- -- -- -- 12,489 125 14,029 -- 14,154
Sales of Series A
Convertible
Preferred stock,
net of expenses
and value of
warrants issued.. -- -- 682,738 $1,948,736 -- -- -- -- 1,948,736
Value of warrants
issued in
connection with
Series A
Convertible
Preferred Stock.. -- -- -- -- -- -- 166,275 -- 166,275
Sales of Series B
Convertible
Preferred Stock,
net of expenses.. -- -- 163,043 665,040 -- -- -- -- 665,040
Value of warrants
issued in
connection with
marketing
agreement (note
6)............... -- -- -- -- -- -- 703,897 -- 703,897
Value of warrants
issued in
connection with
bridge financing
(note 6)......... -- -- -- -- -- -- 567,563 -- 567,563
Sales of Series C
Redeemable
Convertible
Preferred Stock,
net of expenses
and value of
warrants issued.. 875,000 $ 5,990,758 -- -- -- -- -- -- --
Warrants issued in
connection with
Series C
Redeemable
Convertible
Preferred Stock.. -- -- -- -- -- -- 235,662 -- 235,662
Contingent stock
purchase warrants
issued in
connection with
Series C
Redeemable
Convertible
Preferred Stock.. -- -- -- -- -- -- 35,000 -- 35,000
Net loss.......... -- -- -- -- -- -- -- (7,091,829) (7,091,829)
--------- ----------- --------- ---------- --------- -------- ---------- ------------ -----------
Balance, February
28, 1998......... 875,000 5,990,758 845,781 2,613,776 6,680,286 66,803 2,449,995 (8,801,673) (3,671,099)
Sales of Series C
Redeemable
Convertible
Preferred Stock,
net of expenses
and value of
warrants issued
(unaudited)...... 1,895,125 13,657,976 -- -- -- -- -- -- --
Warrants issued in
connection with
Series C
Redeemable
Convertible
Preferred Stock
(unaudited)...... -- -- -- -- -- -- 474,035 -- 474,035
Contingent stock
purchase warrants
issued in
connection with
Series C
Redeemable
Convertible
Preferred Stock
(unaudited)...... -- -- -- -- -- -- 71,015 -- 71,015
Conversion of
Debenture to
Series B
Convertible
Preferred Stock
(unaudited)...... -- -- 163,044 750,000 -- -- -- -- 750,000
Issuance of stock
options
(unaudited)...... -- -- -- -- -- -- 100,500 -- 100,500
Accretion on
Redeemable Series
C Convertible
Preferred Stock
(unaudited)...... -- 120,460 -- -- -- -- (120,460) -- (120,460)
Dividends on
Redeemable Series
C Convertible
Preferred Stock
(unaudited)...... -- 355,586 -- -- -- -- (355,586) -- (355,586)
Net loss
(unaudited)...... -- -- -- -- -- -- -- (4,155,834) (4,155,834)
--------- ----------- --------- ---------- --------- -------- ---------- ------------ -----------
Balance, May 31,
1998
(unaudited)...... 2,770,125 $20,124,780 1,008,825 $3,363,776 6,680,286 $ 66,803 $2,619,499 $(12,957,507) $(6,907,429)
========= =========== ========= ========== ========= ======== ========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
MARCH 6, 1995 YEAR ENDED ENDED
(DATE OF INCEPTION) FEBRUARY 28, MAY 31,
THROUGH ------------------------ -----------------------
FEBRUARY 29, 1996 1997 1998 1997 1998
------------------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(371,523) $(1,338,321) $(7,091,829) $(721,805) $(4,155,834)
Adjustments to
reconcile net loss to
net cash provided
(used) by operating
activities:
Depreciation and
amortization......... 26,528 94,795 145,233 27,170 128,984
Amortization of
original issue
discount on bridge
financing............ -- -- 567,563 -- --
Issuance of common
stock for services
rendered............. 60,000 11,022 14,154 14,154 --
Issuance of common
stock awards to
employees............ 50,000 139,527 244,968 244,968 --
Issuance of common
stock warrants....... -- 60,000 703,897 -- --
Issuance of common
stock options to
employee............. -- -- -- -- 100,500
Provision for doubtful
accounts ............ 18,013 (14,304) 69,000 5,545 19,978
Loss on disposal of
property and
equipment............ 2,396 -- 1,510 -- --
(Increase) decrease in
operating assets:
Accounts receivable.. (42,301) (159,187) (345,561) 24,136 (255,007)
Inventories.......... (230,656) (83,276) (1,096,613) (126,318) (1,779,566)
Prepaid expenses and
other assets........ (4,675) 1,500 (4,043,251) -- 647,811
Increase (decrease) in
operating
liabilities:
Accounts payable..... 437,335 1,107,366 1,875,889 419,096 (761,918)
Accrued expenses..... 85,053 51,622 5,997,667 21,965 (4,558,255)
--------- ----------- ----------- ---------- -----------
Net cash provided
(used) by operating
activities......... 30,170 (129,256) (2,957,373) (91,089) (10,613,307)
--------- ----------- ----------- ---------- -----------
Cash flows from
investing activities:
Purchases of property
and equipment........ (174,910) (94,904) (1,321,792) (27,212) (359,926)
Proceeds from the sale
of property and
equipment............ -- -- 500 -- --
--------- ----------- ----------- ---------- -----------
Net cash used by
investing
activities......... (174,910) (94,904) (1,321,292) (27,212) (359,926)
--------- ----------- ----------- ---------- -----------
Cash flows from
financing activities:
Proceeds from
borrowings of notes
payable.............. 35,000 200,000 2,632,437 500,000 --
Repayment of notes
payable.............. -- (35,000) (150,000) (200,000) (2,000,000)
Repayment of capital
lease obligations.... -- (18,860) (28,459) (3,795) (45,048)
Proceeds from issuance
of preferred stock... -- -- 2,113,776 895,267 --
Proceeds from issuance
of redeemable
preferred stock...... -- -- 5,990,758 -- 13,657,976
Proceeds from issuance
of common stock
warrants............. -- -- 1,004,500 155,754 545,050
Proceeds from issuance
of common stock...... 228,730 -- -- -- --
--------- ----------- ----------- ---------- -----------
Net cash provided by
financing
activities......... 263,730 146,140 11,563,012 1,347,226 12,157,978
--------- ----------- ----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 118,990 (78,020) 7,284,347 1,228,925 1,184,745
Cash and cash
equivalents at
beginning of period... -- 118,990 40,970 40,970 7,325,317
--------- ----------- ----------- ---------- -----------
Cash and cash
equivalents at end of
period................ $ 118,990 $ 40,970 $ 7,325,317 $1,269,895 $ 8,510,062
========= =========== =========== ========== ===========
</TABLE>
During the year ended February 28, 1998, the Company issued shares of Series
A Convertible Preferred Stock with an aggregate market value of $500,000 to
several investors as full repayment on notes payable with a balance of
$500,000. During the years ended February 28, 1997 and 1998, the Company
acquired office equipment, furniture and fixtures by incurring capital lease
obligations of $52,634 and $238,185, respectively.
During the three-month period ended May 31, 1998, the Company (i) increased
the Redeemable Series C Convertible Preferred Stock and decreased additional
paid-in capital by $476,046 to record accumulated dividends of $355,586 and
accretion of $120,460 on the Redeemable Series C Convertible Preferred Stock,
(ii) acquired office equipment by incurring capital lease obligations of
$120,447, and (iii) converted the $750,000 debenture into 163,043 shares of
Series B Convertible Preferred Stock.
During the three-month period ended May 31, 1997, the Company issued shares
of Series A Convertible Preferred Stock with an aggregate market value of
$500,000 to several investors as full repayment on notes payable with a
balance of $500,000.
During the period ended February 29, 1996 and during the years ended
February 28, 1997 and 1998, the Company paid cash for interest of $1,590,
$1,665 and $87,522, and for income taxes of $0, $250 and $500, respectively.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 6, 1995 (DATE OF INCEPTION)
THROUGH FEBRUARY 29, 1996 AND FOR THE YEARS ENDED FEBRUARY 28, 1997 AND 1998
(INFORMATION AS OF MAY 31, 1998 AND FOR THE THREE MONTHS ENDED MAY 31, 1998 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Cyberian Outpost, Inc. ("Cyberian") was incorporated in the state of
Connecticut on March 6, 1995. Cyberian and its Subsidiary (the "Company") is a
leading, global, online retailer of computer hardware and software products.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Cyberian
Outpost, Inc. and its wholly-owned subsidiary. All intercompany accounts and
transactions are eliminated in consolidation.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent gains and losses at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all investment instruments with original maturities of three months
or less to be cash equivalents. Cash equivalents at February 28, 1998 included
investments in overnight repurchase agreements and money market funds.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method.
(f) Property and Equipment
Property and equipment are stated at cost. Equipment under capital lease
obligations is stated at the lesser of the present value of minimum rental and
other lease payments or fair value at the time of acquisition. Depreciation
and amortization are provided using the straight-line method over the
estimated useful lives of the assets, or over the term of the lease if
shorter.
Estimated useful lives for financial reporting purposes are as follows:
<TABLE>
<S> <C>
Computers........................................................... 3 years
Purchased software.................................................. 2 years
Office equipment.................................................... 3 years
Furniture and fixtures.............................................. 7 years
Leasehold improvements.............................................. 2 years
</TABLE>
F-7
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) Revenue Recognition
Net sales are comprised of product sales, net of returns and allowances, and
advertising revenue. Product sales are comprised of computer hardware,
software and peripherals and are recognized when the products are shipped to
customers. The Company records a reserve for estimated sales returns at the
time of shipment based on historical return rates. Advertising revenue is
derived from hardware manufacturers and software publishers that pay for
promotional placements on the Company's Web site and is recognized ratably
over the period in which the Company is obligated to provide the advertising.
(h) Sales and Marketing
Sales and marketing includes advertising costs, which are charged to expense
as incurred. Advertising costs were $75,960 for the period ended February 29,
1996, and $342,669 and $2,998,047 for the years ended February 28, 1997 and
1998, respectively.
The Company entered into a marketing agreement with an Internet service and
content provider ("Provider") on December 1, 1997 that established the Company
as the exclusive third-party computer hardware and peripherals reseller in
certain portions of the Provider's site. The Provider is required to deliver a
certain minimum number of impressions to the Company during the term of the
agreement. All advertising revenues generated under the agreement as a result
of advertising sold on the parties' co-branded Web site are to be shared
equally by the Company and the Internet content provider. No advertising
revenues were generated under this agreement for the year ended February 28,
1998.
In consideration of the marketing, promotion, and advertising provided under
the agreement, the Company agreed to pay a total of $5,000,000 for the
fourteen month period ended January 31, 1999. In addition, the Company is
required to share a small proportion of its Provider-derived revenue with the
Provider. The Company is amortizing the costs of the agreement over the term
of the contract on a straight-line basis with periodic charges to marketing
expense. The total expense for the year ended February 28, 1998 was
$1,071,429. An accrual of $4,600,000, representing the difference between the
total obligation and payments made under the agreement through February 28,
1998, is included in accrued expenses at February 28, 1998 in the accompanying
consolidated balance sheet.
(i) Technology and Development
Technology expenses consist primarily of payroll and related expenses of
development, editorial, and network operations personnel, and for systems and
telecommunications infrastructure costs.
(j) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
operations in the period that includes the enactment date.
(k) Stock-based Compensation
On March 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting
F-8
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
period the fair value of all stock-based awards on the date of grant. For
employee stock-based awards, SFAS No. 123 allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net earnings
disclosures for employee stock option grants made in fiscal 1996 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.
123.
The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
(l) Net Loss Per Common Share
The Company has presented net loss per share pursuant to SFAS No. 128,
Earnings per Share, and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98.
Basic loss per share was computed by dividing net loss applicable to common
shareholders by the weighted average number of shares of Common Stock
outstanding for each period presented. Diluted loss per share has not been
presented separately, as the outstanding stock options, warrants and
contingent stock purchase warrants are anti-dilutive for each of the periods
presented.
Anti-dilutive potential common shares outstanding were 180,000 for the
period ended February 29, 1996, 180,000 and 9,807,206 for the years ended
February 28, 1997 and 1998, respectively, and 1,921,677 and 16,767,199 for the
three-month periods ended May 31, 1997 and 1998, respectively.
Net loss for the three-month period ended May 31, 1998 has been increased by
$476,046 to arrive at net loss applicable to common stockholders, to give
effect to $355,586 of dividends and $120,460 of accretion on the Redeemable
Series C Convertible Preferred Stock.
(m) Recapitalization
In May 1997, the Company effected a 100-for-1 stock split in the form of a
stock dividend and amended its Articles of Incorporation to increase the
number of authorized shares to 13,000,000, of which 10,000,000 shares were
designated as Common Stock and 3,000,000 shares were designated as Preferred
Stock, both without nominal or par value. In February 1998, the Company
amended its Articles of Incorporation to increase the number of authorized
shares to 15,000,000, of which 10,000,000 shares were designated as Common
Stock and 5,000,000 shares were designated as Preferred Stock, both without
nominal or par value. All references in the consolidated financial statements
to the number of shares and to per share amounts have been retroactively
restated to reflect these changes. See Note 10(d).
(n) Interim Financial Statements
The interim financial statements as of May 31, 1998, and for the three
months ended May 31, 1997 and 1998 are unaudited. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the financial position and results of
operations have been included in such unaudited financial statements. The
results of operations for the three months ended May 31, 1998 are not
necessarily indicative of the results to be expected for the entire year.
F-9
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) FINANCIAL STATEMENT DETAILS
Prepaid expenses and other current assets consists of the following at
February 28, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Prepaid advertising...................................... $ -- $3,947,771
Other.................................................... 3,175 78,879
-------- ----------
$ 3,175 $4,026,650
======== ==========
</TABLE>
Property and equipment consists of the following at February 28, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Computers............................................... $125,660 $ 410,790
Purchased software...................................... 78,146 1,155,430
Office equipment........................................ 79,666 116,502
Furniture and fixtures.................................. 22,313 127,700
Leasehold improvements.................................. 13,345 54,141
-------- ----------
319,130 1,864,563
Less accumulated depreciation and amortization.......... 120,401 253,100
-------- ----------
$198,729 $1,611,463
======== ==========
</TABLE>
Accrued expenses consists of the following at February 28, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Accrued advertising..................................... $ -- $4,837,384
Accrued preferred stock issuance costs.................. -- 604,617
Accrued payroll and related taxes....................... 77,166 194,402
Other................................................... 59,509 497,939
-------- ----------
$136,675 $6,134,342
======== ==========
</TABLE>
(3) NOTES PAYABLE
Notes payable at February 28, 1998 consists of a $750,000 convertible
debenture ("Debenture") and a $2,000,000 short-term note ("Note") due to an
investor. The Debenture was issued on October 31, 1997, accrued interest at
12.5% per annum, was scheduled to mature on October 31, 1998, and was
convertible into shares of Series B Convertible Preferred Stock at a
conversion price of $4.60 per share. Subsequent to February 28, 1998, the
investor converted the Debenture into 163,043.47 shares of Series B
Convertible Preferred Stock.
The Note was issued on January 13, 1998, together with warrants for the
purchase of 376,884.42 shares of Common Stock at $2.6533 per share,
exercisable at any time through February 27, 2003 (See Note 6). The Note
accrues interest at 12.5% per annum, and was due upon the earlier of the 270-
day anniversary of the Note or the date on which the Company closed an equity
financing resulting in gross proceeds of at least $6,000,000. Of the total
$2,000,000 proceeds from the Note, $567,563 was allocated to the warrants
based on their estimated fair value at the date of grant. The Note was
considered bridge financing in anticipation of the Company's sale of
Redeemable Series C Convertible Preferred Stock. On February 27, 1998, the
Company closed on the first tranche of Redeemable Series C Convertible
Preferred Stock and received gross proceeds of $7,000,000, at which time the
Note matured. Therefore, the Company amortized the original issue discount on
the Note over the Note's expected term of 45 days with charges to interest
expense. The Note was repaid on March 10, 1998.
During the year ended February 28, 1998, the Company borrowed $100,000 from
the father of the Company's President at a market interest rate. The borrowing
was repaid in full in May 1997. In addition, the
F-10
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company borrowed $250,000 from a stockholder and an aggregate of $100,000 from
three principals of the placement agent for the Series A Convertible Preferred
Stock offering. These borrowings were exchanged for 147,058.82 shares of
Series A Convertible Preferred Stock in May 1997.
Notes payable at February 28, 1997 consisted of a $50,000 demand note, with
interest at 7% per annum, issued to the Company's President, and $150,000 of
demand notes, with interest at 7% per annum, issued to a stockholder of the
Company. The note payable to the President was repaid in full in May 1997, and
the notes due to the stockholder were exchanged by the stockholder for
44,117.65 shares of Series A Convertible Preferred Stock.
(4) PREFERRED STOCK
At February 28, 1998, Preferred Stock consisted of 10,000,000 shares
authorized and designated as 700,000 shares of Series A Convertible Preferred
Stock, 500,000 shares of Series B Convertible Preferred Stock, 3,000,000
shares of Redeemable Series C Convertible Preferred Stock, and 5,800,000
shares undesignated.
In May and July 1997, the Company issued an aggregate of 638,620 shares of
Series A Convertible Preferred Stock at $3.40 per share and received net
proceeds of $1,948,736. The Company also issued 44,117.65 shares of Series A
Convertible Preferred Stock at $3.40 per share in repayment of certain notes.
The Series A Convertible Preferred Stock is convertible into Common Stock on a
three-for-one basis and has a liquidation preference of $3.40 per share.
In October 1997, the Company issued 163,043 shares of Series B Convertible
Preferred Stock at $4.60 per share and received net proceeds of $665,040. The
Series B Convertible Preferred Stock is convertible into Common Stock on a
three-for-one basis and has a liquidation preference of $4.60 per share.
(5) REDEEMABLE PREFERRED STOCK
In February 1998, the Company issued 875,000 shares of Redeemable Series C
Convertible Preferred Stock at $7.96 per share and received net proceeds of
$5,990,758. The Redeemable Series C Convertible Preferred Stock is convertible
into Common Stock on a three-for-one basis and has an aggregate liquidation
preference of $7,000,000 or $8.00 per share. The Redeemable Series C
Convertible Preferred Stock is redeemable at the election of a majority of the
holders thereof at any time after July 28, 2002. Such election would cause the
Company to redeem one-third of the then outstanding shares in each of the
three years succeeding the election at a price which is the greater of the
original purchase price plus all unpaid and accrued dividends or fair market
value, determined by the public stock price or by a third-party appraisal if
the stock is traded privately. The Redeemable Series C Convertible Preferred
Stock also earns dividends at the rate of 7% per annum, payable upon
liquidation of the Company, redemption of the Redeemable Series C Convertible
Preferred Stock, or conversion of the Preferred Stock into Common Stock,
provided that the cumulative dividends shall not be payable if the conversion
of shares into Common Stock occurs prior to the third anniversary of the
original issuance of the shares. The Redeemable Series C Convertible Preferred
Stock will be accreted to its redemption value.
(6) COMMON STOCK
(a) Common Stock Warrants
In July 1996, the Company issued a warrant to purchase 180,000 shares of
Common Stock at an exercise price of $.0041 per share to a placement agent.
The warrants expire in July 2001. Using the Black-Scholes model, the warrants
were valued at $60,000. This amount was recorded as expense when incurred
since the placement agent was not successful in raising equity financing for
the Company.
F-11
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In May and July 1997, the Company issued warrants to purchase an aggregate
of 261,479.13 shares of Common Stock at an exercise price of $1.1333 per share
in connection with the Series A Convertible Preferred Stock financing. The
warrants expire in May 2002. Using the Black-Scholes model, the warrants were
valued at $166,275. This amount was recorded as a reduction to the net
proceeds of the Series A Convertible Preferred Stock financing.
In December 1997, the Company issued warrants to purchase 1,067,121 shares
of Common Stock at an exercise price of $2.6533 per share in connection with a
marketing agreement (see Note 7(a)). The warrants expire in December 2007. Of
the total shares available for purchase under the warrants, one-third, or
355,707 shares, vested immediately, while the other two-thirds, or 711,414
shares, vest only if certain milestones set forth in the agreement are met.
Using the Black-Scholes model, the Company calculated the fair value of the
warrants for those shares that vested immediately at $703,897. This amount was
recorded as a charge to marketing expense.
In January 1998, the Company issued warrants to purchase 376,884.42 shares
of Common Stock at an exercise price of $2.6533 per share in connection with
the Note (see Note 3). The warrants expire in February 2003. Using the Black-
Scholes model, the warrants were valued at $567,563. This amount was recorded
as a reduction to the carrying value of the Note.
In February 1998, the Company issued warrants to purchase 157,500 shares of
Common Stock at an exercise price of $2.6667 per share to an investment banker
in connection with the Redeemable Series C Convertible Preferred Stock
financing. The warrants expire in February 2003. Using the Black-Scholes
model, the warrants were valued at $235,662. This amount was recorded as a
reduction in the carrying value of the Redeemable Series C Convertible
Preferred Stock and will be amortized and included in the accretion to the
redemption value of the Redeemable Series C Convertible Preferred Stock
recorded in each period.
In connection with the Redeemable Series C Convertible Preferred Stock
financing, the Company issued contingent stock purchase warrants to the
holders of the Redeemable Series C Convertible Preferred Stock for the
purchase of 393,750 shares of Common Stock at an exercise price of $3.3333 per
share. The contingent warrants shall only be exercisable upon the earlier of
(i) the completion by the Company of an initial public offering at a price per
share of less than (x) 200% of the then applicable conversion price if the
initial public offering occurs within 12 months of the closing of the
Redeemable Series C Convertible Preferred Stock financing , or (y) 250% of the
then applicable conversion price if the initial public offering occurs after
12 months from the closing of such financing but within 24 months of the
closing, or (ii) the second anniversary of the closing if the Company has not
completed an initial public offering. The contingent stock purchase warrants
will expire immediately upon the completion by the Company of an initial
public offering; otherwise, the contingent warrants will expire on the fifth
anniversary of the closing of the Redeemable Series C Convertible Preferred
Stock financing. The contingent stock purchase warrants were valued at
$35,000, and recorded as a reduction to the net proceeds of the Redeemable
Series C Convertible Preferred Stock financing.
(b) Common Stock Options
The Company has two stock option plans, which are described below. Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, requires companies to either (a) record an expense related to
its stock option plans based on the estimated fair value of stock options as
of the date of the grant or (b) disclose pro forma net income (loss) and
earnings (loss) per share data as if the Company had recorded an expense,
beginning with options granted in fiscal 1996. No options were granted by the
Company prior to fiscal 1998. The Company has elected to apply APB Opinion 25
and related Interpretations in accounting for these plans and to comply with
the SFAS No. 123 disclosure requirements. No compensation
F-12
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
cost has been recognized for its stock option plans in the accompanying
consolidated financial statements as all stock options have been granted with
exercise prices equal to or in excess of the fair market value of the
Company's Common Stock at the date of grant. Had compensation cost for such
plans been determined based on the fair value at the grant dates for awards
under these plans consistent with the method of SFAS No. 123, the Company's
net loss would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998
----
<S> <C> <C>
Net loss As reported $(7,091,829)
Pro forma $(7,125,479)
Basic loss per share As reported $ (1.07)
Pro forma $ (1.07)
Diluted loss per share As reported $ (1.07)
Pro forma $ (1.07)
</TABLE>
The weighted average fair value of options granted during 1998 was $0.59 per
share. The Company estimates the fair value of each option as of the date of
grant using the Black-Scholes pricing model with the following weighted
average assumptions:
<TABLE>
<S> <C>
Expected volatility.................................................. 0%
Dividend yield....................................................... 0%
Risk-free interest rate.............................................. 6.3%
Expected life........................................................ 8 years
</TABLE>
During the year ended February 28, 1998, the Company's stockholders approved
the 1997 Stock Option Plan and the 1998 Stock Option Plan (collectively the
"Plans"). The 1997 and 1998 Stock Option Plans authorized the grant of options
for up to 900,000 shares and for 1,620,000 shares, respectively, of Common
Stock. Options granted under the Plans are either (a) options intended to
constitute incentive stock options ("ISOs") under the Internal Revenue Code of
1986 (the "Code") or (b) non-qualified options. Incentive stock options may be
granted under the Plans to employees of the Company. Non-qualified options may
be granted to consultants, directors and officers (whether or not they are
employees), or employees of the Company.
Options granted under the Plans vest 20% per year over a five-year period,
and are exercisable for a period not to exceed 10 years from the date of
grant.
A summary of the status of the Company's stock option plans as of February
28, 1998 and changes during the year then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at beginning of year.......................... -- --
Granted................................................... 1,719,000 $1.49
Exercised................................................. -- --
Terminated................................................ -- --
---------
Outstanding at end of year................................ 1,719,000 $1.49
=========
Exercisable at end of year................................ 75,000 $1.13
=========
Shares reserved at end of year............................ 801,000
=========
</TABLE>
F-13
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
at February 28, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.13 to $1.53....... 1,564,500 9.8 $1.38 75,000 $1.13
$2.67................ 154,500 10.0 $2.67 -- --
--------- ------
$1.13 to $2.67....... 1,719,000 9.8 $1.49 75,000 $1.13
========= ======
</TABLE>
(c) Common Stock
During the period ended February 29, 1996, and during the years ended
February 28, 1997 and 1998, the Company issued 570,000, 451,647, and 228,639
shares of Common Stock to employees and consultants in exchange for services.
The Company has recorded expense of $110,000, $150,549, and $259,122 in the
corresponding periods related to these stock issuances.
(7) COMMITMENTS
(a) Operating Leases
The Company is obligated under several operating leases for space rented at
its corporate headquarters and vehicle and office equipment leases that expire
at various dates during the next three years. The building lease is on a
month-to-month basis and requires the Company to pay certain costs such as
maintenance and insurance. Rental payments for the vehicle lease include
minimum rentals plus contingent rentals based on mileage. Rental expense for
operating leases was $16,331, $65,370 and $101,431 in fiscal 1996, 1997, and
1998, respectively.
Future minimum lease payments under noncancelable operating leases with
initial terms in excess of one year are as follows at February 28, 1998:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
February 28, 1999................................................... $ 85,719
February 29, 2000................................................... 48,519
February 28, 2001................................................... 2,179
--------
$136,417
========
</TABLE>
(b) Capital Leases
The Company has capital lease arrangements for certain computers, furniture
and fixtures, and telephone equipment. The assets have an aggregate
capitalized cost of $290,819 and related accumulated amortization of $30,037
as of February 28, 1998. Future minimum lease payments under capital lease
obligations are as follows at February 28, 1998:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
February 28, 1999.................................................. $132,732
February 29, 2000.................................................. 122,002
February 28, 2001.................................................. 23,788
--------
278,522
Less amount representing interest.................................. 35,022
--------
Present value of future minimum lease payments..................... 243,500
Less current portion............................................... 107,983
--------
Long-term portion.................................................. $135,517
========
</TABLE>
F-14
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES
The Company incurred minimum state taxes of $250, $500, and $7,750 in fiscal
1996, 1997 and 1998, respectively, which were included in general and
administrative expenses.
As of February 28, 1997 and 1998, the Company has available for federal and
state income tax purposes approximately $1,300,000 and $7,300,000,
respectively, of net operating loss carryforwards. These carryforwards expire
through fiscal 2013 for federal purposes and through fiscal 2003 for state
purposes.
Deferred income tax expense (benefit) results from changes in the temporary
differences in the book and tax bases of certain assets and liabilities. The
components of deferred taxes as of February 28, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts................................... $ 1,500 $ 19,100
Inventories, principally due to reserves............. 10,700 20,300
Federal net operating loss carryforwards............. 450,500 2,494,100
State net operating loss carryforwards............... 87,400 483,600
Property and equipment, principally due to
differences in depreciation......................... -- 2,900
Other assets......................................... 4,700 3,200
Other accrued liabilities............................ 6,700 24,600
Stock-based compensation............................. 154,500 545,500
------- ----------
Gross deferred tax assets.......................... 716,000 3,593,300
Less valuation allowance against deferred tax
assets.............................................. 715,800 3,593,300
------- ----------
200 --
------- ----------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation......................... (200) --
------- ----------
Total deferred tax liabilities..................... (200) --
------- ----------
Net deferred tax asset............................. $ -- $ --
======= ==========
</TABLE>
The Company has deferred tax assets for future deductible amounts, and net
operating loss carryforwards which are attributable to losses generated during
the Company's first three years of operations. In assessing the realizability
of the deferred tax assets, the Company considers whether it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. The valuation allowance at February 28, 1997 and 1998 was $715,800
and $3,593,300, respectively.
During the year end February 28, 1998, the Company experienced an ownership
change, as defined by Section 382 of the Internal Revenue Code, due to
additional sales of preferred stock. The Company has not yet assessed the
Section 382 implications of the additional stock issuances, but the change in
control will limit the utilization of the net operating loss carryforwards.
F-15
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) INTERNATIONAL SALES AND GEOGRAPHIC INFORMATION
The Company derived 62%, 47% and 36% of revenues in fiscal 1996, 1997 and
1998, respectively, from customers outside the United States. All sales are
settled in U.S. dollars. Revenue by geographic area is summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 6, 1995
(DATE OF
INCEPTION) YEAR ENDED FEBRUARY 28,
THROUGH -----------------------
FEBRUARY 29, 1996 1997 1998
----------------- ----------- -----------
<S> <C> <C> <C>
North America...................... $ 853,679 $ 5,928,154 $14,833,799
Asia............................... 449,210 2,202,914 3,312,880
Europe............................. 407,208 1,773,733 2,941,026
Other.............................. 141,696 885,253 1,593,338
---------- ----------- -----------
$1,851,793 $10,790,054 $22,681,043
========== =========== ===========
</TABLE>
(10) SUBSEQUENT EVENTS
(a) Sale of Redeemable Preferred Stock
During March 1998, the Company issued an additional 1,895,125 shares of
Redeemable Series C Convertible Preferred Stock at $7.96 per share and
received net proceeds of $13,657,976. In connection with the issuance of these
additional shares of Redeemable Series C Convertible Preferred Stock, the
Company issued contingent stock purchase warrants to the Redeemable Series C
Convertible Preferred Stock investors for the purchase of 852,806.25 shares of
Common Stock at an exercise price of $3.3333 per share. The contingent stock
purchase warrants are exercisable under the same provisions as the contingent
stock purchase warrants discussed in Note 6(a).
Also during March 1998 and in connection with the sale of the Redeemable
Series C Convertible Preferred Stock, the Company issued to an investment
banker warrants to purchase 316,811.25 shares of Common Stock at an exercise
price of $2.6667 per share. The warrants expire in March 2003. Using the
Black-Scholes model, the warrants were valued at $474,035. This amount was
recorded as a reduction to the carrying value of the Redeemable Series C
Convertible Preferred Stock and will be amortized and included in the
accretion to the redemption value of the Redeemable Series C Convertible
Preferred Stock recorded in each period.
(b) Stock Options
During May 1998, the Company granted 135,000 options under the 1998 Stock
Option Plan with a weighted average exercise price of $7.59 per share. Of the
total options granted, 30,000 were granted at an exercise price of $5.00 per
share and 105,000 were granted at an exercise price of $8.33 per share.
In June 1998, the Company's stockholders approved the 1998 Employee,
Director and Consultant Stock Plan which authorizes the grant of options for
up to 3,186,000 shares. In July 1998, the Company granted 2,102,700 shares
under this plan at an exercise price to be equal to the price that the
Company's Common Stock is sold in the proposed initial public offering.
(c) Operating Lease
During May 1998, the Company entered into a seven-year lease for office
space in a building which is being constructed adjacent to its present
facilities. Lease payments will begin once a certificate of occupancy is
obtained. Future annual minimum rental payments range from $198,000 to
$216,000 for the first five years of the lease term.
F-16
<PAGE>
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(d) Recapitalization and Reincorporation
On July 6, 1998, the Company reincorporated in Delaware and adopted a new
Certificate of Incorporation that increased the number of authorized shares to
60,000,000, of which 50,000,000 shares were designated as Common Stock and
10,000,000 as Preferred Stock, both with par values of $.01. On July 7, 1998
the Company effected a 3-for-1 stock split in the form of a stock dividend.
All references in the consolidated financial statements to the number of
shares and to per share amounts have been retroactively restated to reflect
these changes.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE UNDER-
WRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY, TO
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 30
Management............................................................... 42
Certain Transactions..................................................... 47
Principal Stockholders................................................... 48
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 58
Experts.................................................................. 58
Additional Information................................................... 58
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1998 (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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
LOGO
COMMON STOCK
---------------
PROSPECTUS
---------------
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's expenses in connection with
the issuance and distribution of the securities being registered. Except for
the SEC Registration Fee and the National Association of Securities Dealers,
Inc. ("NASD") Filing Fee, the amounts listed below are estimates:
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 20,650
NASD Filing Fee.................................................. 7,500
Nasdaq Listing Fees.............................................. 95,000
Legal Fees and Expenses.......................................... 400,000
Blue Sky Fees and Expenses....................................... 5,000
Accounting Fees and Expenses..................................... 250,000
Printing and Engraving........................................... 175,000
Transfer Agent and Register Fees and Expenses.................... 2,000
Miscellaneous.................................................... 94,850
----------
TOTAL.......................................................... $1,050,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") provides that the Company shall indemnify to the fullest
extent authorized by the Delaware General Corporation Law ("DGCL"), each
person who is involved in any litigation or other proceeding because such
person is or was a director or officer of the Company or is or was serving as
an officer or director of another entity at the request of the Company,
against all expense, loss or liability reasonably incurred or suffered in
connection therewith. The Certificate of Incorporation provides that the right
to indemnification includes the right to be paid expenses incurred in
defending any proceeding in advance of its final disposition, provided,
however, that such advance payment will only be made upon delivery to the
Company of an undertaking, by or on behalf of the director or officer, to
repay all amounts so advanced if it is ultimately determined that such
director is not entitled to indemnification. If the Company does not pay a
proper claim for indemnification in full within 60 days after a written claim
for such indemnification is received by the Company, the Certificate of
Incorporation and the Company's Bylaws authorize the claimant to bring an
action against the Company and prescribe what constitutes a defense to such
action.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding brought by reason
of the fact that such person is or was a director or officer of the
corporation, if such person acted in good faith and in a manner that he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he or
she had no reason to believe his or her conduct was unlawful. In a derivative
action, (i.e., one brought by or on behalf of the corporation),
indemnification may be provided only for expenses actually and reasonably
incurred by any director or officer in connection with the defense or
settlement of such an action or suit if such person acted in good faith and in
a manner that he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be
provided if such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication
of liability.
Pursuant to Section 102(b)(7) of the DGCL, Article Tenth of the Certificate
of Incorporation eliminates the liability of a director to the Company or its
stockholders for monetary damages for such a breach of fiduciary duty as a
director, except for liabilities arising (i) from any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) from acts or
omissions not in good faith or which involve intentional
II-1
<PAGE>
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) from any transaction from which the director derived an improper
personal benefit.
The Company intends to obtain insurance policies insuring the directors and
officers of the Company against certain liabilities that they may incur in
their capacity as directors and officers. Under such policies, the insurers,
on behalf of the Company, may also pay amounts for which the Company has
granted indemnification to the directors or officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement
and persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Company has sold the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock and Warrants
On December 1, 1995, the Company issued and sold 600,000 shares of its
Common Stock for an aggregate purchase price of $200,000 to a single investor
in a private placement.
On May 30, 1997, the Company issued an aggregate of 147,059 shares of Series
A Convertible Preferred Stock to five investors in exchange for $500,000 in
outstanding debt obligations of the Company.
On May 30, 1997 and July 28, 1997, the Company issued and sold an aggregate
of 535,678 shares of its Series A Convertible Preferred Stock at a price per
share of $3.40 to 17 investors in a private placement for aggregate proceeds
of approximately $1.8 million.
During the period ended February 29, 1996, and during the years ended
February 28, 1997 and 1998, the Company issued 570,000, 451,647, and 228,639
shares of Common Stock to employees and consultants in exchange for services.
On October 31, 1997, the Company issued and sold an aggregate of 163,043
shares of its Series B Convertible Preferred Stock at a price per share of
$4.60 to two investors in a private placement for aggregate proceeds of
$750,000.
On February 27, 1998, March 6, 1998, March 10, 1998, March 13, 1998, March
16, 1998 and March 27, 1998, the Company issued and sold an aggregate of
2,770,125 shares of its Redeemable Series C Convertible Preferred Stock at a
price per share of $7.96 to 58 investors in a private placement for aggregate
proceeds of approximately $22 million.
On March 23, 1998, the Company issued 163,043 shares of Series B Convertible
Preferred Stock to Winfield Capital Corp. upon the conversion of a $750,000
convertible debenture.
On July 18, 1996, the Company issued a warrant to purchase 180,000 shares of
Common Stock at an exercise price of $.0041 per share to a placement agent.
On May 30, 1997 and July 28, 1997, the Company issued warrants to purchase
an aggregate of 261,478 shares of Common Stock at an exercise price of $1.13
per share to a placement agent in connection with the Series A Convertible
Preferred Stock financing.
On December 1, 1997, the Company issued warrants to purchase 1,067,121
shares of Common Stock at an exercise price of $2.65 per share in connection
with a marketing agreement.
On January 13, 1998, the Company issued warrants to purchase 376,884 shares
of Common Stock at an exercise price of $2.65 per share in connection with a
note payable.
II-2
<PAGE>
On February 27, 1998, March 13, 1998, March 15, 1998 and March 27, 1998, the
Company issued warrants to purchase an aggregate of 474,311 shares of Common
Stock at an exercise price of $2.67 per share to an investment banker in
connection with the Redeemable Series C Convertible Preferred Stock financing.
In connection with the Redeemable Series C Convertible Preferred Stock
financing, on February 27, 1998, March 6, 1998, March 10, 1998, March 13,
1998, March 16, 1998 and March 27, 1998, the Company sold contingent stock
purchase warrants to the holders of the Redeemable Series C Convertible
Preferred Stock for the purchase of an aggregate of 1,246,556 shares of Common
Stock for a purchase price of $.0889 per warrant share for aggregate proceeds
of approximately $110,805. The contingent warrants are exercisable at an
exercise price of $3.33 per share.
(b) Certain Grants and Exercises of Stock Options
Pursuant to the 1997 Inventive Stock Plan and the 1998 Incentive Stock Plan
(collectively, the "Stock Plans"), the Company had as of July 7, 1998 issued
options to purchase an aggregate of 3,926,700 shares of Common Stock, of which
options to purchase an aggregate of 97,500 shares of Common Stock are
exercisable, at a weighted average exercise price of $1.95 per share. As of
July 7, 1998, no options pursuant to the foregoing have been exercised.
The sale and issuance of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving a public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationships with the Company, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 --Form of Underwriting Agreement.
3.1 --Plan and Agreement of Merger.
@3.2 --Amended and Restated Certificate of Incorporation of the Registrant
(Connecticut).
3.3 --Restated Certificate of Incorporation of the Registrant (Delaware).
@3.4 --Amended and Restated Bylaws of the Registrant (Connecticut).
3.4.1 --Restated Bylaws of the Registrant (Delaware).
3.5 --Form of Restated Bylaws of the Registrant (Delaware).
*4.1 --Form of Common Stock Certificate.
*5.1 --Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of securities being registered.
@10.1 --Lease, dated December 2, 1997, between Barton Kent LLC and the
Registrant.
@10.2 --Lease, dated December 2, 1997, between Barton Kent LLC and the
Registrant.
@10.3 --Lease, dated February 16, 1998, between Barton Kent LLC and the
Registrant.
@10.4 --Lease, dated May 4, 1998, between Barton Kent LLC and the
Registrant.
@10.5 --1997 Incentive Stock Plan.
@10.6 --1998 Incentive Stock Plan.
10.7 --1998 Employee, Director and Consultant Stock Plan.
10.8 --Employment Agreement, dated June 2, 1998, between the Registrant and
Darryl Peck.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.9 --Employment Agreement, dated June 2, 1998, between the Registrant and
Katherine N. Vick.
@+10.10 --Interactive Marketing Agreement, dated December 1, 1997, by and
between America Online,
Inc. and the Registrant.
@+10.11 --Agreement, dated April 7, 1998, by and between Lycos-Bertelsmann
GmbH and the Registrant.
+10.12 --Letter of Intent, dated May 27, 1998, by and between StarMedia
Network, Inc. and the Registrant.
+10.13 --Promotion Agreement, dated January 26, 1998, by and between CNET,
Inc. and the Registrant.
+10.14 --Merchant Integration Agreement, dated January 6, 1998, by and
between Infospace and the Registrant.
+10.15 --Sponsorship Agreement, dated December 4, 1997, by and between
Excite, Inc. and the Registrant.
+10.16 --Marketing Agreement, dated May 21, 1998, by and between
theglobe.com, Inc. and the Registrant.
+10.17 --Renewal, dated May 8, 1998, to Advertising Agreement by and between
go2net and the Registrant.
11.1 --Computation of Loss Per Share.
@21.1 --Subsidiaries of the Company.
23.1 --Consent and Report on Schedule of KPMG Peat Marwick LLP.
*23.2 --Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1).
@24.1 --Power of Attorney.
99.1 --Consent of Jupiter Communications
99.2 --Consent of International Data Corporation
99.3 --Consent of Word of Net Promotions
99.4 --Consent of Louise R. Cooper
</TABLE>
- --------
@ Previously filed.
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
(b) Financial Statement Schedules
Schedule II, Valuation of Qualifying Accounts
All other schedules are omitted because they are not required, are not
applicable or the information is included in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under "Item 14-
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, in Kent,
Connecticut, on July 9, 1998.
CYBERIAN OUTPOST, INC.
/s/ Darryl Peck
By: _________________________________
DARRYL PECK,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons
in the capacities held on the dates indicated.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Darryl Peck President, Chief July 9, 1998
- ------------------------------------- Executive Officer
DARRYL PECK and Director
(Principal
executive officer)
* Executive Vice July 9, 1998
- ------------------------------------- President and
KATHERINE N. VICK Director (Principal
financial and
accounting officer)
* Director July 9, 1998
- -------------------------------------
CHARLES JACKSON
* Director July 9, 1998
- -------------------------------------
MICHAEL MURRAY
* Director July 9, 1998
- -------------------------------------
WILLIAM C. MULLIGAN
* Director July 9, 1998
- -------------------------------------
DAVID YARNELL
</TABLE>
*By executing his name hereto, Darryl Peck is signing this document on
behalf of the persons indicated above pursuant to powers of attorney duly
executed by such persons and filed with the Securities and Exchange
Commission.
/s/ Darryl Peck
By: ____________________________
DARRYL PECK
(ATTORNEY-IN-FACT)
II-6
<PAGE>
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE
BEGINNING TO COST AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
March 6, 1995 (date of
inception) through
February 29, 1996......... $ -- $18,000 $ -- $18,000
Year ended February 28,
1997...................... $18,000 $ -- $(14,000) $ 4,000
Year ended February 28,
1998...................... $ 4,000 $69,000 $(26,000) $47,000
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
*1.1 --Form of Underwriting Agreement.
3.1 --Plan and Agreement of Merger.
@3.2 --Amended and Restated Certificate of Incorporation of the
Registrant (Connecticut).
3.3 --Restated Certificate of Incorporation of the Registrant
(Delaware).
@3.4 --Amended and Restated Bylaws of the Registrant (Connecticut).
3.4.1 --Restated Bylaws of the Registrant (Delaware).
3.5 --Form of Restated Bylaws of the Registrant (Delaware).
*4.1 --Form of Common Stock Certificate.
*5.1 --Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
with respect to the legality of securities being registered.
@10.1 --Lease, dated December 2, 1997, between Barton Kent LLC and the
Registrant.
@10.2 --Lease, dated December 2, 1997, between Barton Kent LLC and the
Registrant.
@10.3 --Lease, dated February 16, 1998, between Barton Kent LLC and
the Registrant.
@10.4 --Lease, dated May 4, 1998, between Barton Kent LLC and the
Registrant.
@10.5 --1997 Incentive Stock Plan.
@10.6 --1998 Incentive Stock Plan.
10.7 --1998 Employee, Director and Consultant Stock Plan.
10.8 --Employment Agreement, dated June 2, 1998, between the
Registrant and Darryl Peck.
10.9 --Employment Agreement, dated June 2, 1998, between the
Registrant and Katherine N. Vick.
@+10.10 --Interactive Marketing Agreement, dated December 1, 1997, by
and between America Online, Inc. and the Registrant.
@+10.11 --Agreement, dated April 7, 1998, by and between Lycos-
Bertelsmann GmbH and the Registrant.
+10.12 --Letter of Intent, dated May 27, 1998, by and between between
StarMedia Network, Inc. and the Registrant.
+10.13 --Promotion Agreement, dated January 26, 1998, by and between
CNET, Inc. and the Registrant.
+10.14 --Merchant Integration Agreement, dated January 6, 1998, by and
between Infospace and the Registrant.
+10.15 --Sponsorship Agreement, dated December 4, 1997, by and between
Excite, Inc. and the Registrant.
+10.16 --Marketing Agreement, dated May 21, 1998, by and between
theglobe.com, Inc. and the Registrant.
+10.17 --Renewal, dated May 6, 1998, to Advertising Agreement by and
between go2net and the Registrant.
11.1 --Computation of Loss Per Share.
@21.1 --Subsidiaries of the Company.
23.1 --Consent and Report on Schedule of KPMG Peat Marwick LLP.
*23.2 --Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(see Exhibit 5.1).
@24.1 --Power of Attorney.
99.1 --Consent of Jupiter Communications
99.2 --Consent of International Data Corporation
99.3 --Consent of Word of Net Promotions
99.4 --Consent of Louise R. Cooper
</TABLE>
- --------
@ Previously filed.
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE>
EXHIBIT 3.1
CYBERIAN OUTPOST, INC.
A CONNECTICUT CORPORATION
AND
CYBERIAN OUTPOST, INC.
A DELAWARE CORPORATION
PLAN AND AGREEMENT OF MERGER
----------------------------
This Plan and Agreement of Merger (the "Agreement") is entered into as of the
12 day of June, 1998, by and between CYBERIAN OUTPOST, INC., a Connecticut
corporation ("Cyberian Connecticut"), and CYBERIAN OUTPOST, INC., a Delaware
corporation ("Cyberian Delaware"). Cyberian Connecticut and Cyberian Delaware
are sometimes referred to herein as the "Constituent Corporations."
WHEREAS, Cyberian Connecticut was incorporated under the laws of the State of
Connecticut on March 6, 1995, and has authorized capital stock of 10,000,000
shares of Common Stock, no par value per share, of which 2,226,761.86 shares are
outstanding, 700,000 shares of Series A Preferred Stock, no par value per share,
of which 682,737.53 shares are outstanding, 500,000 shares of Series B Preferred
Stock, no par value per share, of which 326,086.95 shares are outstanding,
3,000,000 shares of Series C Preferred Stock, no par value per share, of which
2,770,125 shares are outstanding, and 800,000 shares of undesignated and
unissued preferred stock, no par value per share; and
WHEREAS, Cyberian Delaware was incorporated under the laws of the State of
Delaware on June 10, 1998 and on the Effective Date (as defined below) will have
authorized capital stock of 50,000,000 shares of Common Stock, par value $.01
per share, of which one (1) share is outstanding, 700,000 shares of Series A
Preferred Stock, $.01 par value per share, of which no shares are outstanding,
500,000 shares of Series B Preferred Stock, $.01 par value per share, of which
no shares are outstanding, 3,000,000 shares of Series C Preferred Stock, $.01
par value per share, of which no shares are outstanding, and 5,800,000 shares of
undesignated and unissued preferred stock, $.01 par value per share; and
WHEREAS, the respective Boards of Directors of Cyberian Connecticut and
Cyberian Delaware deem it advisable and in the best interests of their
respective corporations that Cyberian Connecticut merge with and into Cyberian
Delaware (the "Merger") and to enter into and perform this Agreement pursuant to
the laws of Connecticut and Delaware, as applicable; and
WHEREAS, the Board of Directors and the stockholders of Cyberian Connecticut
have approved this Agreement pursuant to Sections 33-815 and 33-817 of the
Connecticut General Corporation Law ("C.G.C.L."); and
<PAGE>
WHEREAS, the Board of Directors and the sole stockholder of Cyberian Delaware
have approved this Agreement pursuant to Sections 251 and 252 of the Delaware
General Corporate Law ("D.G.C.L.").
NOW, THEREFORE, Cyberian Connecticut and Cyberian Delaware hereby agree as
follows:
1. Merger. Subject to the terms and conditions hereof, Cyberian Connecticut
------
shall be merged with and into Cyberian Delaware, the separate corporate
existence of Cyberian Connecticut will cease, Cyberian Delaware shall continue
as the surviving corporation under the laws of the State of Delaware (the
"Surviving Corporation"), and the issued and outstanding shares of Cyberian
Connecticut capital stock shall be converted into capital stock of Cyberian
Delaware as provided in Section 6 below, effective upon the date when this
Agreement or the Certificate of Merger evidencing this Agreement is filed with
the Secretaries of State of the States of Delaware and Connecticut (the
"Effective Date").
2. Registered Office of Surviving Corporation. The registered office of the
------------------------------------------
Surviving Corporation after the Merger will be 1013 Centre Road, Wilmington,
County of New Castle; and the name of the registered agent of the Surviving
Corporation in the State of Delaware after the Merger will be The Prentice-Hall
Corporation System, Inc.
3. Certificate of Incorporation. The Certificate of Incorporation of
----------------------------
Cyberian Delaware in effect immediately prior to the Merger will continue to be
the Certificate of Incorporation of the Surviving Corporation immediately after
the Merger.
4. By-Laws. The By-Laws of Cyberian Delaware in effect immediately prior to
-------
the Merger shall be the By-Laws of the Surviving Corporation immediately upon
and after the Merger, until amended as provided therein or by law.
5. Officers, Directors and Committees. Upon the Effective Date, the number
----------------------------------
of directors of the Surviving Corporation shall be fixed initially at six (6)
directors and the officers, directors and committees of the Board of Directors
of Cyberian Connecticut immediately prior to the Merger shall be the officers,
directors and committees of the Board of Directors of the Surviving Corporation
immediately upon and after the Merger, until their respective successors are
duly elected and qualified in accordance with the Certificate of Incorporation
and By-Laws of the Surviving Corporation.
-2-
<PAGE>
6. Conversion of Shares.
--------------------
(a) Upon the Effective Date and without any further action on the
part of the Constituent Corporations, the single share of Common Stock of the
Surviving Corporation that is issued and outstanding on the date hereof shall be
cancelled.
(b) Upon the Effective Date, by virtue of the Merger and without any
further action on the part of the Constituent Corporations or their respective
stockholders, (i) all of the 2,226,761.86 shares of Common Stock, no par value,
of Cyberian Connecticut issued and outstanding immediately prior to the Merger
shall automatically be converted on a one-for-one basis into 2,226,761.86 fully
paid and non-assessable shares of Common Stock, $.01 par value per share, of
Cyberian Delaware, (ii) all of the 682,737.53 shares of Series A Preferred
Stock, no par value, of Cyberian Connecticut issued and outstanding immediately
prior to the Merger shall automatically be converted on a one-for-one basis into
682,737.53 fully paid and non-assessable shares of Series A Preferred Stock,
$.01 par value per share, of Cyberian Delaware, (iii) all of the 326,086.95
shares of Series B Preferred Stock, no par value, of Cyberian Connecticut issued
and outstanding immediately prior to the Merger shall automatically be converted
on a one-for-one basis into 326,086.95 fully paid and non-assessable shares of
Series B Preferred Stock, $.01 par value per share, of Cyberian Delaware, and
(iv) all of the 2,770,125 shares of Series C Preferred Stock, no par value, of
Cyberian Connecticut issued and outstanding immediately prior to the Merger
shall automatically be converted on a one-for-one basis into 2,770,125 fully
paid and non-assessable shares of Series C Preferred Stock, $.01 par value per
share, of Cyberian Delaware.
7. Rights to Purchase Stock. Upon the Effective Date, each outstanding
------------------------
option and warrant to purchase shares of Common Stock of Cyberian Connecticut
that is outstanding immediately prior to the Effective Date shall, by virtue of
the Merger and without any further action on the part of the Constituent
Corporations or their respective stockholders, be converted into and become an
option or warrant, as the case may be, to purchase the identical number of
shares of Common Stock of Cyberian Delaware , upon the same terms and subject to
the same conditions, as in effect on the Effective Date, including such terms
and conditions as are contained in the 1997 Incentive Stock Plan and the 1998
Incentive Stock Plan. Such number of shares of Common Stock of Cyberian
Delaware shall be reserved for purposes of outstanding options or warrants to
purchase shares of Common Stock of Cyberian Delaware as are equal to the number
of shares of Common Stock of Cyberian Connecticut so reserved as of the
Effective Date. As of the Effective Date, Cyberian Delaware hereby assumes all
obligations of Cyberian Connecticut under all outstanding options and warrants
to purchase shares of Common Stock of Cyberian Connecticut.
Upon the Effective Date, by virtue of the Merger and without any further
action on the part of the Constituent Corporations or their respective
stockholders, the Cyberian Connecticut 1998 Employee, Director and Consultant
Stock Plan shall become the Cyberian Delaware 1998 Employee, Director and
Consultant Stock Plan.
-3-
<PAGE>
8. Stock Certificates. On and after the Effective Date, all of the
------------------
outstanding certificates which prior to that time represented shares of the
Common Stock, Series A Preferred Stock, Series B Preferred Stock, and Series C
Preferred Stock of Cyberian Connecticut shall be deemed for all purposes to
evidence ownership of and to represent the shares of Cyberian Delaware into
which the shares of Cyberian Connecticut represented by such certificates have
been converted as herein provided and shall be so registered on the books and
records of Cyberian Delaware or its transfer agent. The registered owner of any
such outstanding stock certificate shall, until such certificate shall have been
surrendered for exchange, transfer or conversion or otherwise accounted for to
Cyberian Delaware or its transfer agent, have and be entitled to exercise any
voting and other rights with respect to and to receive any dividend and other
distributions upon the shares of Cyberian Delaware evidenced by such outstanding
certificate as above provided.
9. Status and Rights of Surviving Corporation. Immediately after the Merger,
------------------------------------------
the Surviving Corporation shall possess all the rights, privileges and powers,
of a public as well as a private nature, of Cyberian Connecticut and all
property, real, personal and mixed, whether tangible or intangible, and all
debts due to Cyberian Connecticut shall be vested in the Surviving Corporation;
and all and every other interest of Cyberian Connecticut shall be thereafter the
property of the Surviving Corporation as effectively as they were of Cyberian
Connecticut, and the title to any real estate, whether by deed or otherwise,
vested in Cyberian Connecticut or the Surviving Corporation, shall not revert or
be in any way impaired by reason of the Merger. Immediately after the Merger,
all rights of creditors and all liens upon any property of the parties hereto
shall be preserved unimpaired, and all debts, liabilities, obligations, and
duties of the parties hereto shall thenceforth attach to the Surviving
Corporation, and may be enforced against the Surviving Corporation to the same
extent as if said debts, liabilities, obligations and duties had been incurred
or contracted by it.
10. Further Assurances. From time to time, as and when required by Cyberian
------------------
Delaware or by its successors and assigns including without limitation the
Surviving Corporation, there shall be executed and delivered on behalf of
Cyberian Connecticut such deeds and other instruments, and there shall be taken
or caused to be taken by it such further and other action, as shall be
appropriate or necessary in order to vest, perfect in, to conform of record or
otherwise in the Surviving Corporation the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of Cyberian Connecticut and otherwise to carry out the purposes of
this Agreement, and the officers and directors of Cyberian Delaware are fully
authorized in the name and on behalf of Cyberian Connecticut or otherwise to
take any and all such action and to execute and deliver any and all such deeds
and other instruments.
11. Termination. Notwithstanding the approval of this Agreement by the
-----------
stockholders of Cyberian Connecticut, this Agreement may be terminated by the
mutual consent of the Boards of Directors of the parties hereto at any time
prior to the filing of this Agreement or related Certificate of Merger with the
Secretary of State of either Delaware or Connecticut.
-4-
<PAGE>
12. Amendment. This Agreement may be amended by the mutual consent of the
----------
Boards of Directors of the parties hereto prior to the filing of this Agreement
or related Certificate of Merger, subject to the restrictions of Section 251(d)
of the D.G.C.L.
13. Miscellaneous. This Agreement may be executed in several counterparts,
-------------
each of which shall be deemed an original, and all of which shall constitute one
and the same document. This Agreement constitutes the entire agreement of the
parties which respect to the subject matter hereof and supersedes any prior or
contemporaneous agreements, oral or written, relating thereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this PLAN AND
AGREEMENT OF MERGER as of the date first written above.
Attest: CYBERIAN OUTPOST, INC.
a Connecticut corporation
/s/ KATHERINE N. VICK By: /s/ DARRYL PECK
- --------------------------- ---------------------------
Secretary Darryl Peck,
President and Chief Executive Officer
(SEAL)
CYBERIAN OUTPOST, INC.
a Delaware corporation
By: /s/ KATHERINE N. VICK
---------------------------
Katherine N. Vick,
President, Secretary and Treasurer
-5-
<PAGE>
EXHIBIT 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
CYBERIAN OUTPOST, INC.
Adopted in accordance with the
provisions of Sections 242 and 245
of the General Corporation Law of the State of Delaware
-------------------------------------------------------
Cyberian Outpost, Inc., a Delaware corporation, hereby certifies as follows:
1. The name of the corporation is Cyberian Outpost, Inc. The date of the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was June 10, 1998.
2. This Restated Certificate of Incorporation amends and restates the
provisions of the Certificate of Incorporation of said corporation and was duly
adopted pursuant to resolutions adopted by the Board of Directors and
Stockholders of the corporation in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware (the
"Delaware General Corporation Law").
3. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
FIRST: The name of the corporation is Cyberian Outpost, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle; and
the name of the registered agent of the Corporation in the State of Delaware is
The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity or carry on any business for which corporations may be organized under
the Delaware General Corporation Law or any successor statue.
FOURTH:
A. Designation and Number of Shares.
--------------------------------
The total number of shares of all classes of stock which the Corporation
shall have the authority to issue is 60,000,000 shares, consisting of 50,000,000
shares of common stock, par value $.01 per share (the "Common Stock") and
10,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock").
A statement of the designations of the different classes of stock of the
Corporation and of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, and of the authority conferred upon the
Board of Directors to fix by resolution or resolutions any of the foregoing in
connection with the creation of one or more series of Preferred Stock and the
limitation of variations between or among such series, is set forth below in
this Article FOURTH.
<PAGE>
B. Preferred Stock
---------------
1. Shares of Preferred Stock may be issued in one or more series at
such time or times and for such consideration as the Board of Directors may
determine.
2. Authority is hereby expressly granted to the Board of Directors
to fix from time to time, by resolution or resolutions providing for the
establishment and/or issuance of any series of Preferred Stock, the designation
of such series and the powers, preferences and rights of the shares of such
series, and the qualifications, limitations or restrictions thereof, to the
fullest extent such authority may be conferred upon the Board of Directors under
the Delaware General Corporation Law, including, without limitation, the
authority to fix the following:
(a) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below
the number of shares then outstanding) from time to time by action of the
Board of Directors;
(b) The rate of dividends, if any, on the shares of that series,
whether dividends shall be (i) non-cumulative, (ii) cumulative to the
extent earned or (iii) cumulative (and, if cumulative, from which date or
dates), whether dividends shall be payable in cash, property or rights, or
in shares of the Corporation's capital stock, and the relative rights of
priority, if any, of payment of dividends on shares of that series over
shares of any other series or class;
(c) Whether the shares of that series shall be redeemable and, if so,
the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share
payable in case of redemption (which amount may vary under different
conditions and at different redemption dates) or the property or rights,
including securities of any other corporation, payable in case of
redemption;
(d) Whether the series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and amounts
payable into such sinking fund;
(e) The rights to which the holders of the shares of that series
shall be entitled in the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series in any such event;
(f) Whether the shares of that series shall be convertible into or
exchangeable for shares of stock of any other class or any other series
and, if so, the terms and conditions of such conversion or exchange,
including the rate or rates of conversion or exchange, the date or dates
upon or after which they shall be convertible or exchangeable, the period
or periods during which they shall be convertible or exchangeable, the
event or events upon or after which they shall be convertible or
exchangeable or at whose option they shall be convertible or exchangeable,
and the method (if any) of adjusting the rates of conversion or exchange in
the event of a stock split, stock dividend, combination of shares or
similar event;
(g) Whether the issuance of any additional shares of such series, or
of any shares of any other series, shall be subject to restrictions as to
issuance, or as to the powers,
2
<PAGE>
preferences or rights of any such additional shares of such series or
shares of such other series;
(h) Whether or not the shares of that series shall have voting
rights, the extent of such voting rights on specified matters or on all
matters, the number of votes to which the holder of a share of such series
shall be entitled in respect of such share, whether such series shall vote
generally with the Common Stock on all matters or (either generally or upon
the occurrence of specified circumstances) shall vote separately as a class
or with other series of Preferred Stock; and
(i) Any other preferences, privileges and powers and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions of such series, as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of this
Restated Certificate of Incorporation and to the full extent now or
hereafter permitted by the Delaware General Corporation Law.
C. Designation of Series A Convertible Preferred Stock, Series B
-------------------------------------------------------------
Convertible Preferred Stock and Series C Convertible Preferred Stock. Of the
- --------------------------------------------------------------------
10,000,000 shares of Preferred Stock, 4,200,000 shares are designated as set
forth in this Article FOURTH, paragraph C. There is hereby established a series
of Preferred Stock designated the "Series A Convertible Preferred Stock" (the
"Series A Preferred"), consisting of 700,000 shares of Preferred Stock, $.01 par
value per share, and having the relative rights, designations, preferences,
qualifications, privileges, limitations, and restrictions applicable thereto as
set forth on Exhibit A attached hereto and made a part hereof. There is hereby
---------
established a series of Preferred Stock designated the "Series B Convertible
Preferred Stock" (the "Series B Preferred"), consisting of 500,000 shares of
Preferred Stock, $.01 par value per share, and having the relative rights,
designations, preferences, qualifications, privileges, limitations, and
restrictions applicable thereto as set forth on Exhibit B attached hereto and
---------
made a part hereof. There is hereby established a series of Preferred Stock
designated the "Series C Convertible Preferred Stock" (the "Series C
Preferred"), consisting of 3,000,000 shares of Preferred Stock, $.01 par value
per share, and having the relative rights, designations, preferences,
qualifications, privileges, limitations, and restrictions applicable thereto as
set forth on Exhibit C attached hereto and made a part hereof.
---------
D. Common Stock.
------------
The relative powers, preferences, rights, qualifications, limitations and
restrictions of the shares of the Common Stock are as follows:
1. Dividends. Subject to the preferential rights, if any, of the
---------
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property, or in shares of Common Stock.
2. Liquidation. In the event of any liquidation, dissolution or
-----------
winding up of the Corporation, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the Corporation
and the amounts to which the holders of any Preferred Stock shall be entitled,
the holders of Common Stock shall be entitled to share ratably in the remaining
assets of the Corporation.
3
<PAGE>
3. Voting. The holders of the Common Stock are entitled to one vote
------
for each share held. There shall be no cumulative voting.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Restated
Certificate of Incorporation or the By-Laws of the Corporation as in effect from
time to time, the directors are hereby empowered to exercise all such powers and
do all such acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the By-Laws so provide.
C. Following the closing of a Qualified Public Offering, as defined in
Section 3(b) of Exhibit C of this Restated Certificate of Incorporation, any
action required or permitted to be taken by the stockholders of the Corporation
may be effected only at a duly called annual or special meeting of stockholders
of the Corporation and not by written consent.
D. Following the closing of a Qualified Public Offering, special meetings
of the stockholders may only be called by the Board of Directors.
SEVENTH: A. Following the closing of a Qualified Public Offering, subject
to the rights of the holders of shares of any series of Preferred Stock then
outstanding to elect additional directors under specified circumstances, the
number of directors shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the Board of
Directors.
B. Effective upon the closing of a Qualified Public Offering, the Board
of Directors of the Corporation shall be divided into three classes, as nearly
equal in number as reasonably possible, with the term of office of the first
class to expire at the 1999 annual meeting of stockholders or any special
meeting in lieu thereof, the term of office of the second class to expire at the
2000 annual meeting of stockholders or any special meeting in lieu thereof, and
the term of office of the third class to expire at the 2001 annual meeting of
stockholders or any special meeting in lieu thereof. At each annual meeting of
stockholders or special meeting in lieu thereof following such initial
classification, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders or special meeting in lieu thereof after their election
and until their successors are duly elected and qualified.
C. Following the closing of a Qualified Public Offering, subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the directors then in office even
though less than a quorum, or by a sole remaining director. In the event of any
increase or decrease in the authorized number of directors, (i) each director
then serving as such shall nevertheless continue as a director of the
4
<PAGE>
class of which he is a member until the expiration of his current term or his
prior death, retirement, removal or resignation and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall if
reasonably possible be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be subtracted
from those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum.
D. Following the closing of a Qualified Public Offering, 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 By-Laws of the
Corporation.
E. Following the closing of a Qualified Public Offering, subject to the
rights of the holders of any series of Preferred Stock then outstanding, any
director, or the entire Board of Directors, may be removed from office at any
time only for cause by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock then entitled to vote at an election of the
directors. A director may be removed for cause only after a reasonable notice
and opportunity to be heard by the stockholders.
EIGHTH: The Board of Directors is expressly empowered to adopt, amend or
repeal By-Laws of the Corporation. Any adoption, amendment or repeal of the By-
Laws of the Corporation by the Board of Directors shall require the approval of
a majority of the Board of Directors. The stockholders shall also have power to
adopt, amend or repeal the By-Laws of the Corporation; provided, that, following
--------
the closing of a Qualified Public Offering, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or by
this Restated Certificate of Incorporation, the affirmative vote of the holders
of at least seventy percent (70%) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required for the stockholders to adopt, amend or repeal any provision of the
By-Laws of the Corporation.
NINTH: A. To the fullest extent permitted by the Delaware General
Corporation Law as the same now exists or may hereafter be amended, the
Corporation shall indemnify, and advance expenses to, its directors and officers
and to any person who is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, if such person was or is
made a party to or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan; provided, that except with respect to proceedings to enforce rights to
--------
indemnification or as is otherwise required by law, the By-Laws of the
Corporation may provide that the Corporation shall not be required to indemnify,
and advance expenses to, any director, officer or other person in connection
with a proceeding (or part thereof) initiated by such director, officer or other
person, unless such proceeding (or part thereof) was authorized by the Board of
Directors and shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such person, to repay all amounts so advanced if
it shall ultimately be determined by
5
<PAGE>
final judicial decision from which there is no further right to appeal that
such person is not entitled to be indemnified for such expenses under this
Article NINTH or otherwise. The Corporation, by action of its Board of
Directors, may provide indemnification or advance expenses to employees and
agents of the Corporation or other persons only on such terms and conditions and
to the extent determined by the Board of Directors in its sole and absolute
discretion.
B. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article NINTH shall not be deemed exclusive of any
other rights to which a person seeking indemnification or advancement of
expenses may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
C. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, employee or agent of another corporation, or of
a partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under this
Article NINTH.
D. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article NINTH shall, unless otherwise specified when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person. The indemnification and rights to
advancement of expenses that may have been provided to an employee or agent of
the Corporation by action of the Board of Directors, pursuant to the last
sentence of paragraph 1 of this Article NINTH, shall, unless otherwise specified
when authorized or ratified, continue as to a person who has ceased to be an
employee or agent of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such person, after the time such person
has ceased to be an employee or agent of the Corporation, only on such terms and
conditions and to the extent determined by the Board of Directors in its sole
discretion. No repeal or amendment of this Article NINTH shall adversely affect
any rights of any person pursuant to this Article NINTH which existed at the
time of such repeal or amendment with respect to acts or omissions occurring
prior to such repeal or amendment.
TENTH: No director shall be personally liable to the Corporation or its
stockholders for any monetary damages for breaches of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability; provided
that this provision shall not eliminate or limit the liability of a director, to
the extent that such liability is imposed by applicable law, (i) for any breach
of the director's duty of loyalty to the Corporation 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 or successor provisions
of the Delaware General Corporation Law; or (iv) for any transaction from which
the director derived an improper personal benefit. This provision shall not
eliminate or limit the liability of a director for any act or omission if such
elimination or limitation is prohibited by the Delaware General Corporation Law.
No amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
If the Delaware General Corporation Law is amended to authorize corporate action
further
6
<PAGE>
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
ELEVENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Restated Certificate of Incorporation in the manner
prescribed by the Delaware General Corporation Law and all rights conferred upon
stockholders are granted subject to this reservation; provided that, following
--------
the closing of a Qualified Public Offering, in addition to the vote of the
holders of any class or series of stock of the Corporation required by law or by
this Restated Certificate of Incorporation, the affirmative vote of the holders
of shares of voting stock of the Corporation representing at least seventy
percent (70%) of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to (i) reduce
the number of authorized shares of Common Stock or the number of authorized
shares of Preferred Stock set forth in Article FOURTH or (ii) amend, alter or
repeal, or adopt any provision inconsistent with, Articles SIXTH,
7
<PAGE>
SEVENTH, EIGHTH, NINTH, TENTH, and this Article ELEVENTH of this Restated
Certificate of Incorporation.
TWELFTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the Delaware General Corporation Law or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of the Delaware General
Corporation Law, order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its President, Secretary and Treasurer this 30th day of June, 1998.
CYBERIAN OUTPOST, INC.
By: /s/ KATHERINE N. VICK
-----------------------------------
Katherine N. Vick
President, Secretary and Treasurer
<PAGE>
EXHIBIT A
TERMS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
CYBERIAN OUTPOST, INC.
DESIGNATION OF SERIES A CONVERTIBLE PREFERRED STOCK. There is hereby
----------------------------------------------------
established a series of Preferred Stock designated "Series A Convertible
Preferred Stock" (the "Series A Preferred"), consisting of 700,000 shares, $.01
------------------
par value per share, and having the relative rights, designations, preferences,
qualifications, privileges, limitations, and restrictions applicable thereto as
follows:
1. DIVIDEND PROVISIONS. Except as may be otherwise approved in writing by
-------------------
the holders of a majority of the outstanding shares of Series A Preferred:
(a) The holders of the shares of Series A Preferred shall be
entitled to receive dividends, out of any assets legally available therefor, in
an amount per share of Series A Preferred which is equal to the product of (i)
the number of shares of Common Stock into which one share of Series A Preferred
is convertible at the time of declaration of such dividend, multiplied by (ii)
the aggregate amount per share of Common Stock of all cash dividends and the
aggregate amount per share (payable, at the option of the holder, in kind or in
cash, based upon the fair market value at the time the non-cash dividend or
other distribution is declared or paid as determined in good faith by the Board
of Directors of the Corporation) of all non-cash dividends or other
distributions on the Common Stock, when, as and if a dividend is declared on the
shares of Common Stock. Such dividends shall accumulate and be declared and paid
contemporaneously with the declaration and payment of the related dividend on
the Common Stock, so that the Series A Preferred participates equally with the
Common Stock in such dividend or distribution with respect to the number of
shares of Common Stock into which the Series A Preferred is then convertible
pursuant to Section 3 hereof.
(b) So long as any Series A Preferred shall remain outstanding,
no deposit, payment, dividend or other distribution shall be paid or made on any
other class of stock of the Corporation and no shares of any other class of
stock of the Corporation shall be purchased or otherwise acquired by the
Corporation or any subsidiary of the Corporation other than, (i) except as may
be otherwise provided in this Restated Certificate of Incorporation, including
in any class or series designation concerning any capital stock of the
Corporation (as such may be amended from time to time), or (ii) upon exercise of
the Corporation's rights or a stockholder's rights under any restricted stock
purchase agreement (or any similar agreement pursuant to which the Corporation
is obligated to redeem its stock) in effect as of the Effective Date (as defined
below in Section 3(k) of this Exhibit A) or otherwise pursuant to incentive
stock plans of the Corporation in effect as of the Effective Date, or as may be
approved from time to
<PAGE>
time by the Corporation and the holders of the Series A Preferred in accordance
with Section 6(c) of this Exhibit A, or (iii) upon the exercise of a
stockholder's put rights in effect as of the Effective Date, or as may be
approved from time to time by the Corporation and the holders of the Series A
Preferred in accordance with Section 6(c) of this Exhibit A, or (iv) by exchange
therefor of shares of the stock of the Corporation.
Subject to the above limitations and to the provisions of Section 6 of
this Exhibit A, dividends may be paid on any class of stock of the Corporation
out of any funds legally available for such purpose when and as declared by the
Board of Directors.
Notwithstanding the foregoing, the provisions of this Section 1 of
Exhibit A shall not apply to any dividend of shares of Common Stock declared and
paid to the holders of Common Stock declared by the Board of Directors of the
Corporation in connection with and prior to the Corporation's initial public
offering (the "IPO Stock Dividend"), provided that the Corporation makes the
------------------
adjustment set forth in Section 3(e)(i) of this Exhibit A.
2. LIQUIDATION PREFERENCE. Except as may be otherwise approved in writing
----------------------
by the holders of a majority of the outstanding shares of Series A Preferred:
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of shares of Series A
Preferred shall be entitled to receive out of the assets of the Corporation
available for distribution to shareholders, (i) before any distribution or
payment shall be made in respect of the holders of shares of Common Stock but
pari passu with holders of Series B Preferred and Series C Preferred, a
liquidation distribution in an amount equal to the Series A Original Issuance
Price (as defined below in Section 3(k) of this Exhibit A) per share, plus an
amount equal to all declared dividends thereon to the date fixed for such
distribution or payment, and then (ii) to share with the holders of shares of
Common Stock, Series B Preferred and Series C Preferred as if the shares of
Series A Preferred, Series B Preferred and Series C Preferred were then
converted into shares of Common Stock. If, upon any such liquidation,
dissolution or winding up of the affairs of the Corporation, the assets of the
Corporation available for distribution to shareholders shall be insufficient to
permit the payment in full to the holders of Series A Preferred, Series B
Preferred and Series C Preferred of the amounts to which they are each entitled
in preference to holders of shares of Common Stock, then all of such available
assets shall be distributed to the holders of shares of Series A Preferred,
Series B Preferred and Series C Preferred ratably in proportion to the
liquidation payment otherwise due pursuant to clause (i) above to each such
holder.
(b) A consolidation or merger of the Corporation with or into any
other corporation or corporations, or the consolidation or merger of any other
corporation or corporations into the Corporation, or the sale or transfer by the
Corporation of all or substantially all of its assets or the effectuation by the
Corporation or any holders of its capital stock of a transaction or series of
related transactions in which more than fifty percent (50%) of the voting
<PAGE>
power of the Corporation is sold, transferred or otherwise disposed of, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2 of Exhibit A.
3. CONVERSION. The holders of the shares of Series A Preferred shall have
----------
conversion rights as follows:
(a) OPTIONAL CONVERSION. The holder of any shares of Series A
-------------------
Preferred shall have the right, at such holder's option, at any time or from
time to time by the giving of written notice thereof to the Corporation (the
"Conversion Date") to convert all or any of such shares of Series A Preferred
- ----------------
into such number of fully paid and nonassessable shares of Common Stock as
obtained by multiplying the Series A Original Issuance Price by the number of
shares of Series A Preferred being converted, and dividing the product thereof
by the Series A Conversion Price (as hereinafter defined) (as last adjusted and
then in effect) for the shares of Series A Preferred then being converted. The
conversion price per share (the "Series A Conversion Price") at which shares of
-------------------------
Common Stock shall be issuable shall be Three Dollars and Forty Cents ($3.40)
per share; provided, however, that the Series A Conversion Price shall be
--------
subject to adjustment as set forth in Section 3(e) of this Exhibit A. The holder
of any shares of Series A Preferred converted into shares of Common Stock
pursuant to this Section 3(a) of Exhibit A shall be entitled to payment of all
declared but unpaid dividends, if any, payable with respect to such shares being
converted up to and including the Conversion Date.
(b) MANDATORY CONVERSION. Upon the consummation of a public offering
--------------------
of shares of Common Stock registered pursuant to the Securities Act of 1933, as
amended, in which the gross proceeds to the Corporation exceed Ten Million
Dollars ($10,000,000) and as the result of which shares of Common Stock are
traded on either the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market System (a "Series A Event of Conversion"), all shares of
----------------------------
Series A Preferred then outstanding shall, by virtue of and simultaneously with
the occurrence of the Series A Event of Conversion and without any action on the
part of the holder thereof, be deemed automatically converted into such whole
number of fully paid and nonassessable shares of Common Stock as obtained by
multiplying the Series A Original Issuance Price by the number of shares of
Series A Preferred being converted, and dividing the product thereof by the
Series A Conversion Price (as last adjusted and then in effect) for the shares
of Series A Preferred being converted (such Series A Conversion Price being
subject to adjustment as set forth in Section 3(e) of this Exhibit A). The
holder of any shares of Series A Preferred converted into shares of Common Stock
pursuant to this Section 3(b) of Exhibit A shall be entitled to payment of all
declared but unpaid dividends, if any, payable with respect to such shares of
Series A Preferred up to and including the Conversion Date.
(c) PROCEDURE FOR CONVERSION. Upon conversion of the shares of Series
------------------------
A Preferred pursuant to Section 3(a) of this Exhibit A, the holder of any shares
of Series A Preferred shall deliver to the Corporation during regular business
hours, at the office of any transfer agent of the Corporation for the Series A
Preferred, or at such other place as may be
<PAGE>
designated by the Corporation, the certificate or certificates for the shares to
be converted, duly endorsed or assigned in blank or to the Corporation (if
required by it), accompanied by written notice stating the name or names (with
address) in which the certificate or certificates for the shares of Common Stock
are to be issued. As promptly as practicable thereafter, the Corporation shall
issue and deliver to or upon the written order of such holder, to the place
designated by such holder, a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled, a check or cash in
respect of any fractional interest in a share of Common Stock as provided in
Section 3(d) of this Exhibit A and a check or cash in payment of all declared
but unpaid dividends, if any (to the extent permissible under law), payable with
respect to the shares of Series A Preferred so converted up to and including the
Conversion Date. The person in whose names the certificate or certificates for
Common Stock are to be issued shall be deemed to have become a shareholder of
record on the applicable Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event he shall be deemed to have
become a shareholder of record on the next succeeding date on which the transfer
books are open, but the Series A Conversion Price for the Series A Preferred
shall be that in effect on the Conversion Date.
(d) ADDITIONAL CONVERSION PROVISIONS. The following additional terms
--------------------------------
shall apply upon any conversion of the Series A Preferred:
(i) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series A Preferred. If more than one share
of Series A Preferred shall be surrendered for conversion at any one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series A Preferred so surrendered. In lieu of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of any shares of Series
A Preferred the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the then Current Market Price (as
defined below) of a share of Common Stock as of the date of conversion,
multiplied by such fractional interest. Fractional interests shall not be
entitled to dividends, and the holders of fractional interests shall not be
entitled to any rights as shareholders of the Corporation in respect of such
fractional interest.
(ii) For the purpose of any computation pursuant to this Section
3(d) of Exhibit A, the Current Market Price at any date of one share of Common
Stock shall be deemed to be the closing price as of the day before the day in
question. If the Common Stock is not traded in such manner that the closing
price is readily available, the Current Market Price shall be determined in good
faith by the Directors of the Corporation.
(e) ADJUSTMENTS TO SERIES A CONVERSION PRICE. The Series A Conversion
----------------------------------------
Price shall be subject to adjustment from time to time as follows:
(i) STOCK DIVIDENDS, SPLIT-UPS, ETC. If, at any time after the
-------------------------------
<PAGE>
Effective Date, the number of shares of Common Stock outstanding is increased by
a stock dividend payable in shares of Common Stock or by a subdivision or split-
up of shares of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, the Series A Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred shall be increased in proportion
to such increase in outstanding shares.
(ii) COMBINATIONS. If, at any time after the Effective Date, the
------------
number of shares of Common Stock outstanding is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date for such
combination, the Series A Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of each share
of Series A Preferred shall be decreased in proportion to such decrease in
outstanding shares.
(iii) REORGANIZATIONS, RECLASSIFICATIONS, ETC. In case, at any
---------------------------------------
time after the Effective Date, of any Capital Events (as defined below in
Section 3(k) of this Exhibit A) each share of Series A Preferred shall after
such Capital Event be (unless, in the case of a consolidation, merger, sale or
other disposition, payment shall have been made to the holders of all shares of
Series A Preferred of the full amount to which they respectively shall have been
entitled pursuant to Section 2 of this Exhibit A) convertible into the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and asset shall have been sold or otherwise disposed to
which the holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such Capital Event) upon conversion of such
shares would have been entitled upon such Capital Event. The provisions of
Section 3(e)(iii) of this Exhibit A shall similarly apply to successive Capital
Events.
(iv) DILUTIVE ISSUANCES.
------------------
(1) If the Corporation shall at any time or from time to
time after the Effective Date issue any shares of Common Stock other than
Excluded Stock (as defined below in Section 3(k) of this Exhibit A) without
consideration or for a consideration per share less than the Series A Conversion
Price then in effect (such issuance being referred to in this clause (iv) as a
"Series A Dilutive Issuance"), the Series A Conversion Price in effect
--------------------------
immediately prior to such Series A Dilutive Issuance shall be reduced with
effect from the first to occur of (A) the record date for the issuance of the
securities or (B) the date of original issuance (as the case may be the "Issue
-----
Date"), so that it shall equal the price determined by multiplying the Series A
- ----
Conversion Price by a fraction (i) the numerator of which shall be (X) the
number of shares of Common Stock outstanding at the close of business on the day
next preceding the Issue Date, plus (Y) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the Series A
Dilutive Issuance would purchase at the Series A
<PAGE>
Conversion Price, and (ii) the denominator of which shall be the number of
shares of Common Stock outstanding at the close of business on the Issue Date
after giving effect to such Series A Dilutive Issuance.
(2) For the purposes of any adjustment of the Series A
Conversion Price pursuant to this clause (iv), the following provisions shall
apply:
(A) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
after deducting therefrom any discounts or commissions allowed or paid by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof.
(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof to the Corporation as
determined in good faith by the Board of Directors, irrespective of any
accounting treatment.
(C) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock, (ii) securities by their terms
convertible into or exchangeable for Common Stock, or (iii) options to purchase
or rights to subscribe for such convertible or exchangeable securities:
(I) the shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subclauses (A) and (B), above), if any, received by the
Corporation upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby;
(II) the shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration received by the Corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange of such securities
or the exercise of any related options or rights (the consideration in each case
to be determined in the manner provided in subclauses (A) and (B), above);
(III) on any change in the number of shares or
exercise price of Common Stock deliverable upon exercise of any such options or
rights or upon
<PAGE>
conversion of or in exchange for such convertible or exchangeable securities,
other than a change resulting from the antidilution provisions thereof, the
Series A Conversion Price shall forthwith be readjusted to such Series A
Conversion Price as would have obtained had the adjustment made upon the
issuance of such options, rights or securities not converted prior to such
change or options or rights related to such securities not converted prior to
such change been made upon the basis of such change; and
(IV) on the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Series A Conversion Price shall forthwith be readjusted to such
Series A Conversion Price as would have obtained had such options, rights,
securities or options or rights related to such securities not been issued.
(v) All calculations under this paragraph (e) shall be made to
the nearest one-tenth (1/10) of a share or to the nearest one tenth (1/10) of a
cent, as the case may be.
(vi) In any case in which the provisions of this Section 3(e) of
Exhibit A shall require that an adjustment shall become effective immediately
after a record date for an event the Corporation may defer until the occurrence
of such event (1) issuing to the holder of any share of Series A Preferred
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (2)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 3(d) of this Exhibit A; provided, however,
-------- -------
that the Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares, and such cash, immediately upon the occurrence of the event requiring
such adjustment.
(vii) The Corporation will not voluntarily, by amendment of
this Restated Certificate of Incorporation, or through any reorganization,
transfer of assets, merger, dissolution, issuance or sale or securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all of the
provisions of this Section 3 of Exhibit A and in the taking of all such action
as may be necessary or appropriate in order to protect the conversion rights of
the holders of the Series A Preferred against impairment.
(f) Whenever the Series A Conversion Price of the Series A Preferred
shall be adjusted as provided in Section 3(e) of this Exhibit A, the Corporation
shall forthwith file, at the office of the transfer agent for the Series A
Preferred or at such other place as may be designated by the Corporation, a
statement showing in detail the facts requiring such adjustment and the Series A
Conversion Price that shall be in effect after such adjustment. The Corporation
shall
<PAGE>
also cause a copy of such statement to be sent by mail, first-class certified
mail, return receipt requested, postage prepaid, to each holder of shares of any
series of preferred stock in respect of which an adjustment to the Series A
Conversion Price was required to be made at his address appearing on the
Corporation's records. Where appropriate, such copy may be given in advance and
may be included as part of a notice required to be mailed under the provisions
of Section 3(g) of this Exhibit A.
(g) If the Corporation shall propose to take any action of the types
described in clauses (i), (ii), (iii) or (iv) of Section 3(e) of this Exhibit A,
the Corporation shall give notice to each holder of shares of Series A Preferred
in the manner set forth in Section 3(f) of this Exhibit A, which notice shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Series A Conversion Price and the number, kind or series of shares or
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of each such
series of Series A Preferred. In the case of any action which would require the
fixing of a record date, such notice shall be given at least twenty (20) days
prior to the date so fixed, and in case of all other actions, such notice shall
be given at least thirty (30) days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action. Notwithstanding the foregoing Sections
3(f) and this 3(g) of Exhibit A, with respect to the IPO Stock Dividend, the
statement and notice required to be delivered to the stockholders under Sections
3(f) and this 3(g) of Exhibit A shall be delivered as soon as practicable after
the IPO Stock Dividend is declared.
(h) The Corporation shall pay all documentary, stamp or other
transaction taxes attributable to the issuance or delivery of shares of capital
stock of the Corporation upon conversion of shares of Series A Preferred;
provided, however, that the Corporation shall not be required to pay any taxes
- -----------------
which may be payable in respect of any transfer involved in the issuance of
delivery of any certificate for such shares in a name other than that of the
holder of the shares of Series A Preferred in respect of which such shares are
being issued.
(i) The Corporation shall reserve and at all times from and after such
date keep reserved, free from preemptive rights, out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series A Preferred, sufficient shares to provide for
the conversion of all outstanding shares of Series A Preferred and shall take
all action as may be necessary to enable the Corporation lawfully to issue such
Common Stock upon the conversion of shares of Series A Preferred.
(j) All shares of Common Stock which may be issued in connection with
the conversion provisions set forth herein will, upon issuance by the
Corporation, be validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and
<PAGE>
free from all taxes, liens or charges with respect thereto.
(k) DEFINITIONS. As used herein, the following terms have the
-----------
following meanings:
(i) "Capital Events" means any capital reorganization,
--------------
recapitalization, or any reclassification of the stock of the Corporation (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a stock dividend or subdivision, split-up
or combination of shares), or the consolidation or merger of the Corporation
with or into another person (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result in any
change in the Common Stock), or the sale or other disposition of all or
substantially all of the properties and assets of the Corporation to any person
or third party.
(ii) "Effective Date" means the date of the filing with the
--------------
Secretary of State of Delaware of the Certificate of Merger between the
Corporation and Cyberian Outpost, Inc., a Connecticut corporation, in which the
Corporation is the surviving corporation.
(iii) "Excluded Stock" means shares of Common Stock issued by the
--------------
Corporation: (A) as a stock dividend payable in shares of Common Stock or upon
any subdivision or split-up of the outstanding shares of Common Stock, (B) upon
conversion of the shares of Series A Preferred, Series B Preferred or Series C
Preferred at any time outstanding, (C) to officers, employees or directors of,
or consultants to, the Corporation (whether as an issuance of Common Stock,
options to purchase or rights to subscribe for such Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities), in each case approved by the Board of Directors of the
Corporation; provided, however, that the maximum number of shares of Common
-----------------
Stock issued or issuable to officers, employees or directors of, or consultants
to, the Corporation to which this clause (C) shall apply shall not exceed the
number of shares issuable under the incentive stock option plans of the
Corporation in effect on the Effective Date or as may be approved from time to
time by the Corporation and the holders of the Series A Preferred in accordance
with Section 6(c)(ix) of this Exhibit A (including any Common Stock issued
pursuant to the exercise of any such options), and (D) pursuant to any options
(other than those described in (C), above), warrants or other rights outstanding
on the Effective Date.
(iv) "Person" means any corporation, general or limited
------
partnership, limited liability partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity.
(v) "Series A Original Issuance Price" means Three Dollars and
--------------------------------
Forty Cents ($3.40).
<PAGE>
(vi) "Subsidiary" means with respect to any Person (the "Owner"),
---------- -----
any corporation or other Person of which securities or other interests having
the power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred), are held by the Owner or one or more of its
Subsidiaries; when used without reference to a particular Person, "Subsidiary"
means a Subsidiary of the Corporation.
4. STATUS OF CONVERTED STOCK. If any shares of Series A Preferred shall
-------------------------
be converted pursuant to Section 3 of this Exhibit A, the shares so converted
shall be canceled and shall not be reissuable by the Corporation.
5. REDEMPTION. Shares of Series A Preferred are not redeemable.
----------
6. VOTING RIGHTS.
-------------
(a) GENERAL. Except as otherwise provided below, on all matters
-------
submitted to a vote of the holders of shares of Common Stock, the holder of each
share of Series A Preferred shall have the right to one vote for each Common
Share into which such Series A Preferred could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of such shares of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any shareholders' meeting in accordance with
the By-Laws of the Corporation and shall be entitled to vote, together with
holders of shares of Common Stock with respect to any question upon which
holders of shares of Common Stock have the right to vote.
(b) ELECTION OF DIRECTORS. Except as may be otherwise approved by
---------------------
vote or by the written consent of the holders of a majority of the shares of
Series A Preferred then outstanding, the Board of Directors shall consist of up
to 7 members. The holders of the Series A Preferred, voting as a separate
class, shall have the right to elect one (1) director. Except as may otherwise
be provided by law or in this Restated Certificate of Incorporation, the holders
of the Common Stock shall have the right to elect the remaining members of the
Board of Directors and the Series A Preferred shall not be entitled to vote in
the election of the remaining members of the Board of Directors. Each director
shall be elected at the annual meeting of shareholders and shall serve until his
successor is elected and qualified or until his earlier resignation or removal.
Any director who shall have been elected by the holders of Series A Preferred
may be removed during his term of office, without cause, by and only by, the
affirmative vote of the holders of a majority of the shares of Series A
Preferred then outstanding, given at a special meeting of such shareholders duly
called for that purpose, and any vacancy thereby created may be filled by the
holders of the Series A Preferred represented at that meeting.
<PAGE>
(c) PROTECTIVE PROVISIONS. So long as twenty-five percent (25%) or
---------------------
more of the shares of Series A Preferred are outstanding, the Corporation shall
not, and shall not attempt to, without first obtaining the approval (by vote or
written consent) of the holders of at least a majority of the then outstanding
shares of Series A Preferred, voting as a separate class:
(i) authorize any additional shares of Series A Preferred, or
authorize and issue any shares of (a) any class or series of equity security
having superior rights to the Series A Preferred as to dividends (except for the
Series C Preferred), redemptions, or as to payment upon liquidation, dissolution
or a winding up of the Corporation, or otherwise, or (b) any notes or debt
securities convertible into or exchangeable for any equity securities or
containing profit participation features;
(ii) redeem or repurchase outstanding Common Stock in excess of
an aggregate of 75,000 shares, provided that the Corporation may redeem shares
of Common Stock from persons having been granted and exercised stock options
pursuant to the Corporation's incentive stock plans as in effect as of the
Effective Date, or as may be approved from time to time by the Corporation and
by the holders of the Series A Preferred pursuant to Section 6(c)(ix) of this
Exhibit A;
(iii) enter into any agreement that would restrict the
Corporation's ability to perform its obligations under any agreement to which
the Corporation is a party concerning the Corporation's original issuance of any
shares of the Series A Preferred (including this Restated Certificate of
Incorporation);
(iv) amend this Restated Certificate of Incorporation (including
any Certificate of Designation) or the By-Laws of the Corporation in any manner
that adversely affects the powers, rights, privileges or restrictions or
relative preferences of the Series A Preferred or the holders thereof as a
class, or increase the powers, preferences, rights, privileges or restrictions
of any other class or series of preferred stock unless the Series A Preferred is
treated in the same manner;
(v) sell, transfer, convey or lease greater than twenty-five
percent (25%) of the assets of the Corporation in one or more of a series of
related transactions, except for the sale of inventory in the ordinary course of
the Corporation's business;
(vi) issue additional equity securities of any class or series
to the employees, officers or directors of the Corporation, except (a) as
permitted under Section 6(c)(viii) of this Exhibit A, or (b) such equity
securities as may be issuable upon the exercise of options or warrants
outstanding as of the Effective Date (or as may be approved from time to time by
the Corporation and the holders of the Series A Preferred in accordance with
this Section 6(c)(vi) of Exhibit A); provided that any such equity securities,
including any options or warrants
<PAGE>
for equity securities of the Corporation, shall be granted at no less than the
fair market value for such equity securities, as determined in good faith by a
majority of the independent directors residing on the Board of Directors of the
Corporation;
(vii) issue any equity securities of any class or series for a
price less than fair market value, as determined in good faith by the Board of
Directors of the Corporation, except as may be required pursuant to contractual
commitments of the Corporation existing as of the Effective Date;
(viii) enter into any transaction or series of transactions or
any agreement or other arrangement, including, without limitation, any loan,
with or to any officer or director (or any family member or person affiliated
with any officer or director) or other affiliate (excluding any Subsidiary of
the Corporation) of the Corporation in excess of $100,000, individually, or
$250,000, in the aggregate, during any calendar year, except as may be required
pursuant to contractual commitments of the Corporation existing as of the
Effective Date (except that such limitations shall not be applicable to any
employment or other compensatory arrangements on reasonable arms' length terms
(including, without limitation, the granting of stock options under any stock
option plan in effect as of the Effective Date, or as may be approved from time
to time by the Corporation and the holders of the Series A Preferred in
accordance with Section 6(c)(ix) of this Exhibit A), as may be approved by the
Board of Directors of the Corporation);
(ix) adopt any stock option plans or increase the number of
shares available or reserved for issuance under any stock option plan or related
plan in effect as of the Effective Date, except as may be approved from time to
time by the Corporation and by the holders of the Series A Preferred pursuant to
this Section 6(c)(ix) of Exhibit A;
(x) engage in any transaction which would impair or reduce the
rights of the holders of shares of the Series A Preferred as a class (except
that the Corporation may effect a reverse-split of its Common Stock without the
consent of the holders of shares of the Series A Preferred);
(xi) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a Subsidiary that
is wholly-owned by the Corporation, directly or indirectly);
(xii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other non-
corporate entity which is treated as a partnership for federal income tax
purposes); or
(xiii) issue any dividends on any class or series of capital
stock of the
<PAGE>
Corporation other than (a) dividends issued on the Series A Preferred and the
Series C Preferred as provided in this Restated Certificate of Incorporation and
(b) the IPO Stock Dividend, provided that the Corporation makes the adjustment
set forth in Section 3(e)(i) of this Exhibit A.
7. PREEMPTIVE RIGHTS. Shares of Series A Preferred have no preemptive
-----------------
rights.
<PAGE>
EXHIBIT B
TERMS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
CYBERIAN OUTPOST, INC.
DESIGNATION OF SERIES B CONVERTIBLE PREFERRED STOCK. There is hereby
---------------------------------------------------
established a series of Preferred Stock designated "Series B Convertible
Preferred Stock" (the "Series B Preferred"), consisting of 500,000 shares, $.01
------------------
par value per share, and having the relative rights, designations, preferences,
qualifications, privileges, limitations and restrictions applicable thereto as
follows:
1. DIVIDEND PROVISIONS. Except as may be otherwise approved in writing by
-------------------
the holders of a majority of the outstanding shares of Series B Preferred:
(a) The holders of the shares of Series B Preferred shall be entitled
to receive dividends, out of any assets legally available therefor, in an amount
per share of Series B Preferred which is equal to the product of (i) the number
of shares of Common Stock into which one share of Series B Preferred is
convertible at the time of declaration of such dividend, multiplied by (ii) the
aggregate amount per share of Common Stock of all cash dividends and the
aggregate amount per share (payable, at the option of the holder, in kind or in
cash, based upon the fair market value at the time the non-cash dividend or
other distribution is declared or paid as determined in good faith by the Board
of Directors of the Corporation) of all non-cash dividends or other
distributions on the Common Stock, when, as and if a dividend is declared on the
shares of Common Stock. Such dividends shall accumulate and be declared and
paid contemporaneously with the declaration and payment of the related dividend
on the Common Stock, so that the Series B Preferred participates equally with
the Common Stock in such dividend or distribution with respect to the number of
shares of Common Stock into which the Series B Preferred is then convertible
pursuant to Section 3 hereof.
(b) So long as any Series B Preferred shall remain outstanding, no
deposit, payment, dividend or other distribution shall be paid or made on any
other class of stock of the Corporation and no shares of any other class of
stock of the Corporation shall be purchased or otherwise acquired by the
Corporation or any subsidiary of the Corporation other than, (i) except as may
be otherwise provided in this Restated Certificate of Incorporation, including
in any class or series designation concerning any capital stock of the
Corporation (as such may be amended from time to time), or (ii) upon exercise of
the Corporation's rights or a stockholder's rights under any restricted stock
purchase agreement (or any similar agreement pursuant to which the Corporation
is obligated to redeem its stock) in effect as of the Effective Date (as defined
below in Section 3(k) of this Exhibit B) or otherwise pursuant to incentive
stock plans of the Corporation in effect as of the Effective Date, or as may be
approved from time to time by the Corporation and the holders of the Series B
Preferred in accordance with Section 6(b) of this
<PAGE>
Exhibit B, or (iii) upon the exercise of a stockholder's put rights in effect as
of the Effective Date, or as may be approved from time to time by the
Corporation and the holders of the Series B Preferred in accordance with Section
6(b) of this Exhibit B, or (iv) by exchange therefor of shares of the stock of
the Corporation.
Subject to the above limitations and to the provisions of Section 6 of
this Exhibit B, dividends may be paid on any class of stock of the Corporation
out of any funds legally available for such purpose when and as declared by the
Board of Directors.
Notwithstanding the foregoing, the provisions of this Section 1 of
Exhibit B shall not apply to any dividend of shares of Common Stock declared and
paid to the holders of Common Stock declared by the Board of Directors of the
Corporation in connection with and prior to the Corporation's initial public
offering (the "IPO Stock Dividend"), provided that the Corporation makes the
------------------
adjustment set forth in Section 3(e)(i) of this Exhibit B.
2. LIQUIDATION PREFERENCE. Except as may be otherwise approved in writing
----------------------
by the holders of a majority of the outstanding shares of Series B Preferred:
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of shares of Series B
Preferred shall be entitled to receive out of the assets of the Corporation
available for distribution to shareholders, (i) before any distribution or
payment shall be made in respect of the holders of shares of Common Stock but
pari passu with holders of Series A Preferred and Series C Preferred, a
liquidation distribution in an amount equal to the Original Issuance Price (as
defined below in Section 3(k) of this Exhibit B) per share, plus an amount equal
to all declared dividends thereon to the date fixed for such distribution or
payment, and then (ii) to share with the holders of shares of Common Stock,
Series A Preferred and Series C Preferred as if the shares of Series A
Preferred, Series B Preferred and Series C Preferred were then converted into
shares of Common Stock. If, upon any such liquidation, dissolution or winding
up of the affairs of the Corporation, the assets of the Corporation available
for distribution to shareholders shall be insufficient to permit the payment in
full to the holders of Series A Preferred, Series B Preferred and Series C
Preferred of the amounts to which they are each entitled in preference to
holders of shares of Common Stock, then all of such available assets shall be
distributed to the holders of shares of Series A Preferred, Series B Preferred
and Series C Preferred ratably in proportion to the liquidation payment
otherwise due pursuant to clause (i) above to each such holder.
(b) A consolidation or merger of the Corporation with or into any
other corporation or corporations, or the consolidation or merger of any other
corporation or corporations into the Corporation, or the sale or transfer by the
Corporation of all or substantially all of its assets or the effectuation by the
Corporation or any holders of its capital stock of a transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of the Corporation is sold, transferred or otherwise disposed of, shall be
deemed to be a
<PAGE>
liquidation, dissolution or winding up within the meaning of this Section 2 of
Exhibit B.
3. CONVERSION. The holders of the shares of Series B Preferred shall have
----------
conversion rights as follows:
(a) OPTIONAL CONVERSION. The holder of any shares of Series B
-------------------
Preferred shall have the right, at such holder's option, at any time or from
time to time by the giving of written notice thereof to the Corporation (the
"Conversion Date") to convert all or any of such shares of Series B Preferred
- ----------------
into such number of fully paid and nonassessable shares of Common Stock as
obtained by multiplying the Series B Original Issuance Price by the number of
shares of Series B Preferred being converted, and dividing the product thereof
by the Series B Conversion Price (as hereinafter defined) (as last adjusted and
then in effect) for the shares of Series B Preferred then being converted. The
conversion price per share (the "Series B Conversion Price") at which shares of
-------------------------
Common Stock shall be issuable shall be Four Dollars and Sixty Cents ($4.60) per
share; provided, however, that the Series B Conversion Price shall be subject to
-----------------
adjustment as set forth in Section 3(e) of this Exhibit B. The holder of any
shares of Series B Preferred converted into shares of Common Stock pursuant to
this Section 3(a) of Exhibit B shall be entitled to payment of all declared but
unpaid dividends, if any, payable with respect to such shares being converted up
to and including the Conversion Date.
(b) MANDATORY CONVERSION. Upon the consummation of a public offering
--------------------
of shares of Common Stock registered pursuant to the Securities Act of 1933, as
amended, in which the gross proceeds to the Corporation exceed Ten Million
Dollars ($10,000,000) and as the result of which shares of Common Stock are
traded on either the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market System (a "Series B Event of Conversion"), all shares of
----------------------------
Series B Preferred then outstanding shall, by virtue of and simultaneously with
the occurrence of the Series B Event of Conversion and without any action on the
part of the holder thereof, be deemed automatically converted into such whole
number of fully paid and nonassessable shares of Common Stock as obtained by
multiplying the Series B Original Issuance Price by the number of shares of
Series B Preferred being converted, and dividing the product thereof by the
Series B Conversion Price (as last adjusted and then in effect) for the shares
of Series B Preferred being converted (such Series B Conversion Price being
subject to adjustment as set forth in Section 3(e) of this Exhibit B). The
holder of any shares of Series B Preferred converted into shares of Common Stock
pursuant to this Section 3(b) of Exhibit B shall be entitled to payment of all
declared but unpaid dividends, if any, payable with respect to such shares of
Series B Preferred up to and including the Conversion Date.
(c) PROCEDURE FOR CONVERSION. Upon conversion of the shares of Series
------------------------
B Preferred pursuant to Section 3(a) of this Exhibit B, the holder of any shares
of Series B Preferred shall deliver to the Corporation during regular business
hours, at the office of any transfer agent of the Corporation for the Series B
Preferred, or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly
<PAGE>
endorsed or assigned in blank or to the Corporation (if required by it),
accompanied by written notice stating the name or names (with address) in which
the certificate or certificates for the shares of Common Stock are to be issued.
As promptly as practicable thereafter, the Corporation shall issue and deliver
to or upon the written order of such holder, to the place designated by such
holder, a certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled, a check or cash in respect of any
fractional interest in a share of Common Stock as provided in Section 3(d) of
this Exhibit B and a check or cash in payment of all declared but unpaid
dividends, if any (to the extent permissible under law), payable with respect to
the shares of Series B Preferred so converted up to and including the Conversion
Date. The person in whose names the certificate or certificates for Common Stock
are to be issued shall be deemed to have become a shareholder of record on the
applicable Conversion Date unless the transfer books of the Corporation are
closed on that date, in which event he shall be deemed to have become a
shareholder of record on the next succeeding date on which the transfer books
are open, but the Series B Conversion Price for the Series B Preferred shall be
that in effect on the Conversion Date.
(d) ADDITIONAL CONVERSION PROVISIONS. The following additional terms
--------------------------------
shall apply upon any conversion of the Series B Preferred:
(i) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series B Preferred. If more than one share
of Series B Preferred shall be surrendered for conversion at any one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series B Preferred so surrendered. In lieu of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of any shares of Series
B Preferred the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the then Current Market Price (as
defined below) of a share of Common Stock as of the date of conversion,
multiplied by such fractional interest. Fractional interests shall not be
entitled to dividends, and the holders of fractional interests shall not be
entitled to any rights as shareholders of the Corporation in respect of such
fractional interest.
(ii) For the purpose of any computation pursuant to this
Section 3(d) of Exhibit B, the Current Market Price at any date of one share of
Common Stock shall be deemed to be the closing price as of the day before the
day in question. If the Common Stock is not traded in such manner that the
closing price is readily available, the Current Market Price shall be determined
in good faith by the Directors of the Corporation.
(e) ADJUSTMENTS TO SERIES B CONVERSION PRICE. The Series B
----------------------------------------
Conversion Price shall be subject to adjustment from time to time as follows:
(i) STOCK DIVIDENDS, SPLIT-UPS, ETC. If, at any time after
-------------------------------
the Effective Date, the number of shares of Common Stock outstanding is
increased by a stock
<PAGE>
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, the Series B Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series B Preferred shall be increased in proportion
to such increase in outstanding shares.
(ii) COMBINATIONS. If, at any time after the Effective Date,
------------
the number of shares of Common Stock outstanding is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date for
such combination, the Series B Conversion Price shall be appropriately increased
so that the number of shares of Common Stock issuable on conversion of each
share of Series B Preferred shall be decreased in proportion to such decrease in
outstanding shares.
(iii) REORGANIZATIONS, RECLASSIFICATIONS, ETC. In case, at
---------------------------------------
any time after the Effective Date, of any Capital Events (as defined below in
Section 3(k) of this Exhibit B) each share of Series B Preferred shall after
such Capital Event be (unless, in the case of a consolidation, merger, sale or
other disposition, payment shall have been made to the holders of all shares of
Series B Preferred of the full amount to which they respectively shall have been
entitled pursuant to Section 2 of this Exhibit B) convertible into the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and asset shall have been sold or otherwise disposed to
which the holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such Capital Event) upon conversion of such
shares would have been entitled upon such Capital Event. The provisions of
Section 3(e)(iii) of this Exhibit B shall similarly apply to successive Capital
Events.
(iv) DILUTIVE ISSUANCES.
------------------
(1) If the Corporation shall at any time or from time to
time after the Effective Date issue any shares of Common Stock other than
Excluded Stock (as defined below in Section 3(k) of this Exhibit B) without
consideration or for a consideration per share less than the Series B Conversion
Price then in effect (such issuance being referred to in this clause (iv) as a
"Series B Dilutive Issuance"), the Series B Conversion Price in effect
--------------------------
immediately prior to such Series B Dilutive Issuance shall be reduced with
effect from the first to occur of (A) the record date for the issuance of the
securities or (B) the date of original issuance (as the case may be the "Issue
-----
Date"), so that it shall equal the price determined by multiplying the Series B
- ----
Conversion Price by a fraction (i) the numerator of which shall be (X) the
number of shares of Common Stock outstanding at the close of business on the day
next preceding the Issue Date, plus (Y) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the Series B
Dilutive Issuance would purchase at the Series B Conversion Price, and (ii) the
denominator of which shall be the number of shares of Common
<PAGE>
Stock outstanding at the close of business on the Issue Date after giving effect
to such Series B Dilutive Issuance.
(2) For the purposes of any adjustment of the Series B
Conversion Price pursuant to this clause (iv), the following provisions shall
apply:
(A) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
after deducting therefrom any discounts or commissions allowed or paid by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof.
(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof to the Corporation as
determined in good faith by the Board of Directors, irrespective of any
accounting treatment.
(C) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock, (ii) securities by their terms
convertible into or exchangeable for Common Stock, or (iii) options to purchase
or rights to subscribe for such convertible or exchangeable securities:
(I) the shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subclauses (A) and (B), above), if any, received by the
Corporation upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby;
(II) the shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration received by the Corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange of such securities
or the exercise of any related options or rights (the consideration in each case
to be determined in the manner provided in subclauses (A) and (B), above);
(III) on any change in the number of shares or
exercise price of Common Stock deliverable upon exercise of any such options or
rights or upon conversion of or in exchange for such convertible or exchangeable
securities, other than a change resulting from the antidilution provisions
thereof, the Series B Conversion Price shall forthwith
<PAGE>
be readjusted to such Series B Conversion Price as would have obtained had the
adjustment made upon the issuance of such options, rights or securities not
converted prior to such change or options or rights related to such securities
not converted prior to such change been made upon the basis of such change; and
(IV) on the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Series B Conversion Price shall forthwith be readjusted to such
Series B Conversion Price as would have obtained had such options, rights,
securities or options or rights related to such securities not been issued.
(v) All calculations under this paragraph (e) shall be made to
the nearest one-tenth (1/10) of a share or to the nearest one tenth (1/10) of a
cent, as the case may be.
(vi) In any case in which the provisions of this Section 3(e)
of Exhibit B shall require that an adjustment shall become effective immediately
after a record date for an event the Corporation may defer until the occurrence
of such event (1) issuing to the holder of any share of Series B Preferred
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (2)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 3(d) of this Exhibit B; provided, however,
-------- -------
that the Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares, and such cash, immediately upon the occurrence of the event requiring
such adjustment.
(vii) The Corporation will not voluntarily, by amendment of this
Restated Certificate of Incorporation, through any reorganization, transfer of
assets, merger, dissolution, issuance or sale or securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all of the provisions of
this Section 3 to Exhibit B and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series B Preferred against impairment.
(f) Whenever the Series B Conversion Price of the Series B Preferred
shall be adjusted as provided in Section 3(e) of this Exhibit B, the Corporation
shall forthwith file, at the office of the transfer agent for the Series B
Preferred or at such other place as may be designated by the Corporation, a
statement showing in detail the facts requiring such adjustment and the Series B
Conversion Price that shall be in effect after such adjustment. The Corporation
shall also cause a copy of such statement to be sent by mail, first-class
certified mail, return receipt requested, postage prepaid, to each holder of
shares of any series of preferred stock in respect of
<PAGE>
which an adjustment to the Series B Conversion Price was required to be made at
his address appearing on the Corporation's records. Where appropriate, such copy
may be given in advance and may be included as part of a notice required to be
mailed under the provisions of Section 3(g) of this Exhibit B.
(g) If the Corporation shall propose to take any action of the types
described in clauses (i), (ii), (iii) or (iv) of Section 3(e) of this Exhibit B,
the Corporation shall give notice to each holder of shares of Series B Preferred
in the manner set forth in Section 3(f) of this Exhibit B, which notice shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Series B Conversion Price and the number, kind or series of shares or
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of each such
series of Series B Preferred. In the case of any action which would require the
fixing of a record date, such notice shall be given at least twenty (20) days
prior to the date so fixed, and in case of all other actions, such notice shall
be given at least thirty (30) days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action. Notwithstanding the foregoing Sections
3(f) and this 3(g) of Exhibit B, with respect to the IPO Stock Dividend, the
statement and notice required to be delivered to the stockholders under Sections
3(f) and this 3(g) of Exhibit B shall be delivered as soon as practicable after
the IPO Stock Dividend is declared.
(h) The Corporation shall pay all documentary, stamp or other
transaction taxes attributable to the issuance or delivery of shares of capital
stock of the Corporation upon conversion of shares of Series B Preferred;
provided, however, that the Corporation shall not be required to pay any taxes
- -----------------
which may be payable in respect of any transfer involved in the issuance of
delivery of any certificate for such shares in a name other than that of the
holder of the shares of Series B Preferred in respect of which such shares are
being issued.
(i) The Corporation shall reserve and at all times from and after
such date keep reserved, free from preemptive rights, out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series B Preferred, sufficient shares to provide for
the conversion of all outstanding shares of Series B Preferred and shall take
all action as may be necessary to enable the Corporation lawfully to issue such
Common Stock upon the conversion of shares of Series B Preferred.
(j) All shares of Common Stock which may be issued in connection with
the conversion provisions set forth herein will, upon issuance by the
Corporation, be validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and free from all taxes, liens or
charges with respect thereto.
<PAGE>
(k) DEFINITIONS. As used herein, the following terms have the
-----------
following meanings:
(i) "Capital Events" means any capital reorganization,
--------------
recapitalization, or any reclassification of the stock of the Corporation (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a stock dividend or subdivision, split-up
or combination of shares), or the consolidation or merger of the Corporation
with or into another person (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result in any
change in the Common Stock), or the sale or other disposition of all or
substantially all of the properties and assets of the Corporation to any person
or third party.
(ii) "Effective Date" means the date of the filing with the
--------------
Secretary of State of Delaware of the Certificate of Merger between the
Corporation and Cyberian Outpost, Inc., a Connecticut corporation, in which the
Corporation is the surviving corporation.
(iii) "Excluded Stock" means shares of Common Stock issued by
--------------
the Corporation: (A) as a stock dividend payable in shares of Common Stock or
upon any subdivision or split-up of the outstanding shares of Common Stock, (B)
upon conversion of the shares of Series A Preferred, Series B Preferred or
Series C Preferred at any time outstanding, (C) to officers, employees or
directors of, or consultants to, the Corporation (whether as an issuance of
Common Stock, options to purchase or rights to subscribe for such Common Stock,
or options to purchase or rights to subscribe for such convertible or
exchangeable securities), in each case approved by the Board of Directors of the
Corporation; provided, however, that the maximum number of shares of Common
-----------------
Stock issued or issuable to officers, employees or directors of, or consultants
to, the Corporation to which this clause (C) shall apply shall not exceed the
number of shares issuable under the incentive stock option plans of the
Corporation in effect on the Effective Date or as may be approved from time to
time by the Corporation and the holders of the Series B Preferred in accordance
with Section 6(b)(ix) of this Exhibit B (including any Common Stock issued
pursuant to the exercise of any such options), and (D) pursuant to any options
(other than those described in (C), above), warrants or other rights outstanding
on the Effective Date.
(iv) "Person" means any corporation, general or limited
------
partnership, limited liability partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity.
(v) "Series B Original Issuance Price" means Four Dollars and
--------------------------------
Sixty Cents ($4.60).
(vi) "Subsidiary" means with respect to any Person (the
----------
"Owner"), any corporation or other Person of which securities or other interests
-----
power to elect a
<PAGE>
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred), are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Corporation.
4. STATUS OF CONVERTED STOCK. If any shares of Series B Preferred shall
-------------------------
be converted pursuant to Section 3 of this Exhibit B, the shares so converted
shall be canceled and shall not be reissuable by the Corporation.
5. REDEMPTION. Shares of Series B Preferred are not redeemable.
----------
6. VOTING RIGHTS.
-------------
(a) GENERAL. Except as otherwise provided below, on all matters
-------
submitted to a vote of the holders of shares of Common Stock, the holder of each
share of Series B Preferred shall have the right to one vote for each Common
Share into which such Series B Preferred could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of such shares of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any shareholders' meeting in accordance with
the By-Laws of the Corporation and shall be entitled to vote, together with
holders of shares of Common Stock with respect to any question upon which
holders of shares of Common Stock have the right to vote.
(b) PROTECTIVE PROVISIONS. So long as twenty-five percent (25%) or
---------------------
more of the shares of Series B Preferred are outstanding, the Corporation shall
not, and shall not attempt to, without first obtaining the approval (by vote or
written consent) of the holders of at least a majority of the then outstanding
shares of Series B Preferred, voting as a separate class:
(i) authorize any additional shares of Series B Preferred, or
authorize and issue any shares of, (a) any class or series of equity security
having superior rights to the Series B Preferred as to dividends (except for the
Series C Preferred), redemptions, or as to payment upon liquidation, dissolution
or a winding up of the Corporation, or otherwise, or (b) any notes or debt
securities convertible into or exchangeable for any equity securities or
containing profit participation features;
(ii) redeem or repurchase outstanding Common Stock in excess of
an aggregate of 75,000 shares, provided that the Corporation may redeem shares
of Common Stock from persons having been granted and exercised stock options
pursuant to the Corporation's incentive stock plans as in effect as of the
Effective Date, or as may be approved from time to
<PAGE>
time by the Corporation and by the holders of the Series B Preferred pursuant to
Section 6(b)(ix) of this Exhibit B;
(iii) enter into any agreement that would restrict the
Corporation's ability to perform its obligations under any agreement to which
the Corporation is a party concerning the Corporation's original issuance of any
shares of the Series B Preferred (including this Restated Certificate of
Incorporation);
(iv) amend this Restated Certificate of Incorporation
(including any Certificate of Designation) or the By-Laws of the Corporation in
any manner that adversely affects the powers, rights, privileges or restrictions
or relative preferences of the Series B Preferred or the holders thereof as a
class, or increase the powers, preferences, rights, privileges or restrictions
of any other class or series of preferred stock unless the Series B Preferred is
treated in the same manner;
(v) sell, transfer, convey or lease greater than twenty-five
percent (25%) of the assets of the Corporation in one or more of a series of
related transactions, except for the sale of inventory in the ordinary course of
the Corporation's business;
(vi) issue additional equity securities of any class or series
to the employees, officers or directors of the Corporation, except (a) as
permitted under Section 6(b)(viii) of this Exhibit B, or (b) such equity
securities as may be issuable upon the exercise of options or warrants
outstanding as of the Effective Date (or as may be approved from time to time by
the Corporation and the holders of the Series B Preferred in accordance with
Section this 6(b)(vi) of Exhibit B); provided that any such equity securities,
including any options or warrants for equity securities of the Corporation,
shall be granted at no less than the fair market value for such equity
securities, as determined in good faith by a majority of the independent
directors residing on the Board of Directors of the Corporation;
(vii) issue any equity securities of any class or series for a
price less than fair market value, as determined in good faith by the Board of
Directors of the Corporation, except as may be required pursuant to contractual
commitments of the Corporation existing as of the Effective Date;
(viii) enter into any transaction or series of transactions or
any agreement or other arrangement, including, without limitation, any loan,
with or to any officer or director (or any family member or person affiliated
with any officer or director) or other affiliate (excluding any Subsidiary of
the Corporation) of the Corporation in excess of $100,000, individually, or
$250,000, in the aggregate, during any calendar year, except as may be required
pursuant to contractual commitments of the Corporation existing as of the
Effective Date (except that such limitations shall not be applicable to any
employment or other compensatory arrangements on reasonable arms' length terms
(including, without limitation, the granting of
<PAGE>
stock options under any stock option plan in effect as of the Effective Date, or
as may be approved from time to time by the Corporation and the holders of the
Series B Preferred in accordance with Section 6(b)(ix) of this Exhibit B), as
may be approved by the Board of Directors of the Corporation);
(ix) adopt any stock option plans or increase the number of
shares available or reserved for issuance under any stock option plan or related
plan in effect as of the Effective Date, except as may be approved from time to
time by the Corporation and by the holders of the Series B Preferred pursuant to
this Section 6(b)(ix) of Exhibit B;
(x) engage in any transaction which would impair or reduce the
rights of the holders of shares of the Series B Preferred as a class (except
that the Corporation may effect a reverse-split of its Common Stock without the
consent of the holders of shares of the Series B Preferred);
(xi) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a Subsidiary that
is wholly-owned by the Corporation, directly or indirectly);
(xii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other non-
corporate entity which is treated as a partnership for federal income tax
purposes); or
(xiii) issue any dividends on any class or series of capital
stock of the Corporation other than (a) dividends issued on the Series B
Preferred and the Series C Preferred as provided in this Restated Certificate of
Incorporation and (b) the IPO Stock Dividend, provided that the Corporation
makes the adjustment set forth in Section 3(e)(i) of this Exhibit B.
7. PREEMPTIVE RIGHTS. Shares of Series B Preferred have no preemptive
-----------------
rights.
<PAGE>
EXHIBIT C
TERMS OF SERIES C CONVERTIBLE PREFERRED STOCK
OF
CYBERIAN OUTPOST, INC.
DESIGNATION OF SERIES C CONVERTIBLE PREFERRED STOCK. There is hereby
---------------------------------------------------
established a series of Preferred Stock designated "Series C Convertible
Preferred Stock" (the "Series C Preferred"), consisting of 3,000,000 shares,
------------------
$.01 par value per share, and having the relative rights, designations,
preferences, qualifications, privileges, limitations and restrictions applicable
thereto as follows:
1. DIVIDEND PROVISIONS. Except as may be otherwise approved in writing
-------------------
by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of Series C Preferred:
(a) (i) The holders of the shares of Series C Preferred shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, cumulative annual dividends, out of any assets of the Corporation
legally available therefor, in an amount per share of Series C Preferred equal
to 7.0% per annum of the Series C Original Issuance Price (as defined below in
Section 3(k) of this Exhibit C) (the "Cumulative Annual Dividend") which shall
--------------------------
be declared by the Board of Directors of the Corporation (in the case of clause
(z) below) and be payable to said holders (in the case of clauses (x), (y) and
(z) below) upon the first of the following events to occur: (x) the liquidation
of the Corporation (including a deemed liquidation of the Corporation pursuant
to Section 2(b) of this Exhibit C), (y) the Corporation's redemption of any
shares of Series C Preferred pursuant to Section 5 of this Exhibit C, or (z) the
conversion of any shares of Series C Preferred into shares of Common Stock
pursuant to Section 3(a) or Section 3(b) of this Exhibit C. Notwithstanding the
foregoing, no holder of shares of Series C Preferred shall be entitled to
Cumulative Annual Dividends and no Cumulative Annual Dividends shall be payable
to such holder of shares of Series C Preferred upon and after the conversion of
any shares of Series C Preferred held by such holder into shares of Common Stock
pursuant to Section 3(a) or Section 3(b) of this Exhibit C, if such conversion
occurs prior to February 27, 2001.
(ii) Cumulative Annual Dividends shall accrue on each share of
Series C Preferred on a daily basis commencing as of the date of issuance by
Cyberian Outpost, Inc., a Connecticut corporation ("Cyberian Connecticut"), the
Corporation's predecessor in interest, of the shares of Series C Preferred Stock
of Cyberian Connecticut to the holder of such shares, whether or not earned or
declared, and will be cumulative so that if at any time the entire amount of
such Cumulative Annual Dividend has not been paid, or declared or set apart for
payment as required pursuant to this Section 1(a), the deficiency shall be fully
paid or declared and set apart for payment, before any dividend is paid on,
declared or set apart for payment on any other class
<PAGE>
or series of stock, including without limitation, Common Stock, Series A
Preferred and Series B Preferred. Cumulative Annual Dividends shall be payable
in preference and priority to any payment of dividends on any other class or
series of capital stock of the Corporation, including, without limitation, the
Common Stock, Series A Preferred and Series B Preferred. Cumulative Annual
Dividends shall be subject to proportionate adjustment in the event of any stock
dividend, stock split, reverse stock split, combination of shares,
reorganization, recapitalization, reclassification or other similar event
affecting the Series C Preferred which occurs after the Effective Date (as
defined below in Section 3(k) of this Exhibit C).
(b) The holders of the shares of Series C Preferred shall be entitled
to receive dividends, out of any assets legally available therefor, in an amount
per share of Series C Preferred which is equal to the product of (i) the number
of shares of Common Stock into which one share of Series C Preferred is
convertible at the time of declaration of such dividend, multiplied by (ii) the
aggregate amount per share of Common Stock of all cash dividends and the
aggregate amount per share (payable, at the option of the holder, in kind or in
cash, based upon the fair market value at the time the non-cash dividend or
other distribution is declared or paid (the fair market value of any in-kind
dividend shall be deemed to be equal to the amount agreed to by the Corporation
and the holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of Series C Preferred) of all non-cash dividends or other
distributions on the Common Stock, when, as and if a dividend is declared on the
shares of Common Stock. Such dividends shall accumulate and be declared and paid
contemporaneously with the declaration and payment of the related dividend on
the Common Stock, so that the Series C Preferred participates equally with the
Common Stock in such dividend or distribution with respect to the number of
shares of Common Stock into which the Series C Preferred is then convertible
pursuant to Section 3 of this Exhibit C. Any dividends declared and paid to the
holders of Series C Preferred pursuant to Section 1(b) of this Exhibit C shall
be in addition to (and not in lieu of) any dividends paid to the holders of
Series C Preferred pursuant to Section 1(a) of this Exhibit C.
(c) So long as any Series C Preferred shall remain outstanding, no
deposit, payment, dividend or other distribution shall be paid or made on any
other class of stock of the Corporation and no shares of any other class of
stock of the Corporation shall be purchased or otherwise acquired by the
Corporation or any subsidiary of the Corporation other than, (i) except as may
be otherwise provided in this Restated Certificate of Incorporation, including
in any class or series designation concerning any capital stock of the
Corporation (as such may be amended from time to time), or (ii) upon exercise of
the Corporation's rights or a stockholder's rights under any restricted stock
purchase agreement (or any similar agreement pursuant to which the Corporation
is obligated to redeem its stock) in effect as of the Effective Date or
otherwise pursuant to incentive stock plans of the Corporation in effect as of
the Effective Date, or as may be approved from time to time by the Corporation
and the holders of the Series C Preferred in accordance with Section 6(c) of
this Exhibit C, or (iii) upon the exercise of a stockholder's put rights in
effect as of the Effective Date, or as may be approved from time to time by the
Corporation and the holders of the Series C Preferred in accordance with Section
6(c) of this
<PAGE>
Exhibit C, or (iv) by exchange therefor of shares of the stock of
the Corporation.
Subject to the above limitations and to the provisions of Section
6 of this Exhibit C, dividends may be paid on any class of stock of the
Corporation out of any funds legally available for such purpose when and as
declared by the Board of Directors.
Notwithstanding the foregoing, the provisions of this Section 1
of Exhibit C shall not apply to any dividend of shares of Common Stock declared
and paid to the holders of Common Stock declared by the Board of Directors of
the Corporation in connection with and prior to the Corporation's initial public
offering (the "IPO Stock Dividend"), provided that (a) the Corporation makes the
------------------
adjustment set forth in Section 3(e)(i) of this Exhibit C and (b) any Cumulative
Annual Dividends shall be subject to proportionate adjustment as provided in the
last sentence of Section 1(a)(ii) of this Exhibit C as a result of the IPO Stock
Dividend.
2. LIQUIDATION PREFERENCE. Except as may be otherwise approved in
----------------------
writing by the holders of at least sixty-six and two-thirds percent (66 2/3%) of
the outstanding shares of Series C Preferred:
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of shares of Series C
Preferred shall be entitled to receive out of the assets of the Corporation
available for distribution to shareholders, (i) before any distribution or
payment shall be made in respect of the holders of shares of Common Stock but
pari passu with holders of Series A Preferred Stock and Series B Preferred
Stock, a liquidation distribution in an amount equal to the Series C Original
Issuance Price per share, plus an amount equal to all accrued but unpaid
dividends thereon to the date fixed for such distribution or payment, and then
(ii) to share with the holders of shares of Common Stock, Series A Preferred and
Series B Preferred as if the shares of Series A Preferred, Series B Preferred
and Series C Preferred were then converted into shares of Common Stock. In the
case of the distribution of assets other than cash, the value of such assets
shall be deemed to be the fair market value thereof (which shall be the amount
agreed to by the Corporation and the holders of at least sixty-six and two-
thirds percent (66 2/3%) of the shares of Series C Preferred). If, upon any such
liquidation, dissolution or winding up of the affairs of the Corporation, the
assets of the Corporation available for distribution to shareholders shall be
insufficient to permit the payment in full to the holders of Series A Preferred,
Series B Preferred and Series C Preferred of the amounts to which they are each
entitled in preference to holders of shares of Common Stock, then all of such
available assets shall be distributed to the holders of shares of Series A
Preferred, Series B Preferred and Series C Preferred ratably in proportion to
the liquidation payment otherwise due pursuant to clause (i) above to each such
holder.
(b) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or the consolidation or merger of any
other corporation or corporations into the Corporation, or the sale or transfer
by the Corporation of all or substantially
<PAGE>
all of its assets or the effectuation by the Corporation or any holders of its
capital stock of a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Corporation is sold,
transferred or otherwise disposed of, shall be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 2 of Exhibit C.
3. CONVERSION. The holders of the shares of Series C Preferred shall
----------
have conversion rights as follows:
(a) OPTIONAL CONVERSION. The holder of any shares of Series C
-------------------
Preferred shall have the right, at such holder's option, at any time or from
time to time by the giving of written notice thereof to the Corporation (the
"Conversion Date") to convert all or any of such shares of Series C Preferred
---------------
into such number of fully paid and nonassessable shares of Common Stock as
obtained by multiplying the Series C Original Issuance Price by the number of
shares of Series C Preferred being converted, and dividing the product thereof
by the Series C Conversion Price (as hereinafter defined) (as last adjusted and
then in effect) for the shares of Series C Preferred then being converted. The
conversion price per share (the "Series C Conversion Price") at which shares of
-------------------------
Common Stock shall be issuable shall be Eight Dollars ($8.00) per share;
provided, however, that the Series C Conversion Price shall be subject to
- -----------------
adjustment as set forth in Section 3(e) of this Exhibit C. Subject to the last
sentence of Section 1(a)(i) of this Exhibit C, the holder of any shares of
Series C Preferred converted into shares of Common Stock pursuant to this
Section 3(a) of Exhibit C shall be entitled to payment of all accrued but unpaid
dividends on such shares being converted up to and including the Conversion
Date.
(b) MANDATORY CONVERSION. Upon (i) the consummation of a public
--------------------
offering of shares of Common Stock registered pursuant to the Securities Act of
1933, as amended, in which the gross proceeds to the Corporation exceed Twenty
Million Dollars ($20,000,000) and at an offering price per share greater than or
equal to (x) 200% of the then applicable Series C Conversion Price if said
offering occurs on or before February 27, 1999, or (y) 250% of the then
applicable Series C Conversion Price if said offering occurs after February 27,
1999, and as the result of which shares of Common Stock are traded on either the
New York Stock Exchange, the American Stock Exchange or the NASDAQ National
Market System (a "Qualified Public Offering"), or (ii) upon the approval (by
-------------------------
vote or written consent) of holders of at least seventy-five percent (75%) of
the then outstanding shares of Series C Preferred (each such event referred to
in clauses (i) and (ii) is referred to herein as a "Series C Event of
-----------------
Conversion"), all shares of Series C Preferred then outstanding shall, by virtue
- ----------
of and simultaneously with the occurrence of the Series C Event of Conversion
and without any action on the part of the holder thereof, be deemed
automatically converted into such whole number of fully paid and nonassessable
shares of Common Stock as obtained by multiplying the Series C Original Issuance
Price by the number of shares of Series C Preferred being converted, and
dividing the product thereof by the Series C Conversion Price (as last adjusted
and then in effect) for the shares of Series C Preferred being converted (such
Series C Conversion Price being subject to adjustment as set forth in Section
<PAGE>
3(e) of this Exhibit C). Subject to the last sentence of Section 1(a)(i) of this
Exhibit C, the holder of any shares of Series C Preferred converted into shares
of Common Stock pursuant to this Section 3(b) of Exhibit C shall be entitled to
payment of all accrued but unpaid dividends on such shares of Series C Preferred
up to and including the Conversion Date.
(c) PROCEDURE FOR CONVERSION. Upon conversion of the shares of
------------------------
Series C Preferred pursuant to Section 3(a) of this Exhibit C, the holder of any
shares of Series C Preferred shall deliver to the Corporation during regular
business hours, at the office of any transfer agent of the Corporation for the
Series C Preferred, or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be converted,
duly endorsed or assigned in blank or to the Corporation (if required by it),
accompanied by written notice stating the name or names (with address) in which
the certificate or certificates for the shares of Common Stock are to be issued.
As promptly as practicable thereafter, the Corporation shall issue and deliver
to or upon the written order of such holder, to the place designated by such
holder, a certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled, a check or cash in respect of any
fractional interest in a share of Common Stock as provided in Section 3(d) of
this Exhibit C and a check or cash in payment of all accrued but unpaid
dividends, if any, payable with respect to the shares of Series C Preferred so
converted up to and including the Conversion Date. The person in whose names the
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a shareholder of record on the applicable Conversion Date unless the
transfer books of the Corporation are closed on that date, in which event he
shall be deemed to have become a shareholder of record on the next succeeding
date on which the transfer books are open, but the Series C Conversion Price for
the Series C Preferred shall be that in effect on the Conversion Date.
(d) ADDITIONAL CONVERSION PROVISIONS. The following additional terms
--------------------------------
shall apply upon any conversion of the Series C Preferred:
(i) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series C Preferred. If more than one share
of Series C Preferred shall be surrendered for conversion at any one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series C Preferred so surrendered. In lieu of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of any shares of Series
C Preferred the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the then Current Market Price (as
defined below) of a share of Common Stock as of the date of conversion,
multiplied by such fractional interest. Fractional interests shall not be
entitled to dividends, and the holders of fractional interests shall not be
entitled to any rights as shareholders of the Corporation in respect of such
fractional interest.
(ii) For the purpose of any computation pursuant to this Section
3(d) of Exhibit C, the Current Market Price at any date of one share of Common
Stock shall be deemed
<PAGE>
to be the closing price as of the day before the day in question. If the Common
Stock is not traded in such manner that the closing price is readily available,
the Current Market Price shall be determined in good faith by the Directors of
the Corporation.
(e) ADJUSTMENTS TO SERIES C CONVERSION PRICE. The Series C
----------------------------------------
Conversion Price shall be subject to adjustment from time to time as follows:
(i) STOCK DIVIDENDS, SPLIT-UPS, ETC. If, at any time after the
-------------------------------
Effective Date, the number of shares of Common Stock outstanding is increased by
a stock dividend payable in shares of Common Stock or by a subdivision or split-
up of shares of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, the Series C Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series C Preferred shall be increased in proportion
to such increase in outstanding shares.
(ii) COMBINATIONS. If, at any time after the Effective Date,
------------
the number of shares of Common Stock outstanding is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date for
such combination, the Series C Conversion Price shall be appropriately increased
so that the number of shares of Common Stock issuable on conversion of each
share of Series C Preferred shall be decreased in proportion to such decrease in
outstanding shares.
(iii) REORGANIZATIONS, RECLASSIFICATIONS, ETC. In case, at any
---------------------------------------
time after the Effective Date, of any Capital Events (as defined below in
Section 3(k) of this Exhibit C) each share of Series C Preferred shall after
such Capital Event be (unless, in the case of a consolidation, merger, sale or
other disposition, payment shall have been made to the holders of all shares of
Series C Preferred of the full amount to which they respectively shall have been
entitled pursuant to Section 2 of this Exhibit C) convertible into the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and asset shall have been sold or otherwise disposed to
which the holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such Capital Event) upon conversion of such
shares would have been entitled upon such Capital Event. The provisions of
Section 3(e)(iii) of this Exhibit C shall similarly apply to successive Capital
Events.
(iv) DILUTIVE ISSUANCES.
------------------
(1) If the Corporation shall at any time or from time to
time after the Effective Date issue any shares of Common Stock other than
Excluded Stock (as defined below in Section 3(k) of this Exhibit C) without
consideration or for a consideration per share less than the Series C Conversion
Price then in effect (such issuance being referred to in
<PAGE>
this clause (iv) as a "Series C Dilutive Issuance"), the Series C Conversion
--------------------------
Price in effect immediately prior to such Series C Dilutive Issuance shall be
reduced with effect from the first to occur of (A) the record date for the
issuance of the securities or (B) the date of original issuance (as the case may
be the "Issue Date"), so that it shall equal the price determined by multiplying
----------
the Series C Conversion Price by a fraction (i) the numerator of which shall be
(X) the number of shares of Common Stock outstanding at the close of business on
the day next preceding the Issue Date, plus (Y) the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
Series C Dilutive Issuance would purchase at the Series C Conversion Price, and
(ii) the denominator of which shall be the number of shares of Common Stock
outstanding at the close of business on the Issue Date after giving effect to
such Series C Dilutive Issuance.
(2) For the purposes of any adjustment of the Series C
Conversion Price pursuant to this clause (iv), the following provisions shall
apply:
(A) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
after deducting therefrom any discounts or commissions allowed or paid by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof.
(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof (which shall be the
amount agreed to by the Corporation and the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the shares of Series C Preferred), irrespective
of any accounting treatment.
(C) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock, (ii) securities by their terms
convertible into or exchangeable for Common Stock, or (iii) options to purchase
or rights to subscribe for such convertible or exchangeable securities:
(I) the shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subclauses (A) and (B), above), if any, received by the
Corporation upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby;
(II) the shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at
<PAGE>
the time such securities were issued or such options or rights were issued and
for a consideration equal to the consideration received by the Corporation for
any such securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by the Corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subclauses (A) and (B), above);
(III) on any change in the number of shares or
exercise price of Common Stock deliverable upon exercise of any such options or
rights or upon conversion of or in exchange for such convertible or exchangeable
securities, other than a change resulting from the antidilution provisions
thereof, the Series C Conversion Price shall forthwith be readjusted to such
Series C Conversion Price as would have obtained had the adjustment made upon
the issuance of such options, rights or securities not converted prior to such
change or options or rights related to such securities not converted prior to
such change been made upon the basis of such change; and
(IV) on the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Series C Conversion Price shall forthwith be readjusted to such
Series C Conversion Price as would have obtained had such options, rights,
securities or options or rights related to such securities not been issued.
(v) SPECIAL ADJUSTMENT. If at any time after the Effective
------------------
Date, (1) the Corporation is subject to liquidation (including a deemed
liquidation), dissolution or winding up as contemplated by Section 2 herein, or
(2) the Corporation completes a public offering of any class or series of
capital stock of the Corporation other than a Qualified Public Offering, then
the Series C Conversion Price for the Series C Preferred shall be appropriately
decreased so that the number of shares of Common Stock issuable upon the
conversion of each share of Series C Preferred shall be increased such that the
percentage ownership of the Corporation, on an as-converted basis (and on a
diluted basis to the extent of any "at" or "in the money" options or warrants
that are vested at the time of such determination), by the holders of the Series
C Preferred before giving effect to the Common Stock issued or issuable (A)
pursuant to warrants granted on January 13, 1998 to Winfield Capital Corp. (or
any successor or replacement warrants issued with respect to said warrant), and
(B) pursuant to warrants issued to BT Alex. Brown Incorporated (and its
nominees) and any other broker or investment banker in connection with the
issuance of shares of Series C Preferred, shall be the same after giving effect
to the issuance or deemed issuance of such Common Stock.
(vi) All calculations under this paragraph (e) of this Exhibit C
shall be made to the nearest one-tenth (1/10) of a share or to the nearest one
tenth (1/10) of a cent, as the case may be.
<PAGE>
(vii) In any case in which the provisions of this Section 3(e)
of Exhibit C shall require that an adjustment shall become effective immediately
after a record date for an event the Corporation may defer until the occurrence
of such event (1) issuing to the holder of any share of Series C Preferred
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (2)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 3(d) of this Exhibit C; provided, however,
-------- -------
that the Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares, and such cash, immediately upon the occurrence of the event requiring
such adjustment.
(viii) The Corporation will not voluntarily, by amendment of this
Restated Certificate of Incorporation, or through any reorganization, transfer
of assets, merger, dissolution, issuance or sale or securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all of the provisions of
this Section 3 of Exhibit C and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series C Preferred against impairment.
(f) Whenever the Series C Conversion Price of the Series C Preferred
shall be adjusted as provided in Section 3(e) of this Exhibit C, the Corporation
shall forthwith file, at the office of the transfer agent for the Series C
Preferred or at such other place as may be designated by the Corporation, a
statement showing in detail the facts requiring such adjustment and the Series C
Conversion Price that shall be in effect after such adjustment. The Corporation
shall also cause a copy of such statement to be sent by mail, first-class
certified mail, return receipt requested, postage prepaid, to each holder of
shares of any series of preferred stock in respect of which an adjustment to the
Series C Conversion Price was required to be made at his address appearing on
the Corporation's records. Where appropriate, such copy may be given in advance
and may be included as part of a notice required to be mailed under the
provisions of Section 3(g) hereof of this Exhibit C.
(g) If the Corporation shall propose to take any action of the types
described in clauses (i), (ii), (iii) or (iv) of Section 3(e) of this Exhibit C,
the Corporation shall give notice to each holder of shares of Series C Preferred
in the manner set forth in Section 3(f) of this Exhibit C, which notice shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Series C Conversion Price and the number, kind or series of shares or
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of each
<PAGE>
such series of Series C Preferred. In the case of any action which would require
the fixing of a record date, such notice shall be given at least twenty (20)
days prior to the date so fixed, and in case of all other actions, such notice
shall be given at least thirty (30) days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action. Notwithstanding the foregoing Sections
3(f) and this 3(g) of Exhibit C, with respect to the IPO Stock Dividend, the
statement and notice required to be delivered to the stockholders under Sections
3(f) and this 3(g) of Exhibit C shall be delivered as soon as practicable after
the IPO Stock Dividend is declared.
(h) The Corporation shall pay all documentary, stamp or other
transaction taxes attributable to the issuance or delivery of shares of capital
stock of the Corporation upon conversion of shares of Series C Preferred;
provided, however, that the Corporation shall not be required to pay any taxes
- -----------------
which may be payable in respect of any transfer involved in the issuance of
delivery of any certificate for such shares in a name other than that of the
holder of the shares of Series C Preferred in respect of which such shares are
being issued.
(i) The Corporation shall reserve and at all times from and after
such date keep reserved, free from preemptive rights, out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series C Preferred, sufficient shares to provide for
the conversion of all outstanding shares of Series C Preferred and shall take
all action as may be necessary to enable the Corporation lawfully to issue such
Common Stock upon the conversion of shares of Series C Preferred.
(j) All shares of Common Stock which may be issued in connection with
the conversion provisions set forth herein will, upon issuance by the
Corporation, be validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and free from all taxes, liens or
charges with respect thereto.
(k) DEFINITIONS. As used herein, the following terms have the
-----------
following meanings:
(i) "Capital Events" means any capital reorganization,
--------------
recapitalization or any reclassification of the stock of the Corporation (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a stock dividend or subdivision, split-up
or combination of shares), or the consolidation or merger of the Corporation
with or into another person (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result in any
change in the Common Stock), or the sale or other disposition of all or
substantially all of the properties and assets of the Corporation to any person
or third party.
(ii) "Effective Date" means the date of the filing with the
--------------
Secretary of State of Delaware of the Certificate of Merger between the
Corporation and Cyberian Outpost,
<PAGE>
Inc., a Connecticut corporation, in which the Corporation is the surviving
corporation.
(iii) "Excluded Stock" means shares of Common Stock issued by
--------------
the Corporation: (A) as a stock dividend payable in shares of Common Stock or
upon any subdivision or split-up of the outstanding shares of Common Stock, (B)
upon conversion of the shares of Series A Preferred, Series B Preferred or
Series C Preferred at any time outstanding, (C) to officers, employees or
directors of, or consultants to, the Corporation (whether as an issuance of
Common Stock, options to purchase or rights to subscribe for such Common Stock,
or options to purchase or rights to subscribe for such convertible or
exchangeable securities), in each case approved by the Board of Directors of the
Corporation; provided, however, that the maximum number of shares of Common
-----------------
Stock issued or issuable to officers, employees or directors of, or consultants
to, the Corporation to which this clause (C) shall apply shall not exceed the
number of shares issuable under the incentive stock option plans of the
Corporation in effect as of the Effective Date or as may be approved from time
to time by the Corporation and the holders of the Series C Preferred in
accordance with Section 6(c)(ix) of this Exhibit C (including any Common Stock
issued pursuant to the exercise of any such options), and (D) pursuant to any
options (other than those described in (C), above), warrants or other rights
outstanding on the Effective Date.
(iv) "Person" means any corporation, general or limited
------
partnership, limited liability partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity.
(v) "Series A Original Issuance Price" means Eight Dollars
--------------------------------
($8.00).
(vi) "Subsidiary" means with respect to any Person (the
----------
"Owner"), any corporation or other Person of which securities or other interests
-----
having the power to elect a majority of that corporation's or other Person's
board of directors or similar governing body, or otherwise having the power to
direct the business and policies of that corporation or other Person (other than
securities or other interests having such power only upon the happening of a
contingency that has not occurred), are held by the Owner or one or more of its
Subsidiaries; when used without reference to a particular Person, "Subsidiary"
means a Subsidiary of the Corporation.
4. STATUS OF CONVERTED STOCK. If any shares of Series C Preferred shall
-------------------------
be converted pursuant to Section 3 of this Exhibit C or redeemed pursuant to
Section 5 of this Exhibit C or otherwise acquired by the Corporation, the shares
so converted or redeemed or acquired shall be canceled and shall not be
reissuable by the Corporation.
5. REDEMPTION.
----------
(a) REDEMPTION REQUEST. From time to time on or after July 28, 2002,
------------------
the
<PAGE>
holders of a majority of the shares of Series C Preferred may request redemption
of all (but not less than all) of the outstanding shares of Series C Preferred
(the "Redemption Shares"), by giving written notice (a "Redemption Notice") to
----------------- -----------------
the Corporation (the date upon which such notice is given to the Corporation is
referred to herein as a "Redemption Notice Date"). Within five (5) days after
----------------------
the giving of such Redemption Notice, the Corporation shall send a copy of the
Redemption Notice to each holder of shares of Series C Preferred. The
Corporation shall redeem all of the issued and outstanding shares of Series C
Preferred in accordance with this Section 5 of this Exhibit C and the holders of
the Redemption Shares (the "Redeeming Stockholders") shall sell and deliver
----------------------
their Redemption Shares to the Corporation in accordance with this Section 5.
Upon the giving of the Redemption Notice, each Redemption Share shall no longer
be subject to conversion under Section 3 of this Exhibit C. Each Redemption
Share shall otherwise be deemed to be outstanding for all other purposes of this
Restated Certificate of Incorporation (and shall be entitled to all of the
rights and privileges of a share of Series C Preferred) until such time as the
Redemption Price is actually paid to the holder thereof.
(b) REDEMPTION TERMS AND PRICE.
--------------------------
(i) Subject to Section 5(c) of this Exhibit C, the Redemption
Shares shall be redeemed from the Redeeming Stockholders ratably in proportion
to their ownership of the Redemption Shares, on the following dates:
(A) one-third of the Redemption Shares shall be redeemed by
the Corporation on a date selected by the Corporation that is not later than
eight (8) months after the Redemption Notice Date (the "First Redemption Date");
---------------------
and
(B) two-thirds of the Redemption Shares shall be redeemed
by the Corporation on the one (1) year anniversary of the First Redemption Date,
or if such date is not a business day then on the next business day (the "Second
------
Redemption Date").
- ---------------
The First Redemption Date and the Second Redemption Date are at times singularly
referred to herein as a "Redemption Date" and collectively referred to herein as
---------------
the "Redemption Dates."
-----------------
(ii) The redemption price for each of the Redemption Shares (the
"Redemption Price") shall be equal to the greater of the Original Issuance Price
- -----------------
(plus all accrued and unpaid dividends), or the fair market value thereof (plus
all accrued and unpaid dividends), determined as follows:
(A) If as of the Redemption Notice Date any Common Stock is
registered pursuant to the Securities Act of 1933, as amended, and such shares
of Common Stock are traded on either the New York Stock Exchange, the American
Stock Exchange or any NASDAQ National Market System ("Publicly Traded"), then
---------------
the fair market value for each of the Redemption Shares shall be equal to the
closing price per share of the Common Stock as
<PAGE>
reported for the business day immediately prior to the Redemption Notice Date,
multiplied by the number of shares of Common Stock that would have been issuable
upon the conversion of each of the Redemption Shares as of the Redemption Notice
Date; or
(B) If as of the Redemption Notice Date no Common Stock is
Publicly Traded, then the fair market value for each of the Redemption Shares
shall be equal to a fraction, (x) the numerator of which shall be the fair
market value of the Corporation (determined by appraisal in accordance with this
Section 5(b)(ii)(B) of this Exhibit C), and (y) the denominator of which shall
be the total number of issued and outstanding shares of each class or series of
stock of the Corporation as of the Redemption Notice Date, determined on an as-
converted to Common Stock basis (and on a diluted basis to the extent of any
"at" or "in the money" options or warrants that are vested at the time of such
determination); the quotient of which shall be multiplied by the number of
shares of Common Stock that would have been issuable upon the conversion of each
of the Redemption Shares as of the Redemption Notice Date.
(1) If it shall be necessary to determine the fair market
value of each of the Redemption Shares by appraisal, then within thirty (30)
days after the Redemption Notice Date, the Corporation shall engage, at its sole
cost and expense, a reputable independent investment banking firm reasonably
acceptable to the holders of a majority of the Series C Preferred that shall
determine, as of the Redemption Notice Date, the fair market value of the
Corporation as a whole, on a going-concern basis (and without any minority or
lack of liquidity discounts), using customary and appropriate valuation methods.
As soon as is reasonably practicable (and in any event within thirty (30) days
after such engagement), such investment banking firm shall deliver to the
Corporation a written report as to the fair market value of the Corporation (the
"First Report"). The Corporation shall deliver a copy of the First Report to
------------
each Redeeming Stockholder within five (5) days after its receipt by the
Corporation.
(2) The valuation set forth in the First Report shall be
conclusive and binding on the Corporation and the holders of the Series C
Preferred unless, within ten (10) days after its receipt by the Redeeming
Stockholders, Redeeming Stockholders representing ownership of at least sixty-
six and two-thirds percent (66 2/3%) of the Redemption Shares notify the
Corporation in writing that the Redeeming Stockholders contest the valuation set
forth in the First Report. If the Redeeming Stockholders so notify the
Corporation, the Redeeming Stockholders shall promptly engage a reputable
investment banking firm, at their sole cost and expense, to render a second
written report as to the fair market value, as of the Redemption Notice Date, of
the Corporation as a whole, on a going-concern basis (and without any minority
or lack of liquidity discounts), using customary and appropriate valuation
methods (the "Second Report"). The Redeeming Stockholders shall deliver a copy
-------------
of the Second Report to the Corporation within five (5) days after its receipt
by the Redeeming Stockholders.
(3) The valuation set forth in the Second Report shall be
<PAGE>
conclusive and binding on the Corporation and the holders of the Series C
Preferred unless, within ten (10) days after its receipt by the Corporation, the
Corporation shall notify the Redeeming Stockholders in writing that the
Corporation contests the valuation set forth in the Second Report. If the
Corporation so notifies the Redeeming Stockholders that it contests the
valuation of the Corporation set forth in the Second Report, then (x) if the
Corporation and Redeeming Stockholders representing ownership of at least sixty-
six and two-thirds percent (66 2/3%) of the Redemption Shares so agree, the fair
market value of the Corporation shall be deemed to be equal to the arithmetic
mean of the valuations for the Corporation set forth in the First Report and the
Second Report, or (y) if the Corporation and the Redeeming Stockholders do not
so agree, the matter shall be submitted to binding arbitration in accordance
with the procedures set forth in Section 9 of this Exhibit C. The arbitrator's
discretion with respect to these matters shall be limited to selecting either
the valuation for the Corporation set forth in the First Report (in which case
the costs of arbitration shall be borne by the Redeeming Stockholders, in
proportion to their ownership of the Redemption Shares) or the valuation for the
Corporation set forth in the Second Report (in which case the costs and expenses
of arbitration shall be borne by the Corporation), whichever valuation the
arbitrator or arbitrators may determine is closer to the actual fair market
value of the Corporation. The results of such arbitration shall be binding and
conclusive on the Corporation, the Redeeming Stockholders, and on all other
persons and entities.
(4) If the fair market value of the Corporation is
determined pursuant to this Section 5(b)(ii)(B) of this Exhibit C, then such
determination shall under all circumstances occur within one hundred eighty days
(180) after the Redemption Notice Date.
(c) INSUFFICIENT FUNDS. If the Corporation's Board of Directors
------------------
reasonably determines that on the applicable Redemption Date the Corporation
does not have sufficient funds legally available to redeem all of the Redemption
Shares for which redemption is required pursuant to Section 5(a) of this Exhibit
C, then the Corporation shall to the maximum lawful extent redeem Redemption
Shares from the Redeeming Stockholders, on a pro rata basis in accordance with
their ownership thereof, and the Corporation shall redeem the remaining
Redemption Shares on the same basis, as soon as sufficient funds become legally
available therefor from time to time thereafter.
(d) MECHANICS OF REDEMPTION. Each Redeeming Stockholder shall
-----------------------
surrender the certificate or certificates representing his Redemption Shares to
be redeemed on each Redemption Date to the Corporation, at the Corporation's
principal executive office, and thereupon the Corporation will pay the
Redemption Price for such Redemption Shares, as follows:
(i) on the First Redemption Date, the entire Redemption Price
for the Redemption Shares to be redeemed shall be paid in immediately available
funds, by wire transfer to an account designated by the Redeeming Stockholder,
or by certified or bank check payable to the Redeeming Stockholder ("Immediately
-----------
Available Funds");
- ---------------
<PAGE>
(ii) on the Second Redemption Date, fifty percent (50%) of the
Redemption Price for the Redemption Shares to be redeemed shall be paid in
Immediately Available Funds and the remaining fifty percent (50%) of the
Redemption Price for the Redemption Shares to be redeemed shall be paid by the
execution and delivery by the Corporation of a promissory note, in a form
reasonably satisfactory to the Redeeming Stockholder, the outstanding principal
balance of which (together with all accrued and unpaid interest thereon) shall
be payable in full (subject to prepayment without penalty and to acceleration on
customary terms, including upon the bankruptcy or insolvency of the Corporation)
on the one (1) year anniversary of the Second Redemption Date, bearing interest
at the per annum rate equal to the "Prime Rate" of interest as published in the
Eastern edition of the Wall Street Journal on the Redemption Notice Date or the
-------------------
next date of publication, and with installments of interest to be due and
payable, in arrears, on the first day of each calendar month.
Each stock certificate surrendered for redemption shall be canceled and retired.
If the number of Redemption Shares represented by any certificate surrendered in
respect of any such redemption exceeds the number of Redemption Shares to be
redeemed from the Redeeming Stockholder thereof, the Corporation shall issue and
deliver to such Redeeming Stockholder a new certificate representing the
unredeemed balance of such Redemption Shares.
6. VOTING RIGHTS.
-------------
(a) GENERAL. Except as otherwise provided below, on all matters
-------
submitted to a vote of the holders of shares of Common Stock, the holder of each
share of Series C Preferred shall have the right to one vote for each Common
Share into which such Series C Preferred could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of such shares of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any shareholders' meeting in accordance with
the By-Laws of the Corporation, and, except as expressly provided in Section
6(b) of this Exhibit C, shall be entitled to vote, together with holders of
shares of Common Stock with respect to any question upon which holders of shares
of Common Stock have the right to vote.
(b) ELECTION OF DIRECTORS. Except as may be otherwise approved by
---------------------
vote or by the written consent of the holders of at least sixty-six and two-
thirds percent (66 2/3%) of the shares of Series C Preferred then outstanding,
the Board of Directors shall consist of up to 7 members. The holders of the
Series C Preferred, voting as a separate class, shall have the right to elect
two (2) directors. Except as may otherwise be provided by law or in this
Restated Certificate of Incorporation, the holders of the Common Stock shall
have the right to elect the remaining members of the Board of Directors and the
Series C Preferred shall not be entitled to vote in the election of the
remaining members of the Board of Directors. Each director shall be
<PAGE>
elected at the annual meeting of shareholders and shall serve until his
successor is elected and qualified or until his earlier resignation or removal.
Any director who shall have been elected by the holders of Series C Preferred
may be removed during his term of office, without cause, by and only by, the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the shares of Series C Preferred then outstanding, given at a special
meeting of such shareholders duly called for that purpose, and any vacancy
thereby created may be filled by the holders of the Series C Preferred
represented at that meeting.
(c) PROTECTIVE PROVISIONS. So long as twenty-five percent (25%) or
---------------------
more of the shares of Series C Preferred are outstanding, the Corporation shall
not, and shall not attempt to, without first obtaining the approval (by vote or
written consent) of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the then outstanding shares of Series C Preferred, voting as a separate
class:
(i) authorize any additional shares of Series C Preferred, or
authorize and issue any shares of (a) any class or series of equity security
having superior rights to the Series C Preferred as to dividends, redemptions or
as to payment upon liquidation, dissolution or a winding up of the Corporation,
or otherwise, or (b) any notes or debt securities convertible into or
exchangeable for any equity securities or containing profit participation
features;
(ii) redeem or repurchase outstanding Common Stock in excess of
an aggregate of 75,000 shares, provided that the Corporation may redeem shares
of Common Stock from persons having been granted and exercised stock options
pursuant to the Corporation's incentive stock plans as in effect as of the
Effective Date, or as may be approved from time to time by the Corporation and
by the holders of the Series C Preferred pursuant to Section 6(c)(ix) of this
Exhibit C;
(iii) enter into any agreement that would restrict the
Corporation's ability to perform its obligations under any agreement to which
the Corporation is a party concerning the Corporation's original issuance of any
shares of the Series C Preferred (including this Restated Certificate of
Incorporation);
(iv) amend this Restated Certificate of Incorporation (including
any Certificate of Designation) or the By-Laws of the Corporation in any manner
that adversely affects the powers, rights, privileges or restrictions or
relative preferences of the Series C Preferred or the holders thereof as a
class, or increase the powers, preferences, rights, privileges or restrictions
of any other class or series of preferred stock unless the Series C Preferred is
treated in the same manner;
(v) sell, transfer, convey or lease greater than twenty-five
percent (25%) of the assets of the Corporation in one or more of a series of
related transactions, except for the sale of inventory in the ordinary course of
the Corporation's business;
<PAGE>
(vi) issue additional equity securities of any class or series
to the employees, officers or directors of the Corporation, except (a) as
permitted under Section 6(c)(viii) of this Exhibit C, or (b) such equity
securities as may be issuable upon the exercise of options or warrants
outstanding as of the Effective Date (or as may be approved from time to time by
the Corporation and the holders of the Series C Preferred in accordance with
Section 6(c) of this Exhibit C); provided that any such equity securities,
including any options or warrants for equity securities of the Corporation,
shall be granted at no less than the fair market value for such equity
securities (which shall be the amount agreed to by the Corporation and the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of Series C Preferred);
(vii) issue any equity securities of any class or series for a
price less than fair market value (which shall be the amount agreed to by the
Corporation and the holders of at least sixty-six and two-thirds percent (66
2/3%) of the outstanding shares of Series C Preferred) of the Corporation,
except as may be required pursuant to contractual commitments of the Corporation
existing as of the Effective Date;
(viii) enter into any transaction or series of transactions or
any agreement or other arrangement, including, without limitation, any loan,
with or to any officer or director (or any family member or person affiliated
with any officer or director) or other affiliate (excluding any Subsidiary of
the Corporation) of the Corporation in excess of $100,000, individually, or
$250,000, in the aggregate, during any calendar year, except as may be required
pursuant to contractual commitments of the Corporation existing as of the
Effective Date (except that such limitations shall not be applicable to any
employment or other compensatory arrangements on reasonable arms' length terms
(including, without limitation, the granting of stock options under any stock
option plan in effect as of the Effective Date, or as may be approved from time
to time by the Corporation and the holders of the Series C Preferred in
accordance with Section 6(c)(ix) of this Exhibit C), as may be approved by the
Board of Directors of the Corporation);
(ix) adopt any stock option plans or increase the number of
shares available or reserved for issuance under any stock option plan or related
plan in effect as of the Effective Date;
(x) engage in any transaction which would impair or reduce the
rights of the holders of shares of the Series C Preferred as a class (except
that the Corporation may effect a reverse-split of its Common Stock without the
consent of the holders of shares of the Series C Preferred);
(xi) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a Subsidiary that
is wholly-owned by the Corporation, directly or indirectly);
<PAGE>
(xii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other non-
corporate entity which is treated as a partnership for federal income tax
purposes); or
(xiii) issue any dividends on any class or series of capital
stock of the Corporation other than (a) dividends issued on the Series C
Preferred as provided in this Restated Certificate of Incorporation and (b) the
IPO Stock Dividend, provided that the Corporation makes the adjustment set forth
in Section 3(e)(i) of this Exhibit C and (b) any Cumulative Annual Dividends
shall be subject to proportionate adjustment as provided in the last sentence of
Section 1(a)(ii) of this Exhibit C as a result of the IPO Stock Dividend.
7. PREEMPTIVE RIGHTS.
-----------------
(a) Each holder of Series C Preferred shall have a right to purchase
its aggregate pro rata portion, based on the ratio of the number of shares of
Common Stock and Series C Preferred held by such stockholder on an as-converted
basis to the total number of shares of Common Stock, Series A Preferred, Series
B Preferred and Series C Preferred on an as-converted basis held by all
stockholders, of any issuance of new common stock, preferred stock or securities
convertible into any class of capital stock of the Corporation ("New Equity").
----------
This right shall be transferable and terminate if unexercised within twenty (20)
days after receipt of the Preemption Notice (as defined below).
(b) If the Corporation proposes to undertake an issuance of New
Equity, it shall give each holder of Series C Preferred written notice (a
"Preemption Notice") of its intention, describing the type of New Equity, and
- ------------------
the price and the general terms upon which the Corporation proposes to issue the
same. Each holder of Series C Preferred shall have twenty (20) days after
receipt of the Preemption Notice to agree to purchase all or any portion of such
pro rata share of such New Equity for the price and upon the terms specified in
the Preemption Notice by giving written notice to the Corporation and stating
therein the quantity (including amounts, if any, such holder of Series C
Preferred would be willing to purchase over and above such holder of Series C
Preferred's pro rata portion) of New Equity purchased. If a holder of Series C
Preferred does not purchase any or all of its pro rata portion of New Equity,
the remaining holders of Series C Preferred shall have the right to purchase
such unpurchased New Equity or respective pro rata portion until all of the New
Equity is purchased or until no other holder of Series C Preferred desires to
purchase any more New Equity, provided that a written notice to such effect is
given by such holders to the Corporation within such twenty (20) day period.
(c) The phrase "New Equity" does not include (i) securities issued
upon conversion of shares of Series A Preferred, Series B Preferred, or Series C
Preferred into shares
<PAGE>
of Common Stock, (ii) securities issued by the Corporation as consideration
pursuant to the acquisition of another corporation by the Corporation by merger,
purchase of all or substantially all of the assets or other reorganization,
(iii) shares of Common Stock issued in connection with any stock split, stock
dividend or recapitalization of the Corporation, (iv) shares of Common Stock
issued to employees, consultants, or directors of the Corporation upon the
exercise of stock options pursuant to incentive stock plans of the Corporation
as in effect as of the Effective Date, or as may be approved from time to time
by the Corporation and by the holders of the Series C Preferred pursuant to
Section 6(c)(ix) of this Exhibit C, (v) shares of Common Stock issued upon the
exercise of any warrants outstanding as of the Effective Date, (vi) securities
issued for services in arms' length transactions to parties other than
employees, officers and directors of the Corporation, or (vii) shares of Common
Stock issued in the Corporation's initial public offering.
8. NOTICE. Any notice required or permitted under this Restated
------
Certificate of Incorporation shall be given in writing and shall be deemed
effectively given only if (i) delivered personally (effective upon delivery),
(ii) mailed by registered or certified mail, postage prepaid (effective three
(3) days after dispatch), or (iii) sent by a reputable, established courier
service that guarantees next business day delivery (effective the next business
day) and addressed as follows: in the case of the Corporation, its principal
office, and in the case of a holder of shares of Series C Preferred, the address
of the holder as reflected in the stock records of the Corporation.
9. ARBITRATION.
-----------
(a) In the event that the holders of at least sixty-six and two-
thirds percent (66 2/3%) of the outstanding shares of Series C Preferred fail
either to accept or reject the fair market value of any property as determined
by the Corporation for purposes of this Restated Certificate of Incorporation
within thirty (30) days after the giving of any notice to the holders of the
Series C Preferred by the Corporation setting forth the Corporation's fair
market value determination with respect to such property for purposes of this
Restated Certificate of Incorporation, the holders of the Series C Preferred
shall be deemed to have accepted the Corporation's fair market value
determination with respect to such property as set forth in such notice.
(b) In the event that the Corporation and the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding Series C Preferred
"Objecting Stockholders") fail to agree upon the fair market value of any
----------------------
property as may be required from time to time by this Restated Certificate of
Incorporation, then in each such case such determination shall be made by an
arbitration proceeding before a single independent arbitrator. Such arbitrator
shall be appointed by the Corporation, subject to the approval of the Objecting
Stockholders. The Corporation shall give written notice designating the
arbitrator to each of the holders of shares of Series C Preferred. Upon such
written notice from the Corporation, the Objecting Stockholders shall have ten
(10) days to deliver written notice of any objection that
<PAGE>
they may have to the arbitrator selected by the Corporation and designating an
alternative selection for an independent arbitrator, otherwise the Objecting
Stockholders shall be deemed to have accepted the arbitrator appointed by the
Corporation. If the parties fail to appoint a single arbitrator within ten (10)
days after such notice by the Objecting Stockholders, then such fair market
value determination shall be made by an arbitration proceeding before three (3)
arbitrators. The arbitrator originally selected by the Corporation shall be
appointed the first such arbitrator. The arbitrator next selected by the
Objecting Stockholders shall be appointed the second such arbitrator. The two
arbitrators so appointed shall appoint a third independent arbitrator within
five (5) days after the expiration of the time period for the appointment of a
single arbitrator by the Corporation and the Objecting Stockholders. The single
arbitrator or the three arbitrators thus appointed shall resolve the matter in
dispute within thirty (30) days after the appointment of the final arbitrator.
All Arbitration proceedings shall be held in Boston, Massachusetts in accordance
with the rules of the American Arbitration Association ("AAA"). Any decision or
---
award made by the arbitrator(s) will be binding upon the Corporation and the
Objecting Stockholders, no appeal may be taken from such decision or award, and
judgment thereon may be entered in any court of competent jurisdiction. Except
as otherwise provided in Section 5(b)(ii)(B)(3) of this Exhibit C, the costs and
expenses of any arbitration proceeding pursuant to this Section 9 of this
Exhibit C shall be borne by the Corporation.
<PAGE>
EXHIBIT 3.4.1
CYBERIAN OUTPOST, INC.
RESTATED BY-LAWS
ARTICLE I-STOCKHOLDERS
--------- ------------
Section 1: Annual Meeting.
- --------- --------------
An annual meeting of the stockholders, for the election of directors
to succeed those whose terms expire and for the transaction of such other
business as may properly come before the meeting, shall be held at such place,
on such date, and at such time as the Board of Directors shall each year fix,
which date shall be within thirteen (13) months of the last annual meeting of
stockholders or, if no such meeting has been held, the date of incorporation.
Section 2: Special Meetings.
- --------- ----------------
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of Directors
or the chief executive officer and shall be held at such place, on such date,
and at such time as they or he or she shall fix.
Section 3: Notice of Meetings.
- --------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4: Quorum.
- --------- ------
At any meeting of the stockholders, the holders of a majority of all
of the shares of the stock entitled to vote at the meeting, present in person or
by proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such class or classes present in person or represented by proxy shall constitute
a quorum entitled to take action with respect to that vote on that matter.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
Section 5: Organization.
- --------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the chief executive officer of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6: Conduct of Business.
- --------- -------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at the meeting shall be announced at the
meeting.
Section 7: Proxies and Voting.
- --------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
The Corporation may, and to the extent required by law, shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting may, and to the extent required by law, shall, appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of
-2-
<PAGE>
his ability. Every vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law, all other matters shall be determined
by a majority of the votes cast affirmatively or negatively.
Section 8: Stock List.
- --------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
Section 9: Consent of Stockholders in Lieu of Meeting.
- --------- -------------------------------------------
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, 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 or consents 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 and shall be delivered to the Corporation by
delivery to its registered office in 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 made by hand or by certified or
registered mail, return receipt requested.
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 date the earliest dated consent is delivered to the Corporation, a written
consent or consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner prescribed in the first paragraph of
this Section.
-3-
<PAGE>
ARTICLE II - BOARD OF DIRECTORS
---------- ------------------
Section 1: Number and Term of Office.
- --------- -------------------------
The number of directors who shall constitute the whole Board shall be
such number as the Board of Directors shall from time to time have designated,
except that in the absence of any such designation, such number shall be seven
(7). Each director shall be elected for a term of one year and until his or her
successor is elected and qualified, except as otherwise provided herein or
required by law.
Whenever the authorized number of directors is increased between
annual meetings of the stockholders, a majority of the directors then in office
shall have the power to elect such new directors for the balance of a term and
until their successors are elected and qualified. Any decrease in the
authorized number of directors shall not become effective until the expiration
of the term of the directors then in office unless, at the time of such
decrease, there shall be vacancies on the board which are being eliminated by
the decrease.
Notwithstanding the foregoing, subject to the provisions of the
Certificate of Incorporation of the Corporation, while any shares of Series A
Convertible Preferred Stock, par value $.01 per share, of the Corporation (the
"Series A Preferred Stock") are outstanding, (i) the holders of the Series A
Preferred Stock, voting as a separate class, shall have the right to elect one
(1) director, and (ii) the Series A Preferred Stock shall not be entitled to
vote in the election of the remaining members of the Board of Directors.
Notwithstanding the foregoing, subject to the provisions of the
Certificate of Incorporation of the Corporation, while any shares of Series C
Convertible Preferred Stock, par value $.01 per share, of the Corporation (the
"Series C Preferred Stock") are outstanding, (i) the holders of the Series C
Preferred Stock, voting as a single class, shall be entitled to elect two (2)
directors, and (ii) the holders of the Series C Preferred Stock shall be
entitled to vote in the election of the remaining directors of the Board of
Directors.
Section 2: Removal; Vacancies.
- --------- ------------------
If one or more or all of the directors of the Corporation may be
removed with or without cause by the stockholders.
Notwithstanding the foregoing, subject to the provisions of the
Certificate of Incorporation of the Corporation, while any shares of Series A
Preferred Stock are outstanding, any director who shall have been elected by the
holders of the Series A Preferred Stock may be removed during his or her term of
office, without cause, by and only by, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the shares of Series A
Preferred Stock then outstanding, given at a special meeting of such
stockholders duly called for that purpose, and any vacancy thereby created may
be filled by the holders of the Series A Preferred Stock represented at that
meeting.
-4-
<PAGE>
Notwithstanding the foregoing, subject to the provisions of the
Certificate of Incorporation of the Corporation, while any shares of Series C
Preferred Stock are outstanding, any director who shall have been elected solely
by the holders of the Series C Preferred Stock may be removed during his or her
term of office, without cause, by and only by, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the shares of
Series C Preferred Stock then outstanding, given at a special meeting of such
stockholders duly called for that purpose, and any vacancy thereby created may
be filled by the holders of the Series C Preferred Stock represented at that
meeting.
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his or her successor is elected and
qualified.
Section 3: Regular Meetings.
- --------- ----------------
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4: Special Meetings.
- --------- ----------------
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)
or by the chief executive officer and shall be held at such place, on such date,
and at such time as they or he or she shall fix. Notice of the place, date, and
time of each such special meeting shall be given each director by whom it is not
waived by mailing written notice not less than five (5) days before the meeting
or by telegraphing or telexing or by facsimile transmission of the same not less
than twenty-four (24) hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
Section 5: Quorum.
- --------- ------
At any meeting of the Board of Directors, a majority of the total
number of the whole Board shall constitute a quorum for all purposes. If a
quorum shall fail to attend any meeting, a majority of those present may adjourn
the meeting to another place, date, or time, without further notice or waiver
thereof.
Section 6: Participation in Meetings By Conference Telephone.
- --------- --------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
-5-
<PAGE>
Section 7: Conduct of Business.
- --------- -------------------
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8: Powers.
- --------- ------
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary
in connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and
agents;
(6) To adopt from time to time such stock option, stock purchase,
bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these By-laws, for the management of the Corporation's business and
affairs.
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<PAGE>
Section 9: Compensation of Directors.
- --------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
----------- ----------
Section 1: Committees of the Board of Directors.
- --------- -------------------------------------
The Board of Directors, by a vote of a majority of the whole Board,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so designated
may exercise the power and authority of the Board of Directors to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law if the resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.
Section 2: Conduct of Business.
- --------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
ARTICLE IV - OFFICERS
---------- --------
Section 1: Generally.
- --------- ---------
The officers of the Corporation shall consist of a President, one or
more Vice Presidents, a Secretary, a Treasurer and such other officers as may
from time to time be appointed by the Board of Directors. Officers shall be
elected by the Board of Directors, which shall consider that subject at its
first meeting after every annual meeting of stockholders. Each officer shall
hold office until
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<PAGE>
his or her successor is elected and qualified or until his or her earlier
resignation or removal. Any number of offices may be held by the same person.
Section 2: President.
- --------- ---------
The President shall be the chief executive officer of the Corporation.
Subject to the provisions of these By-laws and to the direction of the Board of
Directors, he or she shall have the responsibility for the general management
and control of the business and affairs of the Corporation and shall perform all
duties and have all powers which are commonly incident to the office of chief
executive or which are delegated to him or her by the Board of Directors. He or
she shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation.
Section 3: Vice President.
- --------- --------------
Each Vice President shall have such powers and duties as may be
delegated to him or her by the Board of Directors. One (1) Vice President shall
be designated by the Board to perform the duties and exercise the powers of the
President in the event of the President's absence or disability.
Section 4: Treasurer.
- --------- ---------
The Treasurer shall have the responsibility for maintaining the
financial records of the Corporation. He or she shall make such disbursements of
the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe.
Section 5: Secretary.
- --------- ---------
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. He or
she shall have charge of the corporate books and shall perform such other duties
as the Board of Directors may from time to time prescribe.
Section 6: Delegation of Authority.
- --------- -----------------------
The Board of Directors may from time to time delegate the powers or
duties of any officer to any other officers or agents, notwithstanding any
provision hereof.
Section 7: Removal.
- --------- -------
Any officer of the Corporation may be removed at any time, with or
without cause, by the Board of Directors.
-8-
<PAGE>
Section 8: Action with Respect to Securities of Other Corporations.
- --------- ---------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
--------- -----
Section 1: Certificates of Stock.
- --------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2: Transfers of Stock.
- --------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these By-
laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3: Record Date.
- --------- -----------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or 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 a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that 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, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
-9-
<PAGE>
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.
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 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 be not more than ten (10) days after the date upon which
the resolution fixing the record date is adopted. If no record date has been
fixed by the Board of Directors and no prior action by the Board of Directors is
required by the Delaware General Corporation Law, the record date 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 in the manner prescribed by
Article I, Section 9 hereof. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by the Delaware
General Corporation Law with respect to the proposed action by written consent
of the stockholders, the record date for determining stockholders entitled to
consent to corporate action in writing shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action.
Section 4: Lost, Stolen or Destroyed Certificates.
- --------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5: Regulations.
- --------- -----------
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
---------- -------
Section 1: Notices.
- --------- -------
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mails or by telegram or mailgram, shall be
the time of the giving of the notice.
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<PAGE>
Section 2: Waivers.
- --------- -------
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
----------- -------------
Section 1: Facsimile Signatures.
- --------- --------------------
In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these By-laws, facsimile signatures of any
officer or officers of the Corporation may be used whenever and as authorized by
the Board of Directors or a committee thereof.
Section 2: Corporate Seal.
- --------- --------------
The Board of Directors may provide a suitable seal, containing the
name of the Corporation, which seal shall be in the charge of the Secretary. If
and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Treasurer or by an Assistant
Secretary or Assistant Treasurer.
Section 3: Reliance upon Books, Reports and Records.
- --------- -----------------------------------------
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4: Fiscal Year.
- --------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5: Time Periods.
- --------- ------------
In applying any provision of these By-laws which requires that an act
be done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
-11-
<PAGE>
ARTICLE VIII - AMENDMENTS
------------ ----------
These By-laws may be amended or repealed by the Board of Directors at
any meeting or by the stockholders at any meeting.
-12-
<PAGE>
EXHIBIT 3.5
CYBERIAN OUTPOST, INC.
RESTATED BY-LAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall fix each year.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of directors authorized. Special meetings of the
stockholders may be held at such place within or without the State of Delaware
as may be stated in such resolution.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation, as amended and restated from time to time).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required
-1-
<PAGE>
by law. Where a separate vote by a class or classes is required, a majority of
the shares of such class or classes present in person or represented by proxy
shall constitute a quorum entitled to take action with respect to that vote on
that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting or
the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
Section 5. Organization.
The Chairman of the Board of Directors or, in his or her absence, such
person as the Board of Directors may have designated or, in his or her absence,
the Chief Executive Officer of the Corporation or, in his or her absence, the
President or, in his or her absence such person as may be chosen by the holders
of a majority of the shares entitled to vote who are present, in person or by
proxy, shall call to order any meeting of the stockholders and act as chairman
of the meeting. In the absence of the Secretary of the Corporation, the
secretary of the meeting shall be such person as the chairman of the meeting
appoints.
Section 6. Conduct of Business.
The Chairman of the Board of Directors or his or her designee or, if neither
the Chairman of the Board nor his or her designee is present at the meeting,
then a person appointed by a majority of the Board of Directors, shall preside
at, and act as chairman of, any meeting of the stockholders. The chairman of
any meeting of stockholders shall determine the order of business and the
procedures at the meeting, including such regulation of the manner of voting and
the conduct of discussion as he or she deems to be appropriate.
Section 7. Notice of Stockholder Business and Nominations.
A. Annual Meetings of Stockholders.
Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section.
B. Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the notice of meeting
given pursuant to Section 2 above. 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 (a) by or at the direction of the Board of Directors
or (b) provided that the Board of Directors has determined that directors shall
be elected at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice of the special meeting,
who shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section.
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<PAGE>
C. Certain Matters Pertaining to Stockholder Business and Nominations.
(1) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph A of this
Section or a special meeting pursuant to paragraph B of this Section, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice pertaining to an annual
meeting shall be delivered to the Secretary at the principal executive offices
of the Corporation not later than the close of business on the sixtieth (60) day
nor earlier than the close of business on the ninetieth (90th) 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 more than thirty (30)
days before or more than sixty (60) days after such an anniversary date, notice
by the stockholder to be timely must be so delivered not earlier than the close
of business on the ninetieth (90) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's notice for an annual meeting or a special
meeting shall set forth: (a) as to each person whom the stockholder proposes 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, or is otherwise required, in each case, pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (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 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 and (ii) the class and number
of shares of the Corporation that are owned beneficially and held of record by
such stockholder and such beneficial owner. A stockholder shall also comply with
all applicable requirements of the Exchange Act (or any successor provision),
and the rules and regulations thereunder with respect to the matters set forth
in these By-Laws.
(2) Notwithstanding anything in the second sentence of paragraph C
(1) of this Section 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 by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting (or, if the annual meeting is held more than thirty (30) days before or
sixty (60) days after such anniversary date, at least seventy (70) days prior to
such annual meeting), a stockholder's notice required by this Section 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 office 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.
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<PAGE>
(3) 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 paragraph C(1) of
this Section shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting nor later than the close of business on the later of the
sixtieth (60th) day prior to such special 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.
D. General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 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. Except as otherwise provided by law or these By-Laws, 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 this Section
and, if any proposed nomination or business is not in compliance herewith, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section, "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 Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section shall be deemed to affect any rights (i)
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors under specified
circumstances.
Section 8. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to
vote may vote in person or by proxy authorized by an instrument in writing or by
a transmission permitted by law filed in accordance with the procedure
established for the meeting. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
Section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
-4-
<PAGE>
All voting, including on the election of directors but excepting where
otherwise required by law, may be by voice vote. Any vote not taken by voice
shall be taken by ballots, each of which shall state the name of the stockholder
or proxy voting and such other information as may be required under the
procedure established for the meeting. The Corporation may, and to the extent
required by law, shall, in advance of any meeting of stockholders, appoint one
or more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the person presiding at the meeting may, and to the
extent required by law, shall, appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
Except as otherwise provided in the terms of any class or series of
Preferred Stock of the Corporation, all elections at any meeting of stockholders
shall be determined by a plurality of the votes cast, and except as otherwise
required by law, all other matters determined by stockholders at a meeting shall
be determined by a majority of the votes cast affirmatively or negatively.
Section 9. Action Without Meeting.
Any action required or permitted to be taken by the stockholders of the
Corporation may be effected only at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by written consent.
Section 10. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. Such list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
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ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Election, Tenure and Qualification.
A. The business and affairs of the Corporation shall be managed by or under
the direction of its Board of Directions.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding to elect additional directors under specified circumstances,
the number of directors shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the Board.
C. On or prior to the Effective Time, as defined in Article FOURTH of the
Corporation's Restated Certificate of Incorporation, the Board of Directors of
the Corporation shall divide the directors into three classes, as nearly equal
in number as reasonably possible, with the term of office of the first class to
expire at the annual meeting of stockholders or any special meeting in lieu
thereof in 1999, the term of office of the second class to expire at the annual
meeting of stockholders or any special meeting in lieu thereof in 2000, and the
term of office of the third class to expire at the annual meeting of
stockholders or any special meeting in lieu thereof in 2001. At each annual
meeting of stockholders or special meeting in lieu thereof following such
initial classification, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders or special meeting in lieu thereof after their
election and until their successors are duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he is a member until the expiration of his current term or
his prior death, retirement, removal or resignation and (ii) the newly created
or eliminated directorships resulting from such increase or decrease shall if
reasonably possible be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be subtracted
from those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum. In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
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Section 3. Resignation and Removal.
Any director may resign at any time upon written notice to the Corporation
at its principal place of business or to the Chief Executive Officer, President
or Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director, or the entire Board of Directors, may be removed
from office at any time only for cause. A director may be removed for cause by
the holders of a majority of the shares of the Corporation then entitled to vote
at an election of a director and only after a reasonable notice and opportunity
to be heard before the stockholders.
Section 4. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
written notice of each regular meeting shall not be required.
Section 5. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors, if any, the Board of Directors or the President and
shall be held at such place, on such date, and at such time as they or he or she
shall fix. Notice of the place, date, and time of each such special meeting
shall be given to each director by whom it is not waived by mailing written
notice not less than three (3) days before the meeting or orally, by telegraph,
telex, cable or telecopy given not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
Section 6. Quorum.
At any meeting of the Board of Directors, a majority of the total number of
members of the Board of Directors shall constitute a quorum for all purposes. If
a quorum shall fail to attend any meeting, a majority of those present may
adjourn the meeting to another place, date, or time, without further notice or
waiver thereof.
Section 7. Action by Consent.
Unless otherwise restricted by the Certificate of Incorporation or these By-
Laws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 8. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar
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communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 9. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
Section 10. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, to borrow
funds and guarantee obligations, and to do all things necessary
in connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any
officer upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and
agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as
it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of
the Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with
these By-Laws, for the management of the Corporation's business
and affairs.
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Section 11. Compensation of Directors.
Directors, as such, may receive, pursuant to a resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent 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 amending the
Certificate of Incorporation, 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 the By-Laws of the Corporation. Any committee so designated may
exercise the power and authority of the Board of Directors to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law if the resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and conducting
its business and shall act in accordance therewith, except as otherwise provided
herein or required by law. Adequate provision shall be made for notice to
members of all meetings; one-third (1/3) of the members of any committee shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
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ARTICLE IV - OFFICERS
Section 1. Enumeration.
The officers of the Corporation shall consist of a President, a Treasurer, a
Secretary and such other officers as the Board of Directors or the Chairman of
the Board may determine, including, but not limited to, a Chairman of the Board
of Directors, a Chief Executive Officer, one or more Vice Presidents, Assistant
Treasurers and Assistant Secretaries.
Section 2. Election.
The Chairman of the Board, if any, the President, the Treasurer and the
Secretary shall be elected annually by the Board of Directors at their first
meeting following the annual meeting of the stockholders. The Board of Directors
or the Chairman of the Board, if any, may, from time to time, elect or appoint
such other officers as it or he or she may determine, including, but not limited
to, one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries.
Section 3. Qualification.
The Chairman of the Board, if any, and any Vice Chairman appointed to act in
the absence of the Chairman, if any, shall be elected by and from the Board of
Directors, but no other officer need be a director. Two or more offices may be
held by any one person. If required by vote of the Board of Directors, an
officer shall give bond to the Corporation for the faithful performance of his
or her duties, in such form and amount and with such sureties as the Board of
Directors may determine. The premiums for such bonds shall be paid by the
Corporation.
Section 4. Tenure and Removal.
Each officer elected or appointed by the Board of Directors shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of the stockholders and until his or her successor is elected or
appointed and qualified, or until he or she dies, resigns, is removed or becomes
disqualified, unless a shorter term is specified in the vote electing or
appointing said officer. Each officer appointed by the Chairman of the Board, if
any, shall hold office until his or her successor is elected or appointed and
qualified, or until he or she dies, resigns, is removed or becomes disqualified,
unless a shorter term is specified by any agreement or other instrument
appointing such officer. Any officer may resign by giving written notice of his
or her resignation to the Chairman of the Board, if any, the President, or the
Secretary, or to the Board of Directors at a meeting of the Board, and such
resignation shall become effective at the time specified therein. Any officer
elected or appointed by the Board of Directors may be removed from office with
or without cause by vote of a majority of the directors. Any officer appointed
by the Chairman of the Board, if any, may be removed with or without cause by
the Chairman of the Board.
Section 5. Chairman of the Board.
The Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors and stockholders at which he or she is present and shall have
such authority and perform such duties as may be prescribed by these By-Laws or
from time to time be determined by the Board
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of Directors. The Chairman of the Board shall also have the power and authority
to determine the compensation and duties of all officers, employees and agents
of the Corporation and shall have the power and authority to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized.
Section 6. President.
Except for meetings at which the Chief Executive Officer or the Chairman of
the Board, if any, presides, the President shall, if present, preside at all
meetings of stockholders, and if a director, at all meetings of the Board of
Directors. The President shall, subject to the control and direction of the
Chief Executive Officer and the Board of Directors, have and perform such powers
and duties as may be prescribed by these By-Laws or from time to time be
determined by the Chief Executive Officer or the Board of Directors. The
President shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized. In the absence of a Chief
Executive Officer, the President shall be the chief executive officer of the
Corporation and shall, subject to the direction of the Board of Directors, have
general supervision and control of its business and shall have general
supervision and direction of all of the officers, employees and agents of the
Corporation.
Section 7. Chief Executive Officer.
The Chief Executive Officer shall be the chief executive officer of the
Corporation and shall, subject to the direction of the Board of Directors, have
general supervision and control of its business. Unless otherwise provided by
resolution of the Board of Directors, in the absence of the Chairman of the
Board, if any, the Chief Executive Officer shall preside at all meetings of the
stockholders and, if a director, meetings of the Board of Directors. The Chief
Executive Officer shall have general supervision and direction of all of the
officers, employees and agents of the Corporation.
Section 8. Vice Presidents.
The Vice Presidents, if any, in the order of their election, or in such
other order as the Board of Directors may determine, shall have and perform the
powers and duties of the President (or such of the powers and duties as the
Board of Directors may determine) whenever the President is absent or unable to
act. The Vice Presidents, if any, shall also have such other powers and duties
as may from time to time be determined by the Board of Directors.
Section 9. Treasurer and Assistant Treasurers.
The Treasurer shall, subject to the control and direction of the Board of
Directors, have and perform such powers and duties as may be prescribed in these
By-Laws or be determined from time to time by the Board of Directors. All
property of the Corporation in the custody of the Treasurer shall be subject at
all times to the inspection and control of the Board of Directors. The Treasurer
shall have the responsibility for maintaining the financial records of the
Corporation. The Treasurer shall make such disbursements of the funds of the
Corporation as are authorized and shall render from time to time an account of
all such transactions and of the financial condition of the Corporation. Unless
otherwise voted by the Board of Directors, each Assistant Treasurer, if any,
shall have and perform the powers and duties of the Treasurer
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whenever the Treasurer is absent or unable to act, and may at any time exercise
such of the powers of the Treasurer, and such other powers and duties, as may
from time to time be determined by the Board of Directors.
Section 10. Secretary and Assistant Secretaries.
The Board of Directors shall appoint a Secretary and, in his or her absence,
an Assistant Secretary. The Secretary or, in his or her absence, any Assistant
Secretary, shall attend all meetings of the directors and shall record all votes
of the Board of Directors and minutes of the proceedings at such meetings. The
Secretary or, in his or her absence, any Assistant Secretary, shall notify the
directors of their meetings, and shall have and perform such other powers and
duties as may from time to time be determined by the Board of Directors. If the
Secretary or an Assistant Secretary is elected but is absent from any meeting of
directors, a temporary Secretary may be appointed by the directors at the
meeting
Section 11. Bond.
If required by the Board of Directors, any officer shall give the
Corporation a bond in such sum and with such surety or sureties and upon such
terms and conditions as shall be satisfactory to the Board of Directors,
including without limitation a bond for the faithful performance of the duties
of his office and for the restoration to the Corporation of all books, papers,
vouchers, money and other property of whatever kind in his or her possession or
under his control and belonging to the Corporation.
Section 12. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President, the
Treasurer or any officer of the Corporation authorized by the President shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by the Chairman of the Board of Directors, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, certifying the number of shares
owned by him or her. Any or all of the signatures on the certificate may be by
facsimile.
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Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of this Article of these By-
Laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or 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 a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that 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, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
Section 6. Interpretation.
The Board of Directors shall have the power to interpret all of the terms
and provisions of these By-Laws, which interpretation shall be conclusive.
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ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, or by sending such notice by courier service, prepaid telegram or
mailgram, or telecopy, cable, or telex. Any such notice shall be addressed to
such stockholder, director, officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mail or by courier, telegram, mailgram, telecopy, cable, or telex shall be the
time of the giving of the notice.
Section 2. Waiver of Notice.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a director or stockholder at a meeting without protesting prior
thereto or at its commencement the lack of notice shall also constitute a waiver
of notice by such director or stockholder.
ARTICLE VII -INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved (including, without limitation, as a witness) in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or an officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "Indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith; provided, however, that,
except as provided in Section 3 of this Article with respect to proceedings to
enforce rights to indemnification or as otherwise required by law, the
Corporation shall not be required to indemnify or advance expenses to any such
Indemnitee in connection
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with a proceeding (or part thereof) initiated by such Indemnitee unless such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this Article shall
include the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition; provided, however, that, if the Delaware General Corporation
Law requires, an advancement of expenses incurred by an Indemnitee in his
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such Indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such Indemnitee is
not entitled to be indemnified for such expenses under this Section 2 or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections 1 and 2 of this Article shall be contract rights and such
rights shall continue as to an Indemnitee who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators. Any repeal or modification of any of the
provisions of this Article shall not adversely affect any right or protection of
an Indemnitee existing at the time of such repeal or modification.
Section 3. Right of Indemnitees to Bring Suit.
If a claim under Section 1 or 2 of this Article is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty (20) days, the Indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the Indemnitee shall also be entitled
to be paid the expenses of prosecuting or defending such suit. In (i) any suit
brought by the Indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the Indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the Indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. 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 suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee 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 Indemnitee has not met such
applicable standard of conduct, shall create a presumption that the Indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the Indemnitee, be a defense to such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of
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proving that t he Indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article or otherwise shall be on the
Corporation.
Section 4. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses conferred
in this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, the Corporation's Certificate of
Incorporation as amended from time to time, these By-Laws, any agreement, any
vote of stockholders or disinterested directors or otherwise.
Section 5. Insurance.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article with respect to the indemnification and advancement
of expenses of directors and officers of the Corporation.
ARTICLE VIII - CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties.
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction or solely because
the votes of such director or officer are counted for such purpose, if:
(a) The material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
-16-
<PAGE>
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders.
Section 2. Quorum.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
ARTICLE IX - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-Laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
Except as otherwise determined by the Board of Directors from time to time,
the fiscal year of the Corporation shall end on the last day of December of each
year.
Section 5. Time Periods.
In applying any provision of these By-Laws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
-17-
<PAGE>
Section 6. Pronouns.
Whenever the context may require, any pronouns used in these By-Laws shall
include the corresponding masculine, feminine or neuter forms.
ARTICLE X - AMENDMENTS
These By-Laws may be amended or repealed by the affirmative vote of a
majority of the whole Board or by the stockholders by the affirmative vote of
seventy percent (70%) of the outstanding voting power of the then-outstanding
shares of capital stock of the Corporation, entitled to vote generally in the
election of directors, at any meeting at which a proposal to amend or repeal
these By-Laws is properly presented.
-18-
<PAGE>
EXHIBIT 10.7
CYBERIAN OUTPOST, INC.
1998 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Cyberian Outpost 1998 Employee, Director
and Consultant Stock Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
-------------
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
---------
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
------------------
Code means the United States Internal Revenue Code of 1986, as
----
amended.
Committee means the committee of the Board of Directors to which the
---------
Board of Directors has delegated power to act under or pursuant to the
provisions of the Plan.
Common Stock means shares of the Company's common stock, $.01 par
------------
value per share.
Company means Cyberian Outpost Inc., a Delaware corporation.
-------
Disability or Disabled means permanent and total disability as
---------- --------
defined in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last price of
the Common Stock on the Composite Tape or other comparable reporting
system for the trading day immediately preceding the applicable date;
<PAGE>
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading day
referred to in clause (1), and if bid and asked prices for the Common
Stock are regularly reported, the mean between the bid and the asked
price for the Common Stock at the close of trading in the over-the-
counter market for the trading day on which Common Stock was traded
immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
---
under Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by
the Administrator to be eligible to be granted one or more Stock
Rights under the Plan.
Non-Qualified Option means an option which is not intended to qualify
--------------------
as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
------
Option Agreement means an agreement between the Company and a
----------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means a Key Employee, director or consultant to whom one
-----------
or more Stock Rights are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Plan means this Cyberian Outpost 1998 Employee, Director and
----
Consultant Stock Plan.
Shares means shares of the Common Stock as to which Stock Rights
------
have been or may be granted under the Plan or any shares of capital
stock into which the Shares are changed or for which they are
exchanged within the provisions of Paragraph 3 of the Plan. The Shares
issued under the Plan may be authorized and unissued shares or shares
held by the Company in its treasury, or both.
Stock Grant means a grant by the Company of Shares under the Plan.
-----------
Stock Grant Agreement means an agreement between the Company and a
---------------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
2
<PAGE>
Stock Right means a right to Shares of the Company granted pursuant
-----------
to the Plan -- an ISO, a Non-Qualified Option or a Stock Grant.
Survivors means a deceased Participant's legal representatives and/or
---------
any person or persons who acquired the Participant's rights to a Stock
Right by will or by the laws of descent and distribution.
2. PURPOSES OF THE PLAN.
--------------------
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs, Non-
Qualified Options and Stock Grants.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
The number of Shares which may be issued from time to time pursuant to this
Plan shall be 1,062,000 shares of Common Stock or the equivalent of such number
of Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Paragraph 23 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, or if the
Company shall reacquire any Shares issued pursuant to a Stock Grant, the Shares
which were subject to such Option and any Shares so reacquired by the Company
shall be available for the granting of other Stock Rights under the Plan. Any
Option shall be treated as "outstanding" until such Option is exercised in full,
or terminates or expires under the provisions of the Plan, or by agreement of
the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
--------------------------
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to the Committee, in which
case the Committee shall be the Administrator. Subject to the provisions of the
Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Stock Grant
and to make all rules and determinations which it deems necessary or
advisable for the administration of the Plan;
3
<PAGE>
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants shall be granted Stock Rights;
c. Determine the number of Shares for which a Stock Right or Stock Rights
shall be granted, provided, however, that in no event shall Stock
Rights with respect to more than 1,000,000 shares be granted to any
Participant in any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time a Stock
Right is granted. Notwithstanding the foregoing, the Administrator may authorize
the grant of a Stock Right to a person not then an employee, director or
consultant of the Company or of an Affiliate; provided, however, that the actual
grant of such Stock Right shall be conditioned upon such person becoming
eligible to become a Participant at or prior to the time of the delivery of the
Agreement evidencing such Stock Right. ISOs may be granted only to Key
Employees. Non-Qualified Options and Stock Grants may be granted to any Key
Employee, director or consultant of the Company or an Affiliate. The granting of
any Stock Right to any individual shall neither entitle that individual to, nor
disqualify him or her from, participation in any other grant of Stock Rights.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such terms and conditions, consistent with the terms and
conditions specifically required under this Plan, as the Administrator may deem
appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any amendments thereto.
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
---------------------
Option shall be subject to the terms and conditions which the
Administrator determines to be
4
<PAGE>
appropriate and in the best interest of the Company, subject to the
following minimum standards for any such Non-Qualified Option:
a. Option Price: Each Option Agreement shall state the option price
(per share) of the Shares covered by each Option, which option
price shall be determined by the Administrator but shall not be
less than the par value per share of Common Stock.
b. Each Option Agreement shall state the number of Shares to which
it pertains;
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or
become exercisable in installments over a period of months or
years, or upon the occurrence of certain conditions or the
attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to
the Administrator providing for certain protections for the
Company and its other shareholders, including requirements that:
i. The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and must
also acknowledge that the Shares will bear legends noting
any applicable restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
----
Employee and be subject to at least the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with
Section 422 of the Code and relevant regulations and rulings of the
Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described in Paragraph 6(A)
above, except clause (a) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of stock of the Company or an Affiliate, the
Option price
5
<PAGE>
per share of the Shares covered by each Option shall not be
less than one hundred percent (100%) of the Fair Market
Value per share of the Shares on the date of the grant of
the Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred ten
percent (110%) of the said Fair Market Value on the date of
grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of stock of the Company or an Affiliate, each
Option shall terminate not more than ten (10) years from the
date of the grant or at such earlier time as the Option
Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than five
(5) years from the date of the grant or at such earlier time
as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company or
an Affiliate) so that the aggregate Fair Market Value (determined
at the time each ISO is granted) of the stock with respect to
which ISOs are exercisable for the first time by the Participant
in any calendar year does not exceed one hundred thousand dollars
($100,000), provided that this subparagraph (d) shall have no
force or effect if its inclusion in the Plan is not necessary for
Options issued as ISOs to qualify as ISOs pursuant to Section
422(d) of the Code.
7. TERMS AND CONDITIONS OF STOCK GRANTS.
------------------------------------
Each offer of a Stock Grant to a Participant shall state the date prior to
which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per share),
if any, of the Shares covered by each Stock Grant, which purchase
price shall be determined
6
<PAGE>
by the Administrator but shall not be less than the minimum
consideration required by the Delaware Law on the date of the grant of
the Stock Grant;
(b) Each Stock Grant Agreement shall state the number of Shares to which
the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any right of the
Company to reacquire the Shares subject to the Stock Grant, including
the time and events upon which such rights shall accrue and the
purchase price therefor, if any.
8. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
---------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (e) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator, or (f) at the discretion of the Administrator, by
any combination of (a), (b), (c), (d) and (e) above. Notwithstanding the
foregoing, the Administrator shall accept only such payment on exercise of an
ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any
7
<PAGE>
installment of any Option granted to any Key Employee as an ISO (and not
previously converted into a Non-Qualified Option pursuant to Paragraph 26) if
such acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code, as described in Paragraph 6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by the Plan, (ii) any such amendment shall be made only with the consent of the
Participant to whom the Option was granted, or in the event of the death of the
Participant, the Participant's Survivors, if the amendment is adverse to the
Participant, and (iii) any such amendment of any ISO shall be made only after
the Administrator, after consulting the counsel for the Company, determines
whether such amendment would constitute a "modification" of any Option which is
an ISO (as that term is defined in Section 424(h) of the Code) or would cause
any adverse tax consequences for the holder of such ISO.
9. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.
---------------------------------------------
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase
price for the Shares as to which such Stock Grant is being accepted shall be
made (a) in United States dollars in cash or by check, or (b) at the discretion
of the Administrator, through delivery of shares of Common Stock having a fair
market value equal as of the date of acceptance of the Stock Grant to the
purchase price of the Stock Grant determined in good faith by the Administrator,
or (c) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (d) at the discretion of the Administrator, by any combination of
(a), (b) and (c) above.
The Company shall then reasonably promptly deliver the Shares as to which
such Stock Grant was accepted to the Participant (or to the Participant's
Survivors, as the case may be), subject to any escrow provision set forth in the
Stock Grant Agreement. In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Stock Grant was
made, if the amendment is adverse to the Participant.
8
<PAGE>
10. RIGHTS AS A SHAREHOLDER.
-----------------------
No Participant to whom a Stock Right has been granted shall have rights as
a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Option or acceptance of the Stock Grant and tender of
the full purchase price, if any, for the Shares being purchased pursuant to such
exercise or acceptance and registration of the Shares in the Company's share
register in the name of the Participant.
11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
-------------------------------------------------
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than (i) by will or by the laws of descent
and distribution, or (ii) as otherwise determined by the Administrator and set
forth in the applicable Option Agreement or Stock Grant Agreement. The
designation of a beneficiary of a Stock Right by a Participant shall not be
deemed a transfer prohibited by this Paragraph. Except as provided above, a
Stock Right shall only be exercisable or may only be accepted, during the
Participant's lifetime, by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.
12. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN FOR "CAUSE" OR DEATH
---------------------------------------------------------------------------
OR DISABILITY.
-------------
Except as otherwise provided in the pertinent Option Agreement in the event
of a termination of service (whether as an employee, director or consultant)
with the Company or an Affiliate before the Participant has exercised an Option,
the following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
for "cause", Disability, or death for which events there are special
rules in Paragraphs 13, 14, and 15, respectively), may exercise any
Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only
within such term as the Administrator has designated in the pertinent
Option Agreement.
b. Except as provided in Subparagraph (c) below, or Paragraph 14 or 15,
in no event may an Option Agreement provide, if an Option is intended
to be an ISO, that the time for exercise be later than three (3)
months after the Participant's termination of employment.
9
<PAGE>
c. The provisions of this Paragraph, and not the provisions of Paragraph
14 or 15, shall apply to a Participant who subsequently becomes
Disabled or dies after the termination of employment, director status
or consultancy, provided, however, in the case of a Participant's
Disability or death within three (3) months after the termination of
employment, director status or consultancy, the Participant or the
Participant's Survivors may exercise the Option within one (1) year
after the date of the Participant's termination of employment, but in
no event after the date of expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director
status or termination of consultancy, but prior to the exercise of an
Option, the Board of Directors determines that, either prior or
subsequent to the Participant's termination, the Participant engaged
in conduct which would constitute "cause", then such Participant shall
forthwith cease to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate.
13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR "CAUSE".
-------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated for
"cause" prior to the time that all his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated for "cause" will
immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial
10
<PAGE>
malfeasance or non-feasance of duty, unauthorized disclosure of
confidential information, and conduct substantially prejudicial to the
business of the Company or any Affiliate. The determination of the
Administrator as to the existence of "cause" will be conclusive on the
Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause", then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
----------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, as the case may be, notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later date if the Participant had not become disabled and
had continued to be an employee, director or consultant or, if earlier, within
the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician
11
<PAGE>
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
15. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
--------------------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is an employee,
director or consultant of the Company or of an Affiliate, such Option may be
exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
16. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS.
------------------------------------------------
In the event of a termination of service (whether as an employee, director
or consultant) with the Company or an Affiliate for any reason before the
Participant has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to
whom a Stock Grant has been offered under the Plan who is absent from work with
the Company or with an Affiliate because of temporary disability (any disability
other than a permanent and total Disability as defined in Paragraph 1 hereof),
or who is on leave of absence for any purpose, shall not, during the period of
any such absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment, director status or consultancy with the Company
or with an Affiliate, except as the Administrator may otherwise expressly
provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any
change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment, director status
or consultancy so long as the Participant continues to be an employee, director
or consultant of the Company or any Affiliate.
12
<PAGE>
17. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN FOR "CAUSE" OR
--------------------------------------------------------------------------
DEATH OR DISABILITY.
-------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, in the
event of a termination of service (whether as an employee, director or
consultant), other than termination for "cause," Disability, or death for which
events there are special rules in Paragraphs 18, 19, and 20, respectively,
before all Company rights of repurchase shall have lapsed, then the Company
shall have the right to repurchase that number of Shares subject to a Stock
Grant as to which the Company's repurchase rights have not lapsed.
18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR "CAUSE".
------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated for
"cause":
a. All Shares subject to any Stock Grant shall be immediately subject to
repurchase by the Company at the purchase price, if any, thereof.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, and conduct substantially
prejudicial to the business of the Company or any Affiliate. The
determination of the Administrator as to the existence of "cause" will
be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service, that either prior or subsequent to the Participant's
termination the Participant engaged in conduct which would constitute
"cause," then the Company's right to repurchase all of such
Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
13
<PAGE>
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
---------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if a Participant ceases to be an employee, director or
consultant of the Company or of an Affiliate by reason of Disability: to the
extent the Company's rights of repurchase have not lapsed on the date of
Disability, they shall be exercisable; provided, however, that in the event such
rights of repurchase lapse periodically, such rights shall lapse to the extent
of a pro rata portion of the Shares subject to such Stock Grant as would have
lapsed had the Participant not become Disabled prior to the end of the vesting
period which next ends following the date of Disability. The proration shall be
based upon the number of days of such vesting period prior to the date of
Disability.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
20. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
-------------------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply in the event of the death of a Participant while the
Participant is an employee, director or consultant of the Company or of an
Affiliate: to the extent the Company's rights of repurchase have not lapsed on
the date of death, they shall be exercisable; provided, however, that in the
event such rights of repurchase lapse periodically, such rights shall lapse to
the extent of a pro rata portion of the Shares subject to such Stock Grant as
would have lapsed had the Participant not died prior to the end of the vesting
period which next ends following the date of death. The proration shall be
based upon the number of days of such vesting period prior to the Participant's
death.
21. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise or acceptance of a Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"1933 Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right shall
warrant to the Company, prior to the receipt of such Shares, that such
person(s) are acquiring
14
<PAGE>
such Shares for their own respective accounts, for investment, and not
with a view to, or for sale in connection with, the distribution of
any such Shares, in which event the person(s) acquiring such Shares
shall be bound by the provisions of the following legend which shall
be endorsed upon the certificate(s) evidencing their Shares issued
pursuant to such exercise or such grant:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued upon
such particular exercise or acceptance in compliance with the 1933 Act
without registration thereunder.
22. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised and all
Stock Grants which have not been accepted will terminate and become null and
void; provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Participant or the
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise or accept any Stock Right to the extent
that the Stock Right is exercisable or subject to acceptance as of the date
immediately prior to such dissolution or liquidation.
23. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
pertinent Option Agreement or Stock Grant Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise or acceptance of such Stock Right may be
appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such events.
The number of Shares subject to the
15
<PAGE>
limitation in Paragraph 4(c) shall also be proportionately adjusted upon the
occurrence of such events.
B. Consolidations or Mergers. If the Company is to be consolidated with
-------------------------
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Administrator or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph) at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash payment equal
to the excess of the Fair Market Value of the Shares subject to such Options
(either to the extent then exercisable or, at the discretion of the
Administrator, all Options being made fully exercisable for purposes of this
Subparagraph) over the exercise price thereof.
With respect to outstanding Stock Grants, the Administrator or the
Successor Board, shall either (i) make appropriate provisions for the
continuation of such Stock Grants by substituting on an equitable basis for the
Shares then subject to such Stock Grants either the consideration payable with
respect to the outstanding Shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Stock Grants must be
accepted (to the extent then subject to acceptance) within a specified number of
days of the date of such notice, at the end of which period the offer of the
Stock Grants shall terminate; or (iii) terminate all Stock Grants in exchange
for a cash payment equal to the excess of the Fair Market Value of the Shares
subject to such Stock Grants over the purchase price thereof, if any. In
addition, in the event of an Acquisition, the Administrator may waive any or all
Company repurchase rights with respect to outstanding Stock Grants.
C. Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in Subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising or accepting a Stock Right shall be
entitled to receive for the purchase price, if any, paid upon such exercise or
acceptance the securities which would have been received if such Stock Right had
been exercised or accepted prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
--------------------
made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such
16
<PAGE>
ISOs. If the Administrator determines that such adjustments made with respect to
ISOs would constitute a modification of such ISOs, it may refrain from making
such adjustments, unless the holder of an ISO specifically requests in writing
that such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
24. ISSUANCES OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company
prior to any issuance of Shares pursuant to a Stock Right.
25. FRACTIONAL SHARES.
-----------------
No fractional shares shall be issued under the Plan and the person
exercising a Stock Right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
26. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
------------------------------------------------------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
17
<PAGE>
27. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise or acceptance of a Stock Right or in connection with a
Disqualifying Disposition (as defined in Paragraph 28) or upon the lapsing of
any right of repurchase, the Company may withhold from the Participant's
compensation, if any, or may require that the Participant advance in cash to the
Company, or to any Affiliate of the Company which employs or employed the
Participant, the amount of such withholdings unless a different withholding
arrangement, including the use of shares of Common Stock or a promissory note,
is authorized by the Administrator (and permitted by law). For purposes hereof,
the fair market value of the shares withheld for purposes of payroll withholding
shall be determined in the manner provided in Paragraph 1 above, as of the most
recent practicable date prior to the date of exercise. If the fair market value
of the shares withheld is less than the amount of payroll withholdings required,
the Participant may be required to advance the difference in cash to the Company
or the Affiliate employer. The Administrator in its discretion may condition the
exercise of an Option for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
28. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
29. TERMINATION OF THE PLAN.
-----------------------
The Plan will terminate on 10 years after adoption, the date which is ten
(10) years from the earlier of the date of its adoption and the date of its
-------
approvalby the shareholders of the Company. The Plan may be terminated at an
earlier date by vote of the shareholders of the Company; provided, however, that
any such earlier termination shall not affect any Option Agreements or Stock
Grant Agreements executed prior to the effective date of such termination.
30. AMENDMENT OF THE PLAN AND AGREEMENTS.
------------------------------------
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify
18
<PAGE>
any or all outstanding Stock Rights granted under the Plan or Stock Rights to be
granted under the Plan for favorable federal income tax treatment (including
deferral of taxation upon exercise) as may be afforded incentive stock options
under Section 422 of the Code, and to the extent necessary to qualify the shares
issuable upon exercise or acceptance of any outstanding Stock Rights granted, or
Stock Rights to be granted, under the Plan for listing on any national
securities exchange or quotation in any national automated quotation system of
securities dealers. Any amendment approved by the Administrator which the
Administrator determines is of a scope that requires shareholder approval shall
be subject to obtaining such shareholder approval. Any modification or amendment
of the Plan shall not, without the consent of a Participant, adversely affect
his or her rights under a Stock Right previously granted to him or her. With the
consent of the Participant affected, the Administrator may amend outstanding
Option Agreements and Stock Grant Agreements in a manner which may be adverse to
the Participant but which is not inconsistent with the Plan. In the discretion
of the Administrator, outstanding Option Agreements and Stock Grant Agreements
may be amended by the Administrator in a manner which is not adverse to the
Participant.
31. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement or Stock Grant Agreement shall
be deemed to prevent the Company or an Affiliate from terminating the
employment, consultancy or director status of a Participant, nor to prevent a
Participant from terminating his or her own employment, consultancy or director
status or to give any Participant a right to be retained in employment or other
service by the Company or any Affiliate for any period of time.
32. GOVERNING LAW.
-------------
This Plan shall be construed and enforced in accordance with the law of the
State of Delaware.
19
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of June 2, 1998, is by and between Darryl
Peck, residing at 38 Fairchild Road, Sharon, Connecticut 06069 (the "Executive")
and Cyberian Outpost, Inc., a Connecticut corporation with its principal offices
at 27 N. Main Street, Kent, Connecticut 06757 (the "Company").
WHEREAS the Company wishes to employ the services of the Executive for the
period and upon the terms and conditions hereinafter set forth, and Executive
desires to serve in such capacities upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Company and Executive hereby agree as follows:
1. Employment.
----------
(a) The Company will employ the Executive, and the Executive agrees to be
employed by the Company, as President and Chief Executive Officer of the
Company. Executive will have the responsibilities, duties and authority
commensurate with his position as President and Chief Executive Officer.
(b) Executive shall devote his full business time and energies to the
business and affairs of the Company; provided, however, that nothing contained
in this Paragraph 1(b) shall be deemed to prevent or limit his right to: (i) own
not more than one percent (1%) of the securities of a company that is publicly
traded on a securities exchange or over-the-counter market ( a "Public
Company"), provided that Executive does not otherwise have any relationship with
such company; (ii) make passive investments aggregating to not more than ten
percent (10%) of the securities of any entity that is not a Public Company and
is not engaged in a competing business with the Company and with respect to
which he is not obligated or required to, and which he does not in fact, devote
any substantial efforts which interfere with his fulfillment of his duties
hereunder; and (iii) subject to the prior approval of the Board of Directors of
the Company (the "Board"), to serve as a member on the Board of Directors, Board
of Trustees or other similar body of other corporations, trade associations,
professional associations or entities.
2. Term of Employment.
------------------
(a) Executive's employment hereunder shall commence on June 2, 1998 (the
"Commencement Date") and continue until the second anniversary thereof, subject
to extension in accordance with the provisions of the following paragraph,
unless terminated earlier in accordance with the terms hereof (the "Employment
Term").
(b) On each two-year anniversary of the Commencement Date, Executive's
employment hereunder shall be automatically extended for a period ending on the
second anniversary of such date, unless earlier terminated in accordance with
the terms hereof, and
<PAGE>
unless either Executive or the Company shall have given written notice to the
other of a desire that such automatic extension not occur, which notice was
given no later than thirty (30) days prior to the relevant anniversary of the
Commencement Date. If either party gives such notice and absent earlier
termination in accordance with the terms hereof, the Termination Date (as
defined below) shall be the last day of the Employment Term.
As used herein, "Termination Date" shall mean the last date of Executive's
employment, as determined in accordance with the terms of this Agreement.
3. Compensation.
------------
(a) Base Salary. In consideration for Executive's services under this
Agreement, Executive will be paid (i) during the period commencing on the
Commencement Date and ending on the first anniversary thereof, salary at an
annual salary rate of $175,000 and (ii) during the twelve (12) month period
commencing on the first anniversary of the Commencement Date and each twelve
(12) month period commencing on each anniversary of the Commencement Date
thereafter during the Employment Term, at an annual salary rate as determined by
the Board or its Compensation Committee, but in any event at least equal to the
annual salary rate in effect immediately preceding the commencement of the
twelve (12) month period in question. Executive's annual salary rate in effect
from time to time is referred to herein as the "Base Salary." Executive's Base
Salary shall be paid in periodic installments at such times as salaries are
generally paid to other senior executives of the Company.
(b) Bonus Plans. In addition to Executive's Base Salary, Executive shall
be entitled to participate in any bonus plans which the Company provides or may
establish for the benefit of its senior executives pursuant to which he may be
paid any such discretionary bonus payments as the Board or its Compensation
Committee shall determine in recognition of Executive's and the Company's
performance.
4. Benefits and Reimbursement of Expenses.
--------------------------------------
(a) Vacation. Executive shall be entitled to four (4) weeks of vacation in
the twelve (12) month period commencing on the Commencement Date and ending on
the first anniversary thereof and each twelve (12) month period thereafter
during the Employment Term (an "Employment Year"). All vacation days shall be
taken at such time or times reasonably calculated so as not to interfere with
the business of the Company. If Executive does not use his vacation leave in any
Employment Year, he may carry the unused days, including thirty-two (32)
vacation days which are accrued as of the date of this Agreement , over from
year to year on a cumulative basis.
(b) Employee Benefit Plans and Other Benefits. Executive shall also be
entitled to participate in any employee benefit plans which the Company provides
or may establish for the benefit of its senior executives (including, without
limitation, group life, medical, dental and other insurance, retirement,
pension, profit-sharing and similar plans).
-2-
<PAGE>
(c) Reimbursement of Expenses. Executive shall be entitled to
reimbursement for all ordinary and reasonable out-of-pocket business expenses
which are reasonably incurred by him in furtherance of the Company's business in
accordance with reasonable policies adopted from time to time by the Company.
The Company will also provide Executive with a monthly allowance to partially
offset the cost of acquisition and maintenance of a first class automobile for
use by Executive primarily in connection with the performance by him of his
duties under this Agreement.
(d) Life Insurance. During the Employment Term, the Company will provide
$1,000,000 of term life insurance for Executive, with Executive's designee
as beneficiary.
5. Termination upon Death or Disability.
------------------------------------
(a) Executive's employment by the Company shall terminate upon his death,
or upon fifteen (15) days prior written notice from the Company if, by virtue of
total and permanent disability (as hereinafter defined), Executive is unable to
perform his duties hereunder.
(b) Executive shall be considered to be totally and permanently disabled
hereunder if for reasons involving mental or physical illness or physical injury
Executive is unable to or fails to perform a substantial portion of his duties
hereunder for a period of one hundred eighty (180) consecutive calendar days or
more. The determination that, by virtue of total and permanent disability,
Executive is unable to perform a substantial portion of his duties hereunder
shall be made by a physician chosen by the Company and reasonably satisfactory
to Executive (or his legal representative). The cost of such examination shall
be borne by the Company. Executive shall submit to such examination upon the
Company's request.
(c) For purposes of this Paragraph 5, the Termination Date in the event of
death shall be the date of death and in the event of total and permanent
disability shall be the date fifteen (15) days after the Company's written
notice to Executive that the physician referenced to above in Paragraph 5(b) has
made a determination of Executive's total and permanent disability in accordance
with Paragraph 5(b) above.
6. Termination by the Executive. Executive's employment may be
----------------------------
terminated by him, by giving a Notice of Termination, as follows: (a) at any
time by written notice of at least sixty (60) days to the Company and; (b) at
any time by written notice for a "Constructive Termination". The Termination
Date in the event of any such termination shall be the date set forth in the
Notice of Termination.
As used herein, a "Constructive Termination" shall mean: (i) a failure of
the Company to comply with any provision of this Agreement which failure, if
capable of remedy, has not been cured within thirty (30) days after notice of
such noncompliance has been given by the Executive to the Company, provided that
any notice of termination hereunder shall be given within ninety (90) days after
the end of such thirty (30) day period; or (ii) a material change by the Company
in Executive's authority, functions, duties or responsibilities which materially
adversely affects his position with the Company or causes it to become of less
responsibility, scope or importance, provided that such material change is not
in connection with a termination of Executive's employment hereunder for Cause.
-3-
<PAGE>
7. Termination by the Company.
--------------------------
(a) Termination Events. Executive's employment may be terminated at any
time by the Company (i) with Cause (in accordance with Paragraph (b) below) by a
Notice of Termination to Executive, effective immediately unless a later date
otherwise stated in such notice, which date shall be the Termination Date
therefor, (ii) without Cause at any time, by a Notice of Termination to
Executive, effective sixty (60) days after the date given, except as Executive
and the Company may otherwise agree, which date of effectiveness shall be the
Termination Date therefor, or (iii) for total and permanent disability in
accordance with Paragraph 5.
(b) Definition of "Cause". For purposes of this Agreement, the Company
shall have "Cause" to terminate Executive's employment hereunder upon: (i) the
continued failure by Executive to substantially perform his duties hereunder
(other than any such failure resulting from his incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of a
Notice of Termination by Executive for a Constructive Termination); (ii) the
willful engaging by Executive in misconduct which is materially injurious to the
Company's business or reputation, monetarily or otherwise; (iii) the willful
violation by Executive of any material provision of this Agreement; or (iv)
Executive's conviction of an act of fraud or embezzlement against the Company.
Executive shall not be deemed to have been terminated for Cause unless (1)
reasonable notice has been delivered to him setting forth the reasons for the
Company's intention to terminate for Cause, and (2) a period of twenty (20) days
has elapsed since delivery of such notice during which Executive was afforded an
opportunity to cure, if capable of remedy, the reasons for the Company's
intention to terminate for Cause.
8. Notice of Termination. Any termination of Executive's employment by
---------------------
the Company or by Executive (other than as a result of death) shall be
communicated by written notice of termination to the other party hereto in
accordance with Paragraph 16(a) (a "Notice of Termination").
9. Payments of Compensation Upon Termination or Expiration.
-------------------------------------------------------
(a) Without Cause, Expiration Occasioned by Company or Constructive
Termination. In the event Executive's employment hereunder is terminated by the
Company without Cause under Paragraph 7, or if Executive's employment is
terminated by Executive for a Constructive Termination, or if the Company gives
Executive written notice under Paragraph 2(b) above that the Employment Term
shall not be extended, Executive shall be entitled to a lump-sum payment payable
within thirty (30) days of the Termination Date equal to the sum of (i) two (2)
times the annual Base Salary rate in effect immediately prior to the Termination
Date, plus (ii) to the extent earned and not already paid, any bonus payable
pursuant to Paragraph 3 for the prior fiscal year. Furthermore, in such event,
Executive shall be entitled to the continuation of benefits set forth in
Paragraph 11 below.
-4-
<PAGE>
(b) For Cause, by Executive other than for Constructive Termination, or
upon Death or Total and Permanent Disability. In the event the Company shall
terminate Executive's employment for Cause, or Executive shall terminate his
employment for other than Constructive Termination, or Executive gives written
notice under Paragraph 2(b) of his desire to end the automatic extension of the
Employment Term, or in the event of the death or total and permanent disability
of Executive pursuant to Paragraph 5, then Executive shall be entitled as of the
Termination Date to no compensation under this Agreement, except as provided in
Paragraph 12.
(c) Termination following a Change of Control. In the event that,
following a Change of Control (as defined below) of the Company, (i) Executive's
employment hereunder is terminated by the Company without Cause under Paragraph
7, or (ii) Executive's employment is terminated by Executive for a Constructive
Termination, or (iii) if the Company gives Executive written notice under
Paragraph 2(b) above that the Employment Term shall not be extended, Executive
shall be entitled to a lump-sum payment payable within thirty (30) days of the
expiration of the Employment Term equal to the sum of (i) three (3) times the
annual Base Salary rate in effect immediately prior to such Termination Date,
plus (ii) to the extent earned and not already paid, any bonus payable pursuant
to Paragraph 3 for the prior fiscal year. Furthermore, in such event, Executive
shall be entitled to the continuation of benefits set forth in Paragraph 11
below.
As used herein, a "Change of Control" shall be deemed to have occurred upon
the occurrence of any of the following:
(i) any sale, lease, exchange or other transfer (in one transaction or a
series of transactions) of all or substantially all of the assets of the
Company;
(ii) individuals who, as of the date hereof, constitute the entire Board
of Directors of the Company (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the Board of Directors
(hereinafter referred to as a "Board Change"), provided that any individual
becoming a director subsequent to the date hereof whose election or
nomination for election was approved by a vote of at least a majority of
the then Incumbent Directors shall be, for purposes of this provision,
considered as though such individual were an Incumbent Director; or
(iii) any consolidation or merger of the Company (including, without
limitation, a triangular merger) where the shareholders of the Company,
immediately prior to the consolidation or merger, would not, immediately
after the consolidation or merger, beneficially own, directly or
indirectly, shares representing in the aggregate more than fifty percent
(50%) of the combined voting power of all the outstanding securities of the
corporation issuing cash or securities in the consolidation or merger (or
of its ultimate parent corporation, if any); or
(iv) any "person," as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended (or any successor provision)
(the "Exchange Act") (other than Darryl Peck, the Company, any employee
benefit plan of the Company or any entity organized, appointed or
established by the Company
-5-
<PAGE>
for or pursuant to the terms of any such plan), together with all
"affiliates" and "associates" (as such terms are defined in Rule 12b-2
under the Exchange Act or any successor provision) of such person, shall
become the "beneficial owner" or "beneficial owners" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act or any successor provision),
directly or indirectly, of securities of the Company representing in the
aggregate (A) in the event the Company is not a "Reporting Company"
(meaning a Company that is subject to the reporting requirements of the
Exchange Act and has registered shares of a class of equity securities
pursuant to Section 12(g) or 12(b) of the Exchange Act), fifty percent
(50%) or more or (B) in the event the Company is a Reporting Company,
twenty-five percent (25%) or more of either (1) the then outstanding shares
of Common Stock of the Company or (2) the combined voting power of all then
outstanding securities of the Company having the right under ordinary
circumstances to vote in an election of the Board of Directors of the
Company.
10. Equity Compensation. No later than the effective date of the
-------------------
Company's initial public offering, the Company shall grant to Executive, an
option (which shall, in the discretion of Executive, be either a non-qualified
option or an incentive option within the meaning of Section 422 of the Internal
Revenue Code ("Section 422") (or any combination thereof), provided that any
incentive option must comply with all applicable provisions of Section 422) to
purchase 400,000 shares of the common stock of the Company pursuant to the
Company's 1998 Employee, Director and Consultant Stock Plan at a per share
exercise price equal to the price to the public in the initial public offering.
The option will have a term of ten years. The option will become exercisable for
80,000 shares on the first anniversary of the grant of the option and the
remainder of the option will become exercisable in 48 equal monthly installments
over the subsequent four years. The option will be subject to such other terms
as deemed appropriate by the Board or its Compensation Committee and set forth
in the applicable option agreement. In the event of a Change of Control
following the Company's initial public offering, the option will become fully
exercisable.
11. Continuation of Benefits. In the event Executive's employment
------------------------
hereunder is terminated by Executive for a Constructive Termination or by the
Company without Cause or if the Company gives Executive written notice under
Paragraph 2(b) above that the Employment Term shall not be extended, then
Executive shall continue to be entitled to the insurance benefits to which he
was entitled, pursuant to Paragraph 4(b) hereof, as of immediately preceding the
applicable Termination Date at the Company's expense for the period of time
following the Termination Date until the date which is two (2) years after the
Termination Date.
12. Accrued Compensation. In the event of any termination of Executive's
--------------------
employment for any reason, Executive (or his estate) shall be paid such portion
of Executive's Base Salary as has accrued by virtue of his employment during the
period prior to termination and has not yet been paid, together with any amounts
for accrued but unused vacation time and for expense reimbursement and similar
items which have been properly incurred in accordance with the provisions hereof
prior to termination and have not yet been paid. Such amounts shall be paid
within thirty (30) days of the Termination Date.
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<PAGE>
13. Confidential Information. The Executive shall not use for his own
------------------------
advantage or disclose any proprietary or confidential information relating to
the business operations or properties of the Company or any other entity
directly or indirectly controlled by the Company (each an "Affiliate") or any of
their respective customers, suppliers, servicers, licensors or licensees, unless
such information has become public through no fault of the Executive. Upon
termination of the Executive's employment, the Executive will surrender and
deliver to the Company all documents and information of every kind relating to
or connected with the Company or any Affiliate and their respective businesses,
customers, suppliers, servicers, landlords, licensors and licensees.
14. Non-compete.
-----------
(a) During Executive's employment under this Agreement or otherwise and
for a period of one (1) year after the Termination Date, Executive will not,
without the express written consent of the Company, anywhere in the United
States or any territory or possession thereof or in any foreign country in which
the Company was active as of the Termination Date: (i) compete with the Company
or any Affiliate; or (ii) otherwise interfere with, disrupt or attempt to
interfere with or disrupt the relationship between the Company or an Affiliate
and any person or business that was a customer, supplier, lessor, licensor,
contractor or employee of the Company or such Affiliate on the Termination Date
or within two (2) years prior to the Termination Date. In addition, for a period
of one (1) year after the Termination Date, Executive will not, directly or
indirectly, solicit or endeavor to entice away from the Company any of its
employees.
(b) The term "compete" as used in this Paragraph 14 means directly or
indirectly, or by association with any entity or business, either as a
proprietor, partner, employee, agent, consultant, director, officer, shareholder
or in any other capacity or manner to solicit for hire, hire, sell to, rent
from, or otherwise conduct any business related to the Internet-based retail
sale of computer hardware, software or peripherals or any other material
business conducted by the Company or which the Company has made plans to conduct
at the Termination Date.
(c) The foregoing shall not prohibit Executive from owning not more than
one percent (1%) of the securities of a company that is publicly traded on a
securities exchange or over-the-counter market, provided that Executive does not
otherwise have any relationship with such company.
15. Indemnification; Insurance. During the period of Executive's
--------------------------
employment hereunder and thereafter, the Company agrees to indemnify Executive
in his capacity as an officer of the Company to the maximum extent permitted
under applicable state law, and, without limiting the foregoing, the Company
will pay all expenses incurred by Executive in accordance with Section 145(e) of
the Delaware General Corporation Law; this provision will survive the
termination of this Agreement. Further, if available upon payment of a
reasonable premium as determined by the Board, the Company will secure standard
Director and Officer Liability Insurance covering Executive in his capacity as
an officer of the Company to the extent such insurance is secured for other
senior executives of the Company.
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<PAGE>
16. General.
-------
(a) Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) made by
telecopy, (iii) sent by overnight courier, or (iv) sent by registered or
certified mail, return receipt requested, postage prepaid.
If to the Company: Cyberian Outpost, Inc.
27 N. Main Street
Kent, Connecticut 06757
Attn: Chief Financial Officer
If to Executive: Darryl Peck
38 Fairchild Road
Sharon, Connecticut 06069
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telecopy, at the time that receipt thereof has been acknowledged
by electronic confirmation or otherwise, (iii) if sent by overnight courier, on
the next business day following the day such notice is delivered to the courier
service, or (iv) if sent by registered or certified mail, on the fifth business
day following the day such mailing is made.
(b) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
(c) Modifications and Amendments. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by the
parties hereto.
(d) Waivers and Consents. The terms and provisions of this Agreement may
be waived, or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
-8-
<PAGE>
(e) Parties. This Agreement is personal and shall in no way be subject to
assignment by Executive. This Agreement shall be binding upon and shall inure to
the benefit of the Company and its successors and assigns either by merger,
operation of law, consolidation, assignment, purchase or other acquisition of a
controlling interest in the business of the Company, and shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
administrators, personal and legal representatives, distributees, devisees,
legatees, successors and permitted assigns. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor as
aforesaid.
(f) Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the law
of the State of Delaware, without giving effect to the conflict of law
principles thereof.
(g) Jurisdiction and Service of Process. Any legal action or proceeding
with respect to this Agreement shall be brought in the courts of the State of
Connecticut or of the United States of America for the District of Connecticut.
By execution and delivery of this Agreement, each of the parties hereto accepts
for itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably
consents to the service of process of any of the aforementioned courts in any
such action or proceeding by the mailing of copies thereof by certified mail,
postage prepaid, to the party at its address set forth in Paragraph 16(a)
hereof.
(h) Severability. The parties intend this Agreement to be enforced as
written. However, if any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a duly authorized court having
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
(i) Headings and Captions. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect the meaning or construction of any of the
terms or provisions hereof.
(j) No Waiver of Rights, Powers and Remedies. No failure or delay by a
party hereto in exercising any right, power or remedy under this Agreement, and
no course of dealing between the parties hereto, shall operate as a waiver of
any such right, power or remedy of the party. No single or partial exercise of
any right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
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<PAGE>
(k) Expenses. The Company will reimburse the Executive for his reasonable
legal fees in connection with the negotiation of this Agreement.
(l) Counterparts. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the day and year first above written.
CYBERIAN OUTPOST, INC.
By: /s/ KATHERINE N. VICK
-------------------------------
Name: Katherine N. Vick
Title: Chief Financial Officer
/s/ DARRYL PECK
-------------------------------
Darryl Peck
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<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of June 2, 1998, is by and between Katherine
N. Vick, residing at 14 Flanders Lane, Kent, Connecticut 06757 (the "Executive")
and Cyberian Outpost, Inc., a Connecticut corporation with its principal offices
at 27 N. Main Street, Kent, Connecticut 06757 (the "Company").
WHEREAS, the Company presently employs the Executive pursuant to the terms of an
Employment Agreement made as of June 2, 1997 (the "Former Employment
Agreement");
WHEREAS the Company and the Executive desire to terminate the Former Employment
Agreement; and
WHEREAS the Company wishes to continue to employ the services of the Executive
for the period and upon the terms and conditions hereinafter set forth, and
Executive desires to serve in such capacities upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Company and Executive hereby agree as follows:
1. Employment.
----------
(a) The Company will employ the Executive, and the Executive agrees to be
employed by the Company, as Executive Vice President and Chief Financial Officer
of the Company. Executive will have the responsibilities, duties and authority
commensurate with her position as Executive Vice President and Chief Financial
Officer.
(b) Executive shall devote her full business time and energies to the
business and affairs of the Company; provided, however, that nothing contained
in this Paragraph 1(b) shall be deemed to prevent or limit her right to: (i) own
not more than one percent (1%) of the securities of a company that is publicly
traded on a securities exchange or over-the-counter market ( a "Public
Company"), provided that Executive does not otherwise have any relationship with
such company; (ii) make passive investments aggregating to not more than ten
percent (10%) of the securities of any entity that is not a Public Company and
is not engaged in a competing business with the Company and with respect to
which she is not obligated or required to, and which she does not in fact,
devote any substantial efforts which interfere with her fulfillment of her
duties hereunder; (iii) continue her passive investment in Katherine Vick, Ltd.,
provided she is not obligated to or required to, and she does not in fact,
devote any efforts to such entity which interfere with her fulfillment of her
duties hereunder and provided further that such entity does not provide services
to any entity which competes (as defined in Paragraph 14(b) hereof) with the
Company; and (iv) subject to the prior approval of the President and Chief
Executive Officer of the Company, to serve as a member on the Board of
Directors, Board of Trustees or other similar body of other corporations, trade
associations, professional associations or entities, provided that, in any
event, Executive may continue to serve as a member on boards of which she is
currently a
<PAGE>
member, consisting of the boards or advisory boards of Connecticut Innovation,
Inc. and Access Connecticut L.P.
2. Term of Employment.
------------------
(a) Executive's employment hereunder shall commence on June 2, 1998 (the
"Commencement Date") and continue until the second anniversary thereof, subject
to extension in accordance with the provisions of the following paragraph,
unless terminated earlier in accordance with the terms hereof (the "Employment
Term").
(b) On each two-year anniversary of the Commencement Date, Executive's
employment hereunder shall be automatically extended for a period ending on the
second anniversary of such date, unless earlier terminated in accordance with
the terms hereof, and unless either Executive or the Company shall have given
written notice to the other of a desire that such automatic extension not occur,
which notice was given no later than thirty (30) days prior to the relevant
anniversary of the Commencement Date. If either party gives such notice and
absent earlier termination in accordance with the terms hereof, the Termination
Date (as defined below) shall be the last day of the Employment Term.
As used herein, "Termination Date" shall mean the last date of Executive's
employment, as determined in accordance with the terms of this Agreement.
3. Compensation.
------------
(a) Base Salary. In consideration for Executive's services under this
Agreement, Executive will be paid (i) during the period commencing on the
Commencement Date and ending on the first anniversary thereof, salary at an
annual salary rate of $150,000 and (ii) during the twelve (12) month period
commencing on the first anniversary of the Commencement Date and each twelve
(12) month period commencing on each anniversary of the Commencement Date
thereafter during the Employment Term, at an annual salary rate as determined by
the Board of Directors of the Company (the "Board")or its Compensation
Committee, but in any event at least equal to the annual salary rate in effect
immediately preceding the commencement of the twelve (12) month period in
question. Executive's annual salary rate in effect from time to time is referred
to herein as the "Base Salary." Executive's Base Salary shall be paid in
periodic installments at such times as salaries are generally paid to other
senior executives of the Company.
(b) Bonus Plans. In addition to Executive's Base Salary, Executive shall
be entitled to participate in any bonus plans which the Company provides or may
establish for the benefit of its senior executives pursuant to which she may be
paid any such discretionary bonus payments as the Board or its Compensation
Committee shall determine in recognition of Executive's and the Company's
performance.
4. Benefits and Reimbursement of Expenses.
--------------------------------------
(a) Vacation. Executive shall be entitled to four (4) weeks of vacation in
the twelve (12) month period commencing on the Commencement Date and ending on
the first anniversary
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<PAGE>
thereof and each twelve (12) month period thereafter during the Employment Term
(an "Employment Year"). All vacation days shall be taken with the reasonable
advance approval of the President and Chief Executive Officer at such time or
times reasonably calculated so as not to interfere with the business of the
Company. If Executive does not use her vacation leave in any Employment Year,
she may carry the unused days, including fifteen (15) vacation days which are
accrued as of the date of this Agreement, over from year to year on a cumulative
basis.
(b) Employee Benefit Plans and Other Benefits. Executive shall also be
entitled to participate in any employee benefit plans which the Company provides
or may establish for the benefit of its senior executives (including, without
limitation, group life, medical, dental and other insurance, retirement,
pension, profit-sharing and similar plans).
(c) Reimbursement of Expenses. Executive shall be entitled to
reimbursement for all ordinary and reasonable out-of-pocket business expenses
which are reasonably incurred by her in furtherance of the Company's business in
accordance with reasonable policies adopted from time to time by the Company.
The Company will also provide Executive with a monthly allowance to partially
offset the cost of acquisition and maintenance of a first class automobile for
use by Executive primarily in connection with the performance by her of her
duties under this Agreement.
5. Termination upon Death or Disability.
------------------------------------
(a) Executive's employment by the Company shall terminate upon her death,
or upon fifteen (15) days prior written notice from the Company if, by virtue of
total and permanent disability (as hereinafter defined), Executive is unable to
perform her duties hereunder.
(b) Executive shall be considered to be totally and permanently disabled
hereunder if for reasons involving mental or physical illness or physical injury
Executive is unable to or fails to perform a substantial portion of her duties
hereunder for a period of one hundred twenty (120) consecutive calendar days or
more. The determination that, by virtue of total and permanent disability,
Executive is unable to perform a substantial portion of her duties hereunder
shall be made by a physician chosen by the Company and reasonably satisfactory
to Executive (or her legal representative). The cost of such examination shall
be borne by the Company. Executive shall submit to such examination upon the
Company's request.
(c) For purposes of this Paragraph 5, the Termination Date in the event of
death shall be the date of death and in the event of total and permanent
disability shall be the date fifteen (15) days after the Company's written
notice to Executive that the physician referenced to above in Paragraph 5(b) has
made a determination of Executive's total and permanent disability in accordance
with Paragraph 5(b) above.
6. Termination by the Executive. Executive's employment may be
-----------------------------
terminated by her, by giving a Notice of Termination, as follows: (a) at any
time by written notice of at least sixty (60) days to the Company and; (b) at
any time by written notice for a "Constructive Termination". The Termination
Date in the event of any such termination shall be the date set forth in the
Notice of Termination.
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<PAGE>
As used herein, a "Constructive Termination" shall mean: (i) a failure of
the Company to comply with any provision of this Agreement which failure, if
capable of remedy, has not been cured within thirty (30) days after notice of
such noncompliance has been given by the Executive to the Company, provided that
any notice of termination hereunder shall be given within ninety (90) days after
the end of such thirty (30) day period; or (ii) a material change by the Company
in Executive's authority, functions, duties or responsibilities which materially
adversely affects her position with the Company or causes it to become of less
responsibility, scope or importance, provided that such material change is not
in connection with a termination of Executive's employment hereunder for Cause.
7. Termination by the Company.
--------------------------
(a) Termination Events. Executive's employment may be terminated at any
time by the Company (i) with Cause ( in accordance with Paragraph (b) below) by
a Notice of Termination to Executive, effective immediately unless a later date
is otherwise stated in such notice, which date shall be the Termination Date
therefor, (ii) without Cause at any time, by a Notice of Termination to
Executive, effective sixty (60) days after the date given, except as Executive
and the Company may otherwise agree, which date of effectiveness shall be the
Termination Date therefor, or (iii) for total and permanent disability in
accordance with Paragraph 5.
(b) Definition of "Cause". For purposes of this Agreement, the Company
shall have "Cause" to terminate Executive's employment hereunder upon: (i) the
continued failure by Executive to substantially perform her duties hereunder
(other than any such failure resulting from her incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of a
Notice of Termination by Executive for a Constructive Termination); (ii) the
willful engaging by Executive in misconduct which is materially injurious to the
Company's business or reputation, monetarily or otherwise; (iii) the willful
violation by Executive of any material provision of this Agreement; or (iv)
Executive's conviction of an act of fraud or embezzlement against the Company.
Executive shall not be deemed to have been terminated for Cause unless (1)
reasonable notice has been delivered to her setting forth the reasons for the
Company's intention to terminate for Cause, and (2) a period of twenty (20) days
has elapsed since delivery of such notice during which Executive was afforded an
opportunity to cure, if capable of remedy, the reasons for the Company's
intention to terminate for Cause.
8. Notice of Termination. Any termination of Executive's employment by
---------------------
the Company or by Executive (other than as a result of death) shall be
communicated by written notice of termination to the other party hereto in
accordance with Paragraph 16(a) (a "Notice of Termination").
9. Payments of Compensation Upon Termination or Expiration.
-------------------------------------------------------
(a) Without Cause or upon Constructive Termination. In the event
Executive's employment hereunder is terminated by the Company without Cause
under Paragraph 7 or if Executive terminates her employment for a Constructive
Termination under Paragraph 6, Executive shall be entitled to a lump-sum payment
payable within thirty (30) days of the Termination Date equal to the sum of (i)
the greater of (A) one (1) times the annual Base Salary
-4-
<PAGE>
rate in effect immediately prior to the Termination Date or (B) the amount
Executive would have received if her employment had continued through the next
two-year anniversary of the Commencement Date, plus (ii) to the extent earned
and not already paid, any bonus payable pursuant to Paragraph 3 for the prior
fiscal year. Furthermore, in such event, Executive shall be entitled to the
continuation of benefits set forth in Paragraph 11 below until the later of (A)
twelve (12) months following the Termination Date or (B) the date which would
have been the next two-year anniversary of the Commencement Date.
(b) For Cause, by Executive other than for Constructive Termination, or
upon Death or Total and Permanent Disability. In the event the Company shall
terminate Executive's employment for Cause, or Executive shall terminate her
employment for other than Constructive Termination, or Executive gives written
notice under Paragraph 2(b) of her desire to end the automatic extension of the
Employment Term, or in the event of the death or total and permanent disability
of Executive pursuant to Paragraph 5, then Executive shall be entitled as of the
Termination Date to no compensation under this Agreement, except as provided in
Paragraph 12.
(c) Expiration Occasioned by Company. If the Company gives Executive
written notice under Paragraph 2(b) above that the Employment Term shall not be
extended, Executive shall be entitled to a lump-sum payment payable within
thirty (30) days of the expiration of the Employment Term equal to the sum of
(i) one (1) times the annual Base Salary rate in effect immediately prior to the
Termination Date, plus (ii) to the extent earned and not already paid, any bonus
payable pursuant to Paragraph 3 for the prior fiscal year. Furthermore, in such
event, Executive shall be entitled to the continuation of benefits set forth in
Paragraph 11 below. (d) Termination following a Change of Control. In the event
that, following a Change of Control (as defined below) of the Company, (i)
Executive's employment hereunder is terminated by the Company without Cause
under Paragraph 7, or (ii) Executive's employment is terminated by Executive for
a Constructive Termination, or (iii) if the Company gives Executive written
notice under Paragraph 2(b) above that the Employment Term shall not be
extended, Executive shall be entitled to a lump-sum payment payable within
thirty (30) days of the expiration of the Employment Term equal to the sum of
(i) three (3) times the annual Base Salary rate in effect immediately prior to
such Termination Date, plus (ii) to the extent earned and not already paid, any
bonus payable pursuant to Paragraph 3 for the prior fiscal year. Furthermore, in
such event, Executive shall be entitled to the continuation of benefits set
forth in Paragraph 11 below until the later of (A) twelve (12) months following
the Termination Date or (B) the date which would have been the next two-year
anniversary of the Commencement Date.
As used herein, a "Change of Control" shall be deemed to have occurred upon
the occurrence of any of the following:
(i) any sale, lease, exchange or other transfer (in one transaction or a
series of transactions) of all or substantially all of the assets of the
Company;
(ii) individuals who, as of the date hereof, constitute the entire Board of
Directors of the Company (the "Incumbent Directors") cease for any reason
to constitute at least a majority of the Board of Directors (hereinafter
referred to as a "Board Change"), provided
-5-
<PAGE>
that any individual becoming a director subsequent to the date hereof whose
election or nomination for election was approved by a vote of at least a
majority of the then Incumbent Directors shall be, for purposes of this
provision, considered as though such individual were an Incumbent Director;
or
(iii) any consolidation or merger of the Company (including, without
limitation, a triangular merger) where the shareholders of the Company,
immediately prior to the consolidation or merger, would not, immediately
after the consolidation or merger, beneficially own, directly or
indirectly, shares representing in the aggregate more than fifty percent
(50%) of the combined voting power of all the outstanding securities of the
corporation issuing cash or securities in the consolidation or merger (or
of its ultimate parent corporation, if any); or
(iv) any "person," as such term is used in Section 13(d) of the Securities
Exchange Act of 1934, as amended (or any successor provision) (the
"Exchange Act") (other than Darryl Peck, the Company, any employee benefit
plan of the Company or any entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan), together with
all "affiliates" and "associates" (as such terms are defined in Rule 12b-2
under the Exchange Act or any successor provision) of such person, shall
become the "beneficial owner" or "beneficial owners" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act or any successor provision),
directly or indirectly, of securities of the Company representing in the
aggregate (A) in the event the Company is not a "Reporting Company"
(meaning a Company that is subject to the reporting requirements of the
Exchange Act and has registered shares of a class of equity securities
pursuant to Section 12(g) or 12(b) of the Exchange Act), fifty percent
(50%) or more or (B) in the event the Company is a Reporting Company,
twenty-five percent (25%) or more of either (1) the then outstanding shares
of Common Stock of the Company or (2) the combined voting power of all then
outstanding securities of the Company having the right under ordinary
circumstances to vote in an election of the Board of Directors of the
Company.
10. Equity Compensation.
-------------------
(a) New Option. No later than the effective date of the Company's initial
public offering, the Company shall grant to Executive, an option (which shall,
in the discretion of Executive, be either a non-qualified option or an incentive
option within the meaning of Section 422 of the Internal Revenue Code ("Section
422") (or any combination thereof), provided that any incentive option must
comply with all applicable provisions of Section 422) to purchase 100,000 shares
of the common stock of the Company pursuant to the Company's 1998 Employee,
Director and Consultant Stock Plan at a per share exercise price equal to the
price to the public in the initial public offering. The option will have a term
of ten years. The option will become exercisable for 20,000 shares on the first
anniversary of the grant of the option and the remainder of the option will
become exercisable in 48 equal monthly installments over the subsequent four
years. The option will be subject to such other terms as deemed appropriate by
the Board or its Compensation Committee and set forth in the applicable option
agreement. In
-6-
<PAGE>
the event of a Change of Control following the Company's initial public
offering, the option will become fully exercisable.
(b) Existing Options. Notwithstanding anything to the contrary contained
in the Company's 1997 Stock Incentive Plan or contained in Executive's option
agreement dated August 15, 1997 with respect to 12,000 shares, her option
agreement dated August 15, 1997 with respect to 20,000 shares, her option
agreement dated January 8, 1998 with respect to 45,000 shares and her option
agreement dated January 8, 1998 with respect to 100,000 shares (the "Existing
Options"), the Existing Options are hereby amended to provide that (i) the
Existing Options will become fully exercisable in the event of a Change of
Control (as defined herein) and (ii) the definition of "cause" for purposes of
the Existing Options will be the definition of "Cause" contained in this
Agreement.
11. Continuation of Benefits. In the event Executive's employment
------------------------
hereunder is terminated by Executive for a Constructive Termination or by the
Company without Cause or if the Company gives Executive written notice under
Paragraph 2(b) above that the Employment Term shall not be extended, then
Executive shall continue to be entitled to the insurance benefits to which she
was entitled, pursuant to Paragraph 4(b) hereof, as of immediately preceding the
applicable Termination Date at the Company's expense for the period of time
following the Termination Date until the date which is one (1) year after the
Termination Date.
12. Accrued Compensation. In the event of any termination of Executive's
--------------------
employment for any reason, Executive (or her estate) shall be paid such portion
of Executive's Base Salary as has accrued by virtue of her employment during the
period prior to termination and has not yet been paid, together with any amounts
for accrued but unused vacation time and for expense reimbursement and similar
items which have been properly incurred in accordance with the provisions hereof
prior to termination and have not yet been paid. Such amounts shall be paid
within thirty (30) days of the Termination Date.
13. Confidential Information. The Executive shall not use for her own
------------------------
advantage or disclose any proprietary or confidential information relating to
the business operations or properties of the Company or any other entity
directly or indirectly controlled by the Company (each an "Affiliate") or any of
their respective customers, suppliers, servicers, licensors or licensees, unless
such information has become public through no fault of the Executive. Upon
termination of the Executive's employment, the Executive will surrender and
deliver to the Company all documents and information of every kind relating to
or connected with the Company or any Affiliate and their respective businesses,
customers, suppliers, servicers, landlords, licensors and licensees.
14. Non-compete.
-----------
(a) During Executive's employment under this Agreement or otherwise and
for a period of one (1) year after the Termination Date, Executive will not,
without the express written consent of the Company, anywhere in the United
States or any territory or possession thereof or in any foreign country in which
the Company was active as of the Termination Date: (i) compete with the Company
or any Affiliate; or (ii) otherwise interfere with, disrupt or attempt to
interfere
-7-
<PAGE>
with or disrupt the relationship between the Company or an Affiliate and any
person or business that was a customer, supplier, lessor, licensor, contractor
or employee of the Company or such Affiliate on the Termination Date or within
two (2) years prior to the Termination Date. In addition, for a period of one
(1) year after the Termination Date, Executive will not, directly or indirectly,
solicit or endeavor to entice away from the Company any of its employees.
(b) The term "compete" as used in this Paragraph 14 means directly or
indirectly, or by association with any entity or business, either as a
proprietor, partner, employee, agent, consultant, director, officer, shareholder
or in any other capacity or manner to solicit for hire, hire, sell to, rent
from, or otherwise conduct any business related to the Internet-based retail
sale of computer hardware, software or peripherals or any other material
business conducted by the Company or which the Company has made plans to conduct
at the time of the Termination Date.
(c) The foregoing shall not prohibit Executive from owning not more than
one percent (1%) of the securities of a company that is publicly traded on a
securities exchange or over-the-counter market, provided that Executive does not
otherwise have any relationship with such company.
15. Indemnification; Insurance. During the period of Executive's
--------------------------
employment hereunder and thereafter, the Company agrees to indemnify Executive
in her capacity as an officer of the Company to the maximum extent permitted
under applicable state law, and, without limiting the foregoing, the Company
will pay all expenses incurred by Executive in accordance with Section 145(e) of
the Delaware General Corporation Law; this provision will survive the
termination of this Agreement. Further, if available upon payment of a
reasonable premium as determined by the Board, the Company will secure standard
Director and Officer Liability Insurance covering Executive in her capacity as
an officer of the Company to the extent such insurance is secured for other
senior executives of the Company.
16. General.
-------
(a) Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) made by
telecopy, (iii) sent by overnight courier, or (iv) sent by registered or
certified mail, return receipt requested, postage prepaid.
If to the Company: Cyberian Outpost, Inc.
27 N. Main Street
Kent, Connecticut 06757
Attn: President and Chief Executive Officer
-8-
<PAGE>
If to Executive: Katherine N. Vick
14 Flanders Lane
Kent, Connecticut 06757
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telecopy, at the time that receipt thereof has been acknowledged
by electronic confirmation or otherwise, (iii) if sent by overnight courier, on
the next business day following the day such notice is delivered to the courier
service, or (iv) if sent by registered or certified mail, on the fifth business
day following the day such mailing is made.
(b) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof, including without limitation, the Former
Employment Agreement. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
(c) Modifications and Amendments. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by the
parties hereto.
(d) Waivers and Consents. The terms and provisions of this Agreement may
be waived, or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
(e) Parties. This Agreement is personal and shall in no way be subject to
assignment by Executive. This Agreement shall be binding upon and shall inure to
the benefit of the Company and its successors and assigns either by merger,
operation of law, consolidation, assignment, purchase or other acquisition of a
controlling interest in the business of the Company, and shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
administrators, personal and legal representatives, distributees, devisees,
legatees, successors and permitted assigns. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor as
aforesaid.
(f) Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the law
of the State of Delaware, without giving effect to the conflict of law
principles thereof.
(g) Jurisdiction and Service of Process. Any legal action or proceeding
with respect to this Agreement shall be brought in the courts of the State of
Connecticut or of the United
-9-
<PAGE>
States of America for the District of Connecticut. By execution and delivery of
this Agreement, each of the parties hereto accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each of the parties hereto irrevocably consents to the service of
process of any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by certified mail, postage prepaid, to the party
at its address set forth in Paragraph 16(a) hereof.
(h) Severability. The parties intend this Agreement to be enforced as
written. However, if any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a duly authorized court having
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
(i) Headings and Captions. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify, or affect the meaning or construction of any of the terms or
provisions hereof.
(j) No Waiver of Rights, Powers and Remedies. No failure or delay by a
party hereto in exercising any right, power or remedy under this Agreement, and
no course of dealing between the parties hereto, shall operate as a waiver of
any such right, power or remedy of the party. No single or partial exercise of
any right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
(k) Expenses. The Company will reimburse the Executive for her reasonable
legal fees in connection with the negotiation of this Agreement.
(l) Counterparts. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the day and year first above written.
CYBERIAN OUTPOST, INC.
By: /s/ DARRYL PECK
-------------------------------------
Darryl Peck,
President and Chief Executive Officer
/s/ KATHERINE N. VICK
-------------------------------------
Katherine N. Vick
-11-
<PAGE>
EXHIBIT 10.12
Cyberian Outpost, Inc. has omitted from this Exhibit 10.12 portions of the
Letter of Intent for which Cyberian Outpost, Inc. has requested
confidential treatment from the Securities and Exchange Commission. The
portions of the Letter of Intent for which confidential treatment has been
requested are marked with X's in brackets and such confidential portions
have been filed separately with the Securities and Exchange Commission.
Cyberian Outpost, Inc.
27 North Main Street
Kent, Connecticut 06757
Ladies and Gentlemen:
1. This letter will confirm that StarMedia Network, Inc. ("StarMedia"),
headquartered at 29 West 36th Street, 5th Floor, New York, New York 10018 and
Cyberian Outpost, Inc. ("Cyberian Outpost") headquartered at 27 North Main
Street, Kent, Connecticut 06757 have reached an agreement in principle with
respect to a proposed co-marketing and distribution arrangement.
2. This Letter of Intent is intended to facilitate the preparation of a
definitive agreement satisfactory to the parties hereto (the "Definitive
Agreement").
3. The parties will execute and comply with the terms of the mutual non-
disclosure agreement attached hereto as Annex I.
4. The parties hereto shall immediately proceed with the preparation and
execution of the Definitive Agreement and the necessary exhibits thereto
addressing among other things the business points set forth in the Term Sheet
and Product Integration Addendum attached hereto as Annex II. The drafts of
such documents will be prepared by counsel to StarMedia.
5. In connection with the transactions contemplated herein each party
shall bear all legal, accounting and other expenses incurred by it. Each party
represents to the other that there are no finder's or broker's or investment
banking fees incurred by it payable by reason or in connection with this
transaction.
6. It is the intention of the parties to execute a Definitive Agreement
within 20 days after the execution of this Letter of Intent.
7. By executing this Letter of Intent, the parties confirm their
intentions specified herein with respect to the proposed transaction, but
(except for provisions of paragraphs 3 and 8 hereof which are intended to and
shall be legally binding and enforceable) this Letter of Intent is not intended
to constitute a contract nor an offer to enter into a contact nor to be binding
upon the parties or create legal obligations or rights. In the event the
parties fail to execute and deliver a Definitive Agreement within 60 days after
the date hereof, then this Letter of Intent shall
<PAGE>
terminate automatically (except for the provisions of Paragraphs 3, 5 and 8)
without liability on the part of any party and without further action by the
parties.
8. This Letter of Intent sets forth the entire understanding of the
parties hereto with respect to the subject matter contained herein, and this
letter supercedes and cancels all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
respecting the subject matter hereof. This Letter of Intent shall be governed by
the laws of the State of New York without giving effect to the principles of
conflicts of law thereof.
If the foregoing sets forth your understanding with respect to this matter,
please execute the enclosed copies of this Letter of Intent in the space
provided below for your signature and return one fully executed copy to
StarMedia, attention Kevin Downey. This Letter of Intent may be executed in
several counterparts, each of which shall be deemed an original, but all of
which counterparts collectively shall constitute one instrument.
Very truly yours,
STARMEDIA NETWORK, INC.
By: /s/ Steve Heller
------------------------------
Name: Steve Heller
Title: VP, Finance & Admin.
Accepted and Agreed to as of
the date first above written:
CYBERIAN OUTPOST, INC.
By: /s/ Darryl Peck
-------------------------
Name: Darryl Peck
Title: President & CEO
<PAGE>
MUTUAL NONDISCLOSURE AGREEMENT
Cyberian Outpost, Inc. ("Confidant") and StarMedia Network, Inc. ("SMN")
wish to explore a business opportunity of mutual interest (the "Opportunity").
In connection with the Opportunity, the parties recognize that there is a need
for certain information to be disclosed between them. As an express condition to
such disclosure, the parties agree as follows;
1. Non-Disclosure and Limited Use. Confidant and SMN shall each hold all
------------------------------
Confidential Information received from the other in strict confidence and shall
not disclose any such Confidential Information to any third party. If Confidant
is an individual, Confidant shall not disclose any Confidential Information
received from SMN to any other party (including other colleagues, associates or
clients of Confidant) without the prior written consent of SMN. If Confidant is
a company or other type of organization, Confidant shall disclose Confidential
Information received from SMN only to employees of Confidant who (i) need to
know such Confidential Information to evaluate the Opportunity and (ii) have
agreed in writing to be bound by this agreement and not to disclose such
Confidential Information to any other party. SMN shall disclose Confidential
Information received from Confidant only to employees of SMN who (i) need to
know such Confidential Information to evaluate the Opportunity and (ii) have
agreed in writing to be bound by this agreement and not to disclose such
Confidential Information to any other party. Neither SMN nor Confidant shall
use any Confidential Information received from the other for its own benefit or
for any purpose except to evaluate the Opportunity. Confidant and SMN shall each
take all reasonable measures to prevent the unauthorized disclosure or use of
Confidential Information received from the other and shall not make any copies
of such Confidential Information without the prior written consent of the other.
2. Description of Confidential Information. "Confidential Information"
---------------------------------------
means all information disclosed by each of SMN and Confidant to the other (in
writing, orally or in any other form), including, without limitation, business
plans, product ideas, marketing concepts, financial information and projections.
"Confidential Information" does not include information that is or becomes
publicly known through no wrongful act of either party (or any of its employees,
if applicable), has been approved for release by written authorization of the
originating party, or has been disclosed pursuant to a requirement of a
government agency or of law.
3. Remedies. Each of SMN and Confidant agree to indemnify and hold
--------
harmless the other from any damage, loss, cost or liability (including legal
fees and the cost of enforcing this indemnity) arising out of or resulting from
any breach by it (or any of its employees, if applicable) of any term of this
agreement, including, without limitation, the unauthorized use or disclosure by
it (or any of its employees, if applicable) of the Confidential Information or
any portion thereof. Each of SMN and Confidant further agree that the
unauthorized disclosure or use by it of Confidential Information received from
the other will cause irreparable harm and significant injury to the other which
may he difficult to ascertain. Accordingly, each party agrees that the other
shall be entitled to equitable relief, including, without limitation, an
immediate injunction enjoining any breach by it of this agreement, in addition
to all other remedies available to such party at law or in equity.
<PAGE>
4. Return of Materials. Upon conclusion or termination of discussions
-------------------
between the parties, or at any time at the request of either party, all material
containing or reflecting any Confidential Information, including, without
limitation, any notes, extracts, compilations, memoranda, analyses or
reproductions, in whole or in part, and in any form whatsoever (including,
without limitation, any such information retained on any form of computer media)
shall be returned to the originating party.
5. Miscellaneous. This agreement shall be binding upon and for the
-------------
benefit of SMN and Confidant, their successors and SMN's assigns. Failure to
enforce any provisions of this agreement shall not constitute a waiver of any
term hereof. This agreement shall be governed by and construed in accordance
with the laws of the State of New York. This agreement contains the entire
agreement between the parties with respect to the subject matter hereof and may
not be amended, modified or waived except in writing and signed by both parties.
[CONFIDANT] STARMEDIA NETWORK, INC.
Signature /s/ Darryl Peck Signature /s/ Steve Heller
--------------------- ---------------------------
Name Darryl Peck Name Steve Heller
-------------------------- -------------------------------
Title President & CEO Title VP, Finance & Marketing
------------------------ -------------------------------
(if signing on behalf
of your company)
Date 5/27/98 Date 5/27/98
------------------------- --------------------------------
<PAGE>
TERM SHEET
Basic Framework
Proposed is a relationship in which Cyberian Outpost will use StarMedia Network
as its portal to drive the sale of personal computers and related hardware,
software and peripherals into the Latin American marketplace.
To Cyberian Outpost, StarMedia will deliver:
. EXCLUSIVITY- Cyberian Outpost will be the exclusive broad-based
third-party reseller of new PC hardware, software and peripherals on
StarMedia Network. StarMedia Network will enter into selling
contracts with no other broad-based third party resellers of new PC
hardware, software and peripherals for the first year of the
StarMedia/Cyberian Outpost relationship. Cyberian Outpost may reserve
the right to include auction sales within the realm of this
agreement. Should Cyberian Outpost not have a competitive auction
offering publicly available via the Internet for the Latin American
audience prior to October 1, 1998, StarMedia Network will have the
right to enter into agreements with other parties for the sale of
computer equipment, software or peripherals via auction sales
services.
. CONTENT INTEGRATION- StarMedia will work with Cyberian Outpost toward
accomplishing the integration in initiatives outlined in the
StarMedia/Cyberian Outpost Product integration addendum.
. ADVERTISING/COMARKETING- StarMedia Network commits to putting at
least [XXXX] of the net revenues it receives from Cyberian Outpost to
work in local, traditional co-branding initiatives.
. TRAFFIC OBJECTIVES- In return for compensation as detailed below,
StarMedia will guarantee product integration as outlined in the
StarMedia/Cyberian Outpost Product Integration addendum. StarMedia
will grow the impression base from this integration commensurate with
traffic growth to these areas of the network during she contract
period. Including the sponsorship of the "Product Integration" areas,
StarMedia will deliver in total to Cyberian Outpost a minimum of
[XXXXX] impressions per month, [XXXXX] of which will be banner
impressions.
. CULTURAL/TACTICAL ISSUES- StarMedia will assign a team to work with
Cyberian Outpost to provide Client Services support. The challenges
this team can address include the translation of the newsletter
Cyberian Outpost delivers to its customer base via email. Also, the
Client Services team will work to monitor and measure effectiveness
of various campaigns. StarMedia will, at its discretion, choose to
<PAGE>
translate product reviews and other material, provided that such
translations will be used only to benefit the Cyberian
Outpost/StarMedia Network relationship and will not be used or seen by
customers entering Cyberian Outpost's storefront via any other means
than through StarMedia. All links to the Cyberian Outpost Store will
be viewed through the StarMedia Frameset.
. START DATES- The twelve-month term of the agreement between StarMedia
Network and Cyberian Outpost begins once Cyberian Outpost is ready to
commence, but no longer than sixty days from the date on which the
contract is executed.
Term: The term of this agreement is one (1) year. Cyberian Outpost may
terminate this agreement at the end of the first year provided that
notification of such termination is given with at least 60 days
written notice prior to the end of the first term.
Total
Package: In becoming the exclusive broad-based third party reseller of new
PC hardware and software on StarMedia Network, Cyberian Outpost
agrees to pay:
1. [XXXXXX], net per month sponsorship fee for a period of
twelve months, an aggregate total of [XXXXXX].
2. [XXXXXX], or twenty percent of the yearly [XXXXXX], net up
front sponsorship fee. This amount will be applied against
the balance over the course of the contract.
3. Revenue sharing component of [XXX] of sales that does not
take effect until Cyberian Outpost recoups monthly
investment.
Renewal: Six months after the commencement of the program, Cyberian Outpost
and StarMedia Network will begin discussion on renewal terms for
year two.
Termination
Clause: In the event that StarMedia Network receives a high number of
complaints, or similar feedback, from its user base regarding their
Cyberian Outpost experience, StarMedia Network reserves the right
to terminate the agreement with 60 days written notice.
Quantification will be one hundred (100) or more complaints
received by StarMedia Network via email per month for two
consecutive months.
<PAGE>
THE FOLLOWING OUTLINES THE WAYS THAT STARMEDIA WILL INTEGRATE CYBERIAN OUTPOST
WITHIN THE SERVICE CONTENT AREAS:
1) DIGITAL HOMEPAGE
2) INFORMATICA HOY/HOJE:
. ZD Homepage- Outpost Button either in the upper right corner, or below
the "Mas Products" link on the homepage
. In "Product Reviews" that reference a specific product we could have a
button that says "Buy this at Cyberian Outpost" link or button. The
service would query Cyberian's database and place the link only for
such products as actually carried by Cyberian
. "Downloads" Section: Same as above - Approximately 10% of downloads
are product demos - we could have a button that says "Try For Free
then- Purchase at Cyberian." Text will differ depending on the actual
demo.
3) STAR CLASSIFIEDS
. Computers, Electronics, and Software: Button to Cyberian Outpost on
top of category home page and button to Cyberian Outpost on top of
search results page
4) PIZARRAS/QUADRO DE AVISOS
. Technology bulletin board - link to Cyberian Outpost in header graphic
5) COPA MUNDIAL.COM/COPADOMUNDO.COM
. Graphical link to Cyberian Outpost store from games pages
6) STARMEDIA SHOPPING
. Prominent placement in shopping area
7) WHAT'S NEW? LINK FROM SMN HOME PAGE - What's New? link will exist for at
least 3 months from launch of the partnership.
<PAGE>
EXHIBIT 10.13
Cyberian Outpost, Inc. has omitted from this Exhibit 10.13 portions of the
Agreement for which Cyberian Outpost, Inc. has requested confidential treatment
from the Securities and Exchange Commission. The portions of the Agreement for
which confidential treatment has been requested are marked with X's in brackets
and such confidential portions have been filed separately with the Securities
and Exchange Commission.
PROMOTION AGREEMENT
This Promotion Agreement (the "Agreement") is dated as of January 26, 1998
between CNET, Inc. ("CNET") and Cyberian Outpost, Inc. (the "Company"). Pursuant
to this Agreement, CNET will provide various links and other online and
television promotions (collectively, the "Promotions") to the Company to assist
the Company in promoting its products and services and facilitating the sale of
products to potential buyers through its Internet site. CNET will be compensated
by the Company for providing the Promotions. Accordingly, the parties hereby
agree as follows:
1. Background.
1.1 The Company. The Company operates an electronic retailing operation
through its Internet sites located at www.cyberianoutpost.com or
www.outpost.com (together with any successors to such sites, the
"Company Site"). Through the Company Site, the Company sells or
facilitates the sale of various products and services, either directly
or as an agent for third party vendors. All products and services
offered for sale through the Company Site are referred to as the
"Products."
1.2 CNET. CNET produces television programs and operates a network of
Internet sites on the world wide web. For purposes of this Agreement,
the "CNET Sites" refer to any Internet sites operated by CNET or its
subsidiaries, including without limitation the sites referenced in
Section 2.5 and Exhibit A.
2. CNET's Obligations.
2.1 TV Promotions. CNET will provide the Company one 15 second "spot" for
Promotions on its syndicated weekly TV program, TV.COM. Promotions
will run on each weekly episode of TV.COM during the Term; provided
that TV.COM remains on the air throughout such period. Should TV.COM
not be run on the air during a portion of the Term, CNET will run two
download.com banner advertising programs per month during such portion
of the Term in lieu of the foregoing TV.COM Promotions.
2.2 Banner Promotions. CNET will provide advertising banners to the
Company during the Term as described in Exhibit A.
2.3 Retail Promotions.
<PAGE>
2.3.1 CNET will provide for various retail Promotions across the CNET
Sites, which may include text/HTML links, buttons, portals and
other fixed Promotions that include embedded links to the
Company Site (the "Retail Promotions" and, together with the
advertising banners contemplated in the preceding paragraph,
the "Online Promotions").
2.3.2 Subject to Section 4 below, CNET will provide the Company with
a total of at least (a) [XXXXXX] Retail Impressions during
the first three months of the Term, (b) [XXXXXX] Retail
Impressions during the second three months of the Term, (c)
[XXXXXX] Retail Impressions during the third three months
of the Term, and (d) [XXXXXX] Retail Impressions during
the fourth three months of the Term. For such purposes, a
"Retail Impression" means the display of one page of a CNET
Site that contains at least one Retail Promotion. If CNET fails
to provide the Retail Impressions required by the preceding
sentence during the Term, then CNET will continue to display
Retail Impressions in accordance with this Agreement following
the Term (notwithstanding the termination or expiration of the
Term) until the required number of Retail Impressions has been
delivered.
2.4 Placement of Retail Promotions. CNET will determine the location and
type of each Retail Promotion displayed throughout the CNET Sites and
may phase in certain types of Retail Promotions as they are developed.
CNET currently intends to display Retail Promotions consisting of
text/HTML links, pre-filled with an appropriate query string or link
("Pre-Filled Links"), as set forth in this Section. The Retail
Promotions contemplated by this Section will be displayed above the
fold where the graphical layout of the page reasonably permits such
positioning (as determined by CNET), and in other cases the Retail
Promotions will be prominently positioned below the fold. For the
purposes of clarity, the "fold" is defined as the visible portion of
the screen on a standard 640 x 480 screen size.
2.4.1 On SEARCH.COM, CNET intends to display a Pre-Filled Link on the
search query page related to Shopping and on every search
results page served by CNET.
2.4.2 On CNET.COM, CNET intends to display a Pre-Filled Link on pages
within the site except the Front Door and except for pages
within the Personalities and Community sections.
2.4.3 On BUILDER.COM, CNET intends to display a Pre-Filled Link on
pages within the site except the Front Door and the "Builder
Buzz" section.
<PAGE>
2.4.4 On GAMECENTER.COM, NEWS.COM, DOWNLOAD.COM and SHAREWARE.COM,
CNET will display a Pre-Filled Link on pages within the site
except the Front Door.
2.4.5 Other pages of the CNET Sites, CNET will display additional
Retail Promotions as appropriate and as mutually agreed upon.
2.5 Design and Production of Online Promotions. The Company will design
any graphics required for the Online Promotions and provide pre-filled
query strings or links for all of the Pre-Filled Links, with
reasonable assistance from CNET, and the Company will supply digital
copies of such graphics and other materials to CNET. CNET will be
responsible for incorporating the Online Promotions into the CNET
Sites and for ensuring that the Online Promotions are accessible to
users of the CNET Sites ("Users").
2.6 Reporting. Within 30 days after the end of each month during the Term,
CNET will provide a report to the Company indicating the number of
Retail Promotions displayed on the CNET Sites during such month and
the number of times that a User clicked on a Retail Promotion during
such month. CNET will also provide standard reporting for banner
advertisements and television Promotions.
3. The Company's Obligations:
3.1 Operation of Company Site. The Company will be responsible for
ensuring that each link embedded within an Online Promotion takes the
User to the appropriate area within the Company Site, and that the
Company Site functions with reasonable reliability and in a
commercially reasonable manner throughout the Term. In particular, the
Company agrees that the Company Site will comply with the performance
standards set forth in Exhibit B throughout the Term. Any failure by
the Company to comply with this paragraph will be deemed to be a
material breach of this Agreement.
3.2 Reporting. Within 30 days after the end of each month during the Term,
the Company will provide a report to CNET indicating the aggregate
number of referrals from the CNET Sites to the Company Site during
such month, the resulting number of buyers, the aggregate behavior
(including orders and sales volume) of those buyers, and the total
revenue attributable to the Online Promotions minus applicable sales
tax, shipping costs, returns and cancellations (the "CNET Sales"). The
"CNET Sales" will be counted as sales by the Company to each User who
accesses the Company Site through a link from an Online Promotion for
a period of 4 hours from the referral, CNET and The Company will agree
on technical procedures to allow the easy and accurate reporting of
CNET Sales. The Company will make this information available in a
manner which
<PAGE>
allows CNET and the Company to understand the performance of the
various Online Promotions.
3.3 Cash Consideration.
3.3.1 For each month during the Term, the Company will pay CNET a
minimum of [XXXX] in cash, plus [XXX] of CNET Sales. Payments
under this paragraph will be based on the reports prepared by
the Company under Section 3.2 (although CNET may challenge such
reports as contemplated by Section 9.5) and will be due within
30 days after the end of each month of the Term.
3.3.2 Payments under this Section 3.3 will be made by wire transfer
of immediately available funds and are nonrefundable once paid.
3.4 User Information. At least once each calendar quarter, the Company
will deliver to CNET all aggregate data collected as a result of the
CNET Sales, including but not limited to, demographic data, buying
behavior as measured by conversion to sale, frequency of purchasing,
average order size, and a comparison to the respective average for the
Company.
3.5 Reciprocal Marketing. For the duration of the Term, the Company will
place a link within the Beta Report Newsletter, the Cyberian Express
Newsletter, the Gamer's Express newsletter, or any newsletter to which
users can subscribe to which is provided by the Company to its users
(expressly excluded from this obligation are emails that are sent by
the Company for product announcements, or personalized emails sent to
users upon product purchase. This link will be a text phrase or series
of text phrases encouraging the users to sign up for CNET's free email
newsletters for technology News, CNET Dispatch, and Software &
Hardware Services. CNET will provide all entry forms and operate the
production and sending of the newsletter. CNET agrees not to
specifically target these subscribers separately from the general
database of subscribers to CNET's various newsletters. Should the
Company provide a persistent link or series of links (as distinguished
from occasional and ad hoc links to product reviews either on the
Company Site or in any communication by the Company to its customers)
to a "Technology Content Provider", CNET shall be given at least equal
prominence to any other Technology Content Provider provided that CNET
offers comparable editorial content. A Technology Content Provider is
defined as a company providing news product information or reviews
about technology products that is not a manufacturer of those
products.
4. Term and Termination. The term of this Agreement (the "Term") will begin on
February 1, 1998 and end on the first anniversary of the date of this
Agreement; provided that (a) either party may terminate this Agreement,
effective at any time after the first three
<PAGE>
months of the Term, by giving 30 days' written notice of termination to the
other party, and (b) either party may terminate this Agreement at any time
by giving written notice of termination to the other party, if the other
party commits a material breach of its obligations hereunder that is not
cured within 30 days after notice thereof from the non-breaching party. If
this Agreement is terminated during any of the three month periods
referenced in Section 2.3.2, then the required number of Retail Impressions
applicable thereunder to such three month period will be pro rated
accordingly.
5. Exclusivity. For purposes of this agreement "Competing Computer Products
Retailer" means any company other than the Company that is engaged in the
retail sale of computer products, with the exception of CNET Direct, which
operates BuyDirect.com. During the Term, CNET will not enter into more than
two other agreements under which CNET receives consideration from a
Competing Computer Products Retailer for displaying permanent links to or
other fixed promotions for such Competing Computer Products Retailer on any
CNET Site; provided that the foregoing will not restrict the display of(a)
standard advertisements for any Competing Computer Products Retailer or its
products or (b) any promotions within COMPUTERS.COM or within CNET's Snap!
Online service (which are expressly excluded from this provision). The
parties acknowledge that the foregoing will not prevent CNET from
displaying text links and other references to Competing Computer Products
Retailers as reasonably necessary to provide appropriate editorial and
search related services on the CNET Sites. The Retail Promotions granted to
the Company shall be placed in such a way as to provide no more or less
prominence to the Company than is provided to any other Competing Computer
Retailer signing an agreement with CNET.
6. Trademark Licenses.
6.1 The Company hereby grants to CNET a non-exclusive, royalty-free
license, effective throughout the Term, to use, display and publish
any of the Company trademarks, tradenames, service marks and logos
that may be delivered by the Company to CNET expressly for inclusion
in the Promotions, solely for use in connection with the Promotions.
Any use of the Company Marks by CNET must comply with any reasonable
usage guidelines communicated by the Company to CNET from time to
time. Nothing contained in this Agreement will give CNET any right,
title or interest in or to the Company Marks or the goodwill
associated therewith, except for the limited usage rights expressly
provided above. CNET acknowledges and agrees that, as between the
Company and CNET, the Company is the sole owner of all rights in and
to the Company Marks.
6.2 The Company hereby represents and warrants to CNET that the Company
has, and will have throughout the Term, all necessary rights in and to
the Company Marks to grant CNET the licenses and usage rights
contemplated by this Agreement without violating the rights of any
third party.
<PAGE>
7. Responsibility for the Company Products. The Company acknowledges and
agrees that, as between the Company and CNET, the Company will be solely
responsible for any claims or other losses associated with or resulting
from the marketing or operation of the Company Site or the offer or sale of
any Products by the Company or through the Company Site. CNET is not
authorized to make, and agrees not to make, any representations or
warranties concerning the Products, except to the extent (if any) contained
within Promotions delivered to CNET by the Company.
8. Mutual Indemnification.
8.1 Indemnification by CNET. CNET shall indemnify and hold the Company
harmless from and against any costs, losses, liabilities and expenses,
including all court costs, reasonable expenses and reasonable
attorney's fees (collectively, "Losses") that the Company may suffer,
incur or be subjected to by reason of any legal action, proceeding,
arbitration or other claim by a third party, whether commenced or
threatened, arising out of or as a result of (a) any breach or alleged
breach by CNET of its representations, warranties or covenants
hereunder; or (b) the operation of the CNET Sites (except in cases
where the Company is required to indemnify CNET under the following
paragraph), including claims of infringement or misappropriation of
intellectual property rights.
8.2 Indemnification by the Company. The Company shall indemnify and hold
CNET harmless from and against any Losses that CNET may suffer, incur
or be subjected to by reason of any legal action, proceeding,
arbitration or other claim by a third party, whether commenced or
threatened, arising out of or as a result of (a) any breach or alleged
breach by the Company of its representations, warranties or covenants
hereunder; (b) the use by CNET of the Company Marks or any content
provided by the Company to CNET expressly for display in connection
with or as part of the Promotions, including claims of infringement or
misappropriation of intellectual property rights; or (c) the operation
of the Company Site or the offer or sale of the Products by the
Company or through the Company Site.
8.3 Indemnification Procedures. If any party entitled to indemnification
under this section (an "Indemnified Party") makes an indemnification
request to the other, the Indemnified Party shall permit the other
party (the "Indemnifying Party") to control the defense, disposition
or settlement of the matter at its own expense; provided that the
Indemnifying Party shall not, without the consent of the Indemnified
Party enter into any settlement or agree to any disposition that
imposes an obligation on the Indemnified Party that is not wholly
discharged or dischargeable by the Indemnifying Party, or imposes any
conditions or obligations on the Indemnified Party other than the
payment of monies that are readily measurable for purposes of
determining the monetary indemnification or reimbursement obligations
of Indemnifying Party. The Indemnified Party shall
<PAGE>
notify Indemnifying Party promptly of any claim for which Indemnifying
Party is responsible and shall cooperate with Indemnifying Party in
every commercially reasonable way to facilitate defense of any such
claim; provided that the Indemnified Party's failure to notify
Indemnifying Party shall not diminish Indemnifying Party's obligations
under this Section except to the extent that Indemnifying Party is
materially prejudiced as a result of such failure. An Indemnified
Party shall at all times have the option to participate in any matter
or litigation through counsel of its own selection and at its own
expense.
9. Miscellaneous.
9.1 LIMITATION OF DAMAGES. NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR
RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE), AND EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9.2 Assignment. This Agreement may not be assigned by either party, except
(a) to the transferee of substantially all of the business operations
of such party (whether by asset sale, stock sale, merger or otherwise)
or (b) to any entity that controls, is controlled by or is under
common control with such party.
9.3 Relationship of Parties. This Agreement will not be construed to
create a joint venture, partnership or the relationship of principal
and agent between the parties hereto, nor to impose upon either party
any obligations for any losses, debts or other obligations incurred by
the other party except as expressly set forth herein.
9.4 Entire Agreement. This Agreement constitutes and contains the entire
agreement between the parties with respect to the subject matter
hereof and supersedes any prior oral or written agreements. This
Agreement may not be amended except in writing signed by both parties.
Each party acknowledges and agrees that the other has not made any
representations, warranties or agreements of any kind, except as
expressly set forth herein.
9.5 Audit Rights. Each party will have the right to engage an independent
third party to audit the books and records of the other party relevant
to the calculation of Retail Impressions or CNET Sales, upon
reasonable notice and during normal business hours, and the other
party will provide reasonable cooperation in connection with any such
audit. The party requesting the audit will pay all expenses of the
auditor unless the audit reveals an underpayment by the other party of
more than 5%, in which case the other party will reimburse all
reasonable expenses of the auditor.
<PAGE>
9.6 Applicable Law. This Agreement will be construed in accordance with
and governed by the laws of the State of California, without regard to
principles of conflicts of law.
9.7. Confidentiality. The material terms of this agreement and any
information exchanged in connection herewith shall be covered by the
Non-Disclosure Agreement between CNET and the Company dated December
5, 1997 (the "NDA"). Notwithstanding the foregoing the following
information will not be considered "Confidential Information" for
purposes of the NDA provided that such information is not publicly
identified as belonging to or coming from the Company: (a) information
contained in the reports described in Section 3.2, (b) the names and
e-mail addresses referenced in Section 3.4 and (c) any information
obtained by CNET from Users who affirmatively request to be added to
an e-mail newsletter pursuant to Section 3.5.
9.8 Press Release. Each party may issue a press release concerning the
business relationship contemplated by this Agreement, and each party
will provide an appropriate quote from one of its senior executive
officers for use in the other party's release. The Company agrees
that CNET's press release may disclose the total consideration payable
to CNET hereunder. Each Party will provide the other with a
reasonable opportunity to review and comment on its press release.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first written above.
CNET, INC. Cyberian Outpost
By: /s/ By: /s/ Darryl Peck
------------------------------ ---------------------------
Title: Director, Business Development Title: President and CEO
------------------------------ ----------------------
<PAGE>
EXHIBIT A
ADVERTISING BANNERS
For each of the first 12 calendar months of the Term, CNET will provide the
Company with one advertising banner "program" (which has a retail value of
$20,000) on each of the following CNET Sites:
1. CNET.COM ([XXXXX] impressions per month)
2. SEARCH.COM ([XXXXX]impressions per month)
3. GAMECENTER.COM ([XXXXX] impressions per month) (two programs per month)
4. SHAREWARE.COM/DOWNLOAD.COM ([XXXXX] impressions per month; this is a
single unit, which may be satisfied by delivering banners on either site)
<PAGE>
EXHIBIT B
PERFORMANCE STANDARDS
The Company Site and the Company's related operations must comply with the
following performance standards throughout the Term
1. The Company Site will be operational and fully functional in all material
respects (i.e. capable of displaying information, receiving purchases and
conducting transactions as contemplated in the ordinary course of business)
at least 97% of the time during any 30 day period.
2. Without limiting the effect of 1, the Company shall provide to users coming
to the Company Site from the Retail Promotions at least the same level of
service as is offered to users coming directly to the Company Site or from
agreements with other distribution partners.
<PAGE>
Exhibit 10.14
Cyberian Outpost, Inc. has omitted from this Exhibit 10.14 portions of
the Agreement for which Cyberian Outpost, Inc. has requested confidential
treatment from the Securities and Exchange Commission. The portions of the
Agreement for which confidential treatment has been requested are marked with
X's in brackets and such confidential portions have been filed separately with
the Securities and Exchange Commission.
MERCHANT INTEGRATION AGREEMENT
THIS CONTENT PROVIDER AGREEMENT (the "Agreement") is made as of 1/6/1998
(the "Effective Date"), by and between INFOSPACE, a Washington corporation
having a principal place of business at 8424 154th Avenue NE, Redmond, WA 98052
("Company"), and CYBERIAN OUTPOST, INC., with offices at 27 North Main Street,
Kent, Connecticut ("Cyberian Outpost, Inc.").
WHEREAS, Company provides information and other content in various media to end
users via its site on the World Wide Web (the "Web") and other electronic media
environments;
WHEREAS, Cyberian Outpost, Inc. supplies hardware and software for sale via the
Web; and
NOW THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. The following terms shall have the following meanings for the
purpose of this Agreement:
1.1 "COMPANY CONTENT" means the materials to be provided by Company (such
as the Marks, an HTML template for the "look and feel" of the Branded Pages,
files, data and formulae) necessary for Cyberian Outpost, Inc. to develop and
create Branded Pages in accordance with the Branded Page Specifications.
1.2 "CYBERIAN OUTPOST, INC. CONTENT" means the text, pictures, graphics,
sound, video, other data and computer software and code to be provided by
Cyberian Outpost, Inc. hereunder which also include, but are not limited to: the
search engine and the process to view, and search for items as well as all
information and resources provided by Cyberian Outpost, Inc.
1.3 "MARKS" means the Domain Name and the Company logos and trademarks to
be provided to Cyberian Outpost, Inc. in accordance with this Agreement.
1.4 "CYBERIAN OUTPOST, INC. MARKS" means the Cyberian Outpost, Inc. logos
and trademarks to be provided to Company in accordance with this Agreement.
1.5 "PROMOTIONAL LINKS" means links to the Web sites of any third party
for which Company receives monetary, promotional, or other consideration.
1.6 "SERVER LOGS" means the InfoSpace logs, identifying information for
Users and records of User activities conducted on or in the Branded Pages from
both Company and Cyberian Outpost, Inc. links. This section does not refer to
logs from Cyberian Outpost servers.
1.7 "USER" means any person who accesses or attempts to access the Branded
Pages.
<PAGE>
2. INTEGRATION OF MERCHANT.
2.1 COMPANY'S OBLIGATIONS. Company shall make Cyberian Outpost, Inc.'s
Content available on its Website. Company will provide links to Cyberian
Outpost, Inc. in the following locations:
A. WHITE PAGES: Integration throughout the white pages of InfoSpace
in a manner similar to or better than the links to Barnes and
Noble appearing on 12-28-97.
B. E-SHOPPING: Integration of Cyberian Outpost, Inc. into the
eShopping site, as described below (category of your choice):
a) Category sponsorship graphic.
b) Rotational graphic on Top of Category Page (where Barnes &
Noble & 800Florals are as of 12/28/97).
c) Primary sponsorship graphic at top of HotSite level.
d) Graphic link and expanded 300-character text link at HotSite
level.
C. YELLOW PAGES: The listings pages from a maximum of [XXX] Yellow
Page categories will provide the opportunity to buy
software/hardware from Cyberian Outpost, Inc.. Cyberian Outpost,
Inc. will choose up to a maximum of [XXX] categories in computer
hardware or software related categories.
D. INFOSPACE HOME PAGE: Placement of permanent text link for
Cyberian Outpost, Inc. on home page of InfoSpace under e-shopping
heading. At the sole discretion of InfoSpace, a rotational
graphic link to Cyberian Outpost will appear on the home page.
E. NAVIGATION BAR: Placement of a text (or graphical text) link for
Cyberian Outpost, Inc. on the navigation bar of InfoSpace. In
addition, placement of a rotational graphic link for Cyberian
Outpost, Inc. on the InfoSpace navigation bar at a one out of six
rotation level.
F. TRAFFIC GUARANTEE: InfoSpace will guarantee to implement the
above links (2.1 A, B, C, D, and E), and that the InfoSpace
Nielsen I-Pro verified page views will exceed [XXXXXX] per
month. In the event that Nielsen I-Pro verified page views are
below [XXXXXX] page views for any month, Cyberian Outpost will
be eligible for a [XXX] reduction in that month's minimum
payment for each whole[XXXXXX] shortfall in page views as
measured by Nielsen I-Pro. InfoSpace will supply copies of
monthly Nielsen I-Pro reports to Cyberian Outpost upon request.
2.2 CYBERIAN OUTPOST, INC.'S OBLIGATIONS.
A. Cyberian Outpost, Inc. shall provide to InfoSpace customers
services related to sales and customer service which are normal
and traditional in the way Cyberian Outpost, Inc. services
customers of the Cyberian Outpost, Inc. web site.
B. Cyberian Outpost, Inc. will pay Infospace revenues outlined in
point #3, below.
2
<PAGE>
3. REVENUE PAYMENTS.
3.1 ACTIVITY REVENUE: CYBERIAN OUTPOST, INC. WILL PAY INFOSPACE A MINIMUM
MONTHLY GUARANTEE:
A. Cyberian Outpost, Inc. will pay minimum guaranteed revenue to
InfoSpace of [XXXXX] per month. In addition, InfoSpace will be
eligible for a maximum of [XXXXX] in additional integration
revenues, as described in point 3.1.B, below.
B. In the event that InfoSpace monthly page views for any particular
month exceed [XXXXX] per month, as measured by Nielsen I-
Pro, then Cyberian Outpost, Inc. will pay InfoSpace [XXXXX] per
month, plus an additional [XXXXX] per month for each [XXXXX]
of page views in excess of [XXXXX] for the preceding month.
This incremental amount will be due with the invoice for the
month in which the increase occurred.
C. Cyberian Outpost, Inc. will provide InfoSpace with [XXX] of gross
revenue (defined as gross sales less returns) of Cyberian
Outpost, Inc. revenues derived from the traffic originating from
InfoSpace and syndicated sites, except that Cyberian Outpost,
Inc. will not owe InfoSpace said share of the gross revenue until
said share of net earnings exceeds the minimum guarantee outlined
in point 3.1 A, or B, respectively, above.
The [XXX] monthly revenue share will not engage until Cyberian
Outpost has earned revenue equal to [XXXXX] per month. Thus,
company would get [XXX] of sales once Cyberian Outpost has sold
approximately [XXXXX] worth of product in a month's time.
D. Cyberian Outpost, Inc. will pay InfoSpace all revenues owed in
quarterly installments, to be sent no later than 30 days
following the last day of the quarter, except that the first
payment will be due for a pro-rata month to establish regular
billing at the end of the following quarter. The first payment
will be due for a partial month in a prorated share following the
end of the first month in which the integration described in 2.1
has been completed. Following the first pro-rata monthly
payment, quarterly payments will be due.
As an option, Cyberian Outpost, Inc. may elect to pay monthly
instead of the quarterly payments described above. If Cyberian
Outpost, Inc. elects to utilize this option, Cyberian Outpost
will subtract [XXXXX] per month from the revenue owed to
InfoSpace.
E. Cyberian Outpost, Inc. will provide information to Company
summarizing total clickthroughs, and gross revenue on a monthly
basis.
3.2 ADVERTISEMENTS OPTIONS. Cyberian Outpost, Inc. will have the option to
purchase [XXXXXX] or more ROS banners per month at a [XXXXXX] charged for such
banners. Cyberian Outpost, Inc. will also have the option to purchase [XXXX] or
more ROS click-throughs per month at [XXXXXX]
3
<PAGE>
[************************************************] Payment for the optional
banner ads will be in addition to the revenues described in point 3.1 A and 3.1
B.
3.3 RECORDS. Each party shall keep reasonable records in connection with
its respective performance under this Agreement (including without limitation,
records in relation to advertising, payment, and Server Logs in Company's case,
and in relation to the compilation of the Server Logs and activity revenue in
Cyberian Outpost, Inc.'s case), and shall permit the other party reasonable
access to such records at such other party's expense upon reasonable notice.
4. PROPRIETARY RIGHTS AND LICENSE.
4.1 LICENSE GRANT BY COMPANY. Company hereby grants to Cyberian Outpost,
Inc. for the term of this Agreement, a non-exclusive, royalty-free, worldwide
license to reproduce, distribute, create derivative works of, publicly perform,
publicly display and digitally perform Company Content in connection with
Cyberian Outpost, Inc.'s performance of its obligations hereunder. Company
hereby grants to Cyberian Outpost, Inc. a non-exclusive, nontransferable,
royalty-free, worldwide license to use Company's Marks on the Branded Pages and
for the purposes of marketing, promotion, and content directories or indexes,
and in electronic or printed advertising, publicity, press releases, newsletters
and mailings about Cyberian Outpost, Inc.
4.2 OWNERSHIP OF MARKS AND COMPANY CONTENT. All right, title and interest
in and to the Marks and the Company Content (including without limitation all
rights therein under copyright, trademark, trade secret and similar laws) shall
remain with Company or its licensors and/or suppliers.
4.3 OWNERSHIP OF CYBERIAN OUTPOST, INC. CONTENT AND CYBERIAN OUTPOST, INC.
MARKS. All right, title and interest in and to the Cyberian Outpost, Inc.
Content and Cyberian Outpost, Inc. Marks as well as intellectual property rights
(including without limitation all rights therein under copyright, trademark,
trade secret and similar laws) shall remain with Cyberian Outpost, Inc. or its
licensors and/or suppliers. Notwithstanding the foregoing, Cyberian Outpost,
Inc. hereby grants to Company a non-exclusive, nontransferable, royalty-free,
worldwide license to use Cyberian Outpost, Inc. Marks on the Branded Pages and
for the purposes of marketing, promotion, and content directories or indexes,
and in electronic or printed advertising, publicity, press releases, newsletters
and mailings about the Company.
4.4 QUALITY CONTROL AND USE RESTRICTIONS BY CYBERIAN OUTPOST, INC.
Cyberian Outpost, Inc. shall use the Marks in accordance with any written
instructions provided by Company. Cyberian Outpost, Inc. acknowledges that
Cyberian Outpost, Inc.'s use of the Marks will not create in it, nor will it
represent it has, any right, title or interest in or to the Marks other than the
license granted by Company above. Cyberian Outpost, Inc. will not challenge the
validity of or attempt to register any of the Marks or its interest therein as a
licensee. Cyberian Outpost, Inc. acknowledges Company's and its affiliates'
ownership and exclusive right to use the Marks and agrees that all goodwill
arising as a result of the use of the Marks shall inure to the benefit of
Company and its affiliates.
4.5 QUALITY CONTROL AND USE RESTRICTIONS BY COMPANY. Company shall use
the Branded Pages and Cyberian Outpost, Inc. Marks in accordance with any
written instructions provided by Cyberian Outpost, Inc. Company acknowledges
that Company's use of the Branded Pages and Cyberian Outpost, Inc. Marks will
not create in it, nor will it represent it has, any right, title or interest in
or to the Branded Pages, or its information, other than the license granted by
Cyberian Outpost, Inc. above. Company will not challenge the validity of or
attempt to register any of the Branded Pages or Cyberian
4
<PAGE>
Outpost, Inc. Marks or its interest therein as a licensee. Company acknowledges
Cyberian Outpost, Inc.'s and its affiliates' ownership and exclusive right to
use the Branded Pages and Cyberian Outpost, Inc. Marks and agrees that all
goodwill arising as a result of the use of the Branded Pages and Cyberian
Outpost, Inc. Marks shall inure to the benefit of Cyberian Outpost, Inc. and its
affiliates.
4.6 CYBERIAN OUTPOST, INC. NON-EXCLUSIVITY. The parties agree and
acknowledge that nothing in this Agreement shall be deemed or construed to
prohibit Cyberian Outpost, Inc. from providing material similar in nature to the
Cyberian Outpost, Inc. Content to any third party.
4.7 COMPANY EXCLUSIVITY. Company agrees and acknowledges that Cyberian
Outpost, Inc. acts as Company's sole provider of computer software and hardware
on its Website, except that the company may incorporate competitors ad and links
on banner ads and within the e-shopping area of the company website.
4.8 EXECUTION OF DOCUMENTS. Each party agrees to execute such documents
and take such other actions as are reasonably necessary to effectuate the
provisions of this Section 5 at the other party's request and sole expense. In
the event either party refuses or is unable to take such action, such party
hereby irrevocably appoints the other party as such party's agent-in-fact for
the purposes of taking such action, which appointment is coupled with an
interest.
5. LIMITED WARRANTY.
5.1 REGARDING THE BRANDED PAGES. Company does not guarantee continuous or
uninterrupted display or distribution of the Branded Pages. In the event of
interruption of display or distribution of the Branded Pages, company's sole
obligation shall be to restore service as soon as reasonably possible. This
clause will have no effect on reducing the minimum traffic guarantees by
InfoSpace to Cyberian Outpost.
5.2 LIMITED DAMAGES. In no event shall InfoSpace or Cyberian Outpost,
Inc. be liable for any special, indirectly, incidental or consequential damages
(including but not limited to such damages arising from breach of contract or
warranty or from negligence or strict liability), or for interrupted
communications, loss or use, lost business, lost data or lost profits, arising
out of or in connection with this Agreement.
5.3 NO OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 6,
EACH PARTY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
6. INDEMNITY.
6.1 INDEMNITY BY COMPANY. Company shall indemnify and hold harmless
Cyberian Outpost, Inc. and its affiliates and suppliers against all claims,
losses, damages, liabilities, costs and expenses, including reasonable
attorneys' fees, which Cyberian Outpost, Inc. and its affiliates and suppliers
may incur as a result of any claims relating to the infringement by the Marks or
the Company Content of any third party copyright, trademark or trade secret.
6.2 CYBERIAN OUTPOST, INC.'S INDEMNITY. Cyberian Outpost, Inc. shall
indemnify and hold harmless Company and its affiliates and suppliers against all
claims, losses, damages, liabilities, costs
5
<PAGE>
and expenses, including reasonable attorneys' fees, which Company and its
affiliates and suppliers may incur as a result of claims relating to the
infringement by the Cyberian Outpost, Inc. Content or the Cyberian Outpost, Inc.
Marks of any third party copyright, trademark or trade secret.
6.3 MECHANICS OF INDEMNITY. The party seeking indemnification (the
"Indemnified Party") shall: (a) give the proposed indemnifier (the "Indemnifying
Party") notice of the relevant claim, (b) cooperate with the Indemnifying Party,
at the Indemnifying Party's expense, in the defense of such claim, and (c) give
the Indemnifying Party the right to control the defense and settlement of any
such claim, except that the Indemnifying Party shall not enter into any
settlement that affects the Indemnified Party's rights or interest without the
Indemnified Party's prior written approval. The Indemnified Party shall have
the right to participate in the defense at its expense.
7. LIMITATION OF LIABILITY. EXCEPT WITH RESPECT TO ANY LIABILITY OF EITHER
PARTY TO THE OTHER PARTY ARISING UNDER SECTIONS 7 OR 10 HEREUNDER: IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR LOSS OF PROFITS, REVENUES OR DATA, OR ANY
SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES, EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; OR SHALL EITHER PARTY'S LIABILITY
UNDER THIS AGREEMENT EXCEED THE AMOUNTS ACTUALLY PAID BY COMPANY TO CYBERIAN
OUTPOST, INC., OR CYBERIAN OUTPOST, INC. TO COMPANY, HEREUNDER.
8. TERM AND TERMINATION.
8.1 TERM. This Agreement shall expire twelve (12) months following the
first date on which the Branded Pages are available to Users. Upon conclusion
of the initial 12 month period, both parties will work in good faith toward a
mutually agreeable extension of the agreement. Either party may terminate the
agreement without cause after an initial six (6) month time period.
8.2 TERMINATION. Either party may terminate this Agreement upon the other
party's material breach if such breach continues for thirty (30) days after
written notice. Upon the effective date of expiration or termination, all
licenses hereunder shall terminate immediately. Sections 5.2, 5.3 (other than
with respect to the license granted to the Marks and Cyberian Outpost, Inc.
Marks set forth therein), 5.4, 5.5, 5.9, 6, 7, 8, 9, 10 and 11 shall survive
expiration or termination of this Agreement.
9. CONFIDENTIALITY.
9.1 CONFIDENTIAL INFORMATION. Each party agrees that during the term of
this Agreement such party may come into possession of Confidential Information
of the other party. For the purposes of this Agreement, "Confidential
Information" means any information which the party disclosing the information
(the "Discloser") designates as confidential or which the party receiving the
information (the "Receiver") knows or has reason to know is confidential to the
Discloser. Without limitation of the foregoing, Company's Confidential
Information includes: the Server Logs and all information contained therein,
all information provided by Users to Cyberian Outpost, Inc. in connection with
use of the Branded Pages, the Branded Page Specifications, code for Branded
Pages and the Company Content. Confidential Information does not include
information which is: (a) already known by the Receiver at time of disclosure;
(b) is or becomes, through no act or fault of Receiver, publicly known; (c)
received by Receiver from a third party without a restriction on disclosure or
use; (d) independently developed by
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Receiver without reference to Discloser's Confidential Information; or (e)
required to be disclosed by a court or governmental agency pursuant to a
statute, regulation or valid order.
9.2 NON-DISCLOSURE OBLIGATIONS. The Receiver shall hold the Confidential
Information in confidence and shall not disclose the Confidential Information to
third parties nor use the Confidential Information for any purpose other than as
permitted in this Agreement.
9.3 RETURN OF CONFIDENTIAL INFORMATION. Upon termination or expiration of
this Agreement for any reason, Receiver shall return or destroy all copies of
Confidential Information in its possession at Disclosure's direction.
10. GENERAL PROVISIONS.
10.1 GOVERNING LAW. This Agreement will be governed and construed in
accordance with the laws of the State of California without giving effect its
conflict of laws principles.
10.2 COMPLIANCE WITH LAWS. At its own expense, Cyberian Outpost, Inc. and
Company shall comply with all applicable laws, regulations, rules, ordinances
and orders regarding its activities related to this Agreement.
10.3 PUBLICITY. Both parties shall issue a press release regarding this
relationship within 10 days of the Branded Pages being made available to the
public, but only with the prior approval of the other party. Additional press
releases may be issued regarding the relationship between Company and Cyberian
Outpost, Inc. but only after prior approval of the other party. Each party
shall not disclose the terms of this Agreement to any third party, except as
required by law.
10.4 SEVERABILITY; HEADINGS. If any provision of this Agreement is held
to be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated in any way. The
parties agree to replace any invalid provision with a valid provision which most
closely approximates the intent and economic effect of the invalid provision.
Headings are for reference purposes only and in no way define, limit, construe
or describe the scope or extent of such section, or in any way affect this
Agreement.
10.5 INDEPENDENT CONTRACTORS. The parties to this Agreement are
independent contractors, and no agency, partnership, joint venture or employee-
employer relationship is intended or created by this Agreement. Neither party
may take any actions which are binding on the other party. Without limiting the
foregoing, neither Cyberian Outpost, Inc. nor Company shall not make any
representations or warranties to third parties on behalf of the other party.
10.6 NOTICE. Any notices required or permitted hereunder shall be given
to the appropriate party at the address specified above or at such other address
as the party shall specify in writing. Unless otherwise specified, such notice
shall be deemed given: upon personal delivery; if sent by fax, upon confirmation
of receipt; or if sent by certified or registered mail, postage prepaid, three
(3) days after the date of mailing.
10.7 ENTIRE AGREEMENT; WAIVER. This Agreement and any Exhibits attached
hereto set forth the entire understanding and agreement of the parties, and
supersede any and all prior or contemporaneous oral or written agreements or
understandings between the parties, as to the subject matter of this Agreement.
In the event of any conflict between the Agreement and an Exhibit, the terms
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<PAGE>
of the Exhibit shall control. Except as provided herein, this
Agreement may be changed only by a writing signed by both parties. Waiver by
either party of a breach of any provision contained herein must be in writing,
and no such waiver shall be construed as a waiver of any succeeding breach of
such provision or a waiver of the provision itself.
10.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed to be one instrument.
COMPANY: CYBERIAN OUTPOST, INC.:
BY: /s/ NAVEEN JAIN BY: /S/ DARRYL PECK
------------------------ ------------------------
TITLE: PRESIDENT & CEO TITLE: PRESIDENT & CEO
--------------------- ---------------------
DATE: FEBRUARY 6, 1998 DATE: FEBRUARY 6, 1998
---------------------- ---------------------
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EXHIBIT 10.15
Cyberian Outpost, Inc. has omitted from this Exhibit 10.15 portions of the
Agreement for which Cyberian Outpost, Inc. has requested confidential treatment
from the Securities and Exchange Commission. The portions of the Agreement for
which confidential treatment has been requested are marked with X's in brackets
and such confidential portions have been filed separately with the Securities
and Exchange Commission.
SPONSORSHIP AGREEMENT
This agreement ("Agreement" is entered into as of December 4, 1997
("Effective Date"), by and between Excite, Inc., a California corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and Cyberian
Outpost, Inc., a Connecticut corporation, located at 27 North Main Street, Kent,
Connecticut 05757 ("Cyberian").
RECITALS
A. Excite maintains sites on the Internet at http://www.excite.com (the
"Excite Site") and http://webcrawler.com (the "Webcrawler Site") and
owns and/or manages related Web sites worldwide (collectively, the
"Excite Network") which, among other things, allow its users to search
for and access content and other sites on the Internet.
B. Within the Excite Network, Excite currently organizes certain content
into topical channels including Shopping Channels located at the
Excite Site and the WebCrawler Site.
C. Cyberian is engaged in the business of the retail sale of computers
equipment and software at its Web site located at
http://www.cybout.com (the "Cyberian Site").
D. Cyberian wishes to promote use of the Cyberian Site by Excite's users
by sponsoring the Shopping Channels of the Excite Site and the
WebCrawler Site and purchasing banner advertising on the Excite
Network.
1. SPONSORSHIP
a) Cyberian will be a "Network Tenant" of the Shopping Channels of
the Excite Site and the WebCrawler Site.
b) Cyberian will be promoted in the Excite Shopping Channel:
i) Cyberian will receive a link on the Excite Shopping Channel
main page for the term of the Agreement.
ii) Cyberian will be featured in the Excite Shopping Channel
"Such a Deal" promotional rotation in two separate one-week
rotations during the term of the Agreement, once every six
months.
iii) Cyberian will be featured in the Excite Shopping Channel
"Shop Here First" promotional rotation in four separate
one-week rotations during the term of the Agreement, once
every quarter.
<PAGE>
iv) Cyberian will receive a link on the front page of the
Computers & Software department of the Excite Shopping
Channel for the term of the Agreement.
v) Cyberian will be featured in the Computers & Software
department of the Excite Shopping Channel "Shop Here First"
promotional rotation in twenty-four separate one-week
rotations during the term of the Agreement, six weeks every
quarter.
c) Cyberian will be featured in the WebCrawler Shopping Channel:
i) Cyberian will receive a link on the WebCrawler Shopping
Channel main page for the term of the Agreement.
ii) Cyberian, will be featured in the WebCrawler Shopping
Channel "Special Web Price!" promotional rotation in two
separate one-week rotations during the term of the
Agreement, once every six months.
iii) Cyberian will be featured in the WebCrawler Shopping
Channel "Featured Merchants" promotional rotation in four
separate one-week rotations during the term of the
Agreement, once every quarter.
iv) Cyberian will receive a link on the front page of the
Computers & Software department of the WebCrawler Shopping
Channel for the term of the Agreement.
v) Cyberian will be featured in the Computers & Software
department of the WebCrawler Shopping Channel "Featured
Merchants" promotional rotation in twenty-four separate
one-week rotations during the term of the Agreement, six
weeks every quarter.
d) Cyberian will be featured in promotional rotations in the Excite
Site and the Web Crawler Site:
i) Cyberian will be featured in the "Other Destinations"
promotional rotation in fifty-two separate one-week
rotations during the term of the Agreement in various
channels in the Excite Site to be determined by Excite.
ii) Cyberian will be featured in the "Exciting Stuff"
promotional rotation in twelve one-week rotations during
the term of Agreement in various Channels in the Excite
Site to be determined by Excite, three weeks every quarter.
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<PAGE>
iii) Cyberian will be featured in the "Shopping" promotional
rotation in fifty-two separate one-week rotations during
the term of the Agreement in various Channels in the
WebCrawler Site to be determined by Excite.
iv) Cyberian will be featured in "Try These First" links during
the term of the Agreement in search results pages in the
Excite Site, subject to availability.
v) Cyberian will be featured in "Shortcuts" links during the
term of the Agreement in search results pages in the
WebCrawler Site, subject to availability.
e) Excite will display Cyberian's banners on the Excite Site and the
WebCrawler Site in mutually agreed-upon Channels and in response
to mutually agreed-upon keywords, subject to availability.
Excite will also display Cyberian's banners on the Excite Site
and the WebCrawler Site in general rotation.
f) Cyberian will be included in Excite's Holiday Gift Guide
promotion, in upcoming promotions of merchants with comparable
sponsorship commitments in the "Excite Shopping Service powered
by Jango" shopping service and in two Web-based "Shopping"
promotional campaigns to be conducted by Excite.
g) Excite will deliver [XXXXX] impressions of Cyberian promotional
placements and advertising banners during the term of this
Agreement.
h) Excite will make available to Cyberian monthly reports on
delivered impressions and clickthroughs on Cyberian's banner
advertisements and non-banner promotional placements.
i) For the duration of this Agreement, Excite will not display
promotional placements or advertising banners from the Cyberian
competitors listed in Exhibit A in the Computers & Software
department of the Excite Shopping Channel or the Computers &
Software department of the WebCrawler Shopping Channel.
Notwithstanding the foregoing, Excite may incorporate the
Cyberian competitors listed in Exhibit A into the "Excite
Shopping Service powered by Jango" shopping service wherever
displayed on the Excite Site or the WebCrawler Site.
2. LAUNCH DATE
a) The "Launch Date" is the date of the first display of the
promotional placements and advertising banners described in
Section 1.
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b) Cyberian and Excite will use reasonable efforts to achieve a
Launch Date no later than fourteen (14) days after Cyberian
provides final versions of all graphics, text. Keywords, banner
advertising, promotional placements, other promotional media and
valid URL links necessary to implement the promotional placements
and advertising banners described in Section 1 (collectively,
"Impression Material") to Excite.
c) In the event that Cybarian fails to provide the Impression
Material to Excite fourteen (14) days in advance of the scheduled
Launch Date, Excite may, at its sole discretion (i) reschedule
the Launch Date according to the availability of Excite's
engineering resources after delivery of the complete Impression
Material or (ii) commence delivery of Impressions based on
Impression Material in Excite's possession at the time and/or
reasonable placeholders created by Excite.
3. SPONSORSHIP FEES AND REVENUE SHARING
a) A one-time sponsorship initiation fee of [XXXXXX] is due to
Excite upon execution of this Agreement as compensation for costs
of initiating access to the Excite Network, setup costs and other
expenses associated with Excites initiation of the links,
placements, advertisements and promotions contemplated by this
Agreement. The sponsorship initiation fee will be paid no later
than thirty (30) days after the Effective Date.
b) Separate and apart from the one-time sponsorship initiation fee,
Cyberian, will pay Excite sponsorship and advertising fees in the
total amount of [XXXXXX] in equal monthly installments of
[XXXXXX], commencing on the Launch Date.
c) Separate and apart from the one-time sponsorship initiation fee
and sponsorship and advertising fees, Cyberian will pay Excite
[XXXX] of gross revenues attributable to transactions
conducted by users referred to Cyberian's Web site from the
Excite Network during the term of the Agreement. Cyberian will
pay Excite its share of revenues within thirty (30) days after
the close of the financial quarter in which Cyberian recognizes
the revenue derived from these transactions.
d) The one-time sponsorship initiation fee, sponsorship and
advertising fees and transaction-related payments are net of any
agency commissions to be paid by Cyberian.
e) Cyberian will maintain accurate records with respect to the
calculation of all payments due under this Agreement. Excite
may, upon no less than thirty (30) days prior written notice to
Cyberian, cause an independent
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<PAGE>
Certified Public Accountant to inspect the records of Cyberian
reasonably related to the calculation of such payments during
Cyberian's normal business hours. The fees charged by such
Certified Public Accountant in connection with the inspection
will be paid by Excite unless the payments made to Excite are
determined to have been less than ninety-five percent (95%) of
the payments actually owed to Excite, in which case Cyberian will
be responsible for the payment of the reasonable fees for such
inspection.
4. CUSTOMER INFORMATION
Cyberian will retain all rights to customers acquired pursuant to this
Agreement
5. PUBLICITY
Neither party will make any public statement, press release or other
announcement relating to the terms of or existence of this Agreement
without the prior written approval of the other. Notwithstanding the
foregoing, the parties agree to issue an initial press release regarding
the relationship between Excite and Cyberian, the timing and wording of
which will be mutually agreed upon.
6. TERM AND TERMINATION
a) The term of this Agreement will begin on the Effective Date and
will end one year after the Launch Date.
b) Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach
remains uncured for thirty (30) days following the notice to the
breaching party of the breach.
c) All payments that have accrued prior to the termination or
expiration of this Agreement will be payable in full within
thirty (30) days thereof.
d) The provisions of Section 8 (Confidentiality), Section 9
(Warranty and Indemnity), Section 10 (Limitation of Liability)
and Section 11 (Dispute Resolution) will survive any termination
or expiration of this Agreement.
7. TRADEMARK OWNERSHIP AND LICENSE
a) Cyberian will retain the right, title and interest in and to its
trademarks, copyrights, service marks and trade names worldwide,
subject to the limited license granted to Excite hereunder.
b) Excite will retain all right, title and interest in and to its
trademarks, copyrights, service marks and trade names worldwide,
subject to the limited license granted to Cyberian hereunder.
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<PAGE>
c) Each party hereby grants to the other a non-exclusive, limited
license to use its trademarks, service marks or trade names only
as specifically described in this Agreement. All such use shall
be in accordance with each party's reasonable policies regarding
advertising and trademark usage as established from time to time.
d) Nothing in this Agreement grants either party any right to use
the name, trademark or service mark of, the other in any
advertisement, sales promotion or press release without the
others prior written approval.
8. CONFIDENTIALITY
a) For the purposes of this Agreement, "Confidential Information"
means information about the disclosing party's (or its
suppliers') business or activities that is proprietary and
confidential, which shall include all business, financial,
technical and other information of a party marked or designated
by such party as "confidential or proprietary"; or information
which, by the nature of the circumstances surrounding the
disclosure, ought in good faith to be treated as confidential.
b) Confidential Information will not include information that (i) is
in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party
without restriction on disclosure and without breach of a
nondisclosure obligation or (iii) the receiving party knew prior
to receiving such information from the disclosing party or
develops independently.
c) Each party agrees (i) that it will not disclose to any third
party or use any Confidential Information disclosed to it by the
other except as expressly permitted in this Agreement and (ii)
that it will take all reasonable measures to maintain the
confidentiality of all Confidential Information of the other
party in its possession or control, which will in no event be
less than the measures it uses to maintain the confidentiality of
its own information of similar importance.
d) Notwithstanding the foregoing, each party may disclose
Confidential Information (i) to the extent required by a court of
competent jurisdiction or other governmental authority or
otherwise as required by law or (ii) on a "need-to-know" basis
under an obligation of confidentiality to its legal counsel,
accountants, banks and other financing sources and their
advisors.
e) The terms and conditions of this Agreement will be deemed to be
the Confidential Information of each party and will not be
disclosed without the written consent of the other party.
9. WARRANTY AND INDEMNITY
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<PAGE>
a) Cyberian will indemnify, defend and hold harmless Excite, its
affiliates, officers, directors, employees, consultants and
agents from any and all third party claims, liability, damages
and/or costs (including, but not limited to, attorneys fees)
arising from:
i) The breach of any warranty, representation or covenant in
this Agreement;
ii) Any claim that Cyberian's advertising banners infringe or
violate any third party's copyright, patent, trade secret,
trademark, right of publicity or right of privacy or
contain any defamatory content;
iii) Any claim arising from any product or service offered
through the Cyberian Site; or
iv) Any claim arising from content displayed on the Cyberian
Site.
Excite will promptly notify Cyberian of any and all such claims and will
reasonably cooperate with Cyberian with the defense and/or settlement
thereof; provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices or
detrimentally impacts Excite in any way and such obligation, liability,
prejudice or impact can reasonably be expected to be material, then such
settlement shall require Excites written consent (not to be unreasonably
withheld or delayed) and Excite may have its own counsel in attendance at
all proceedings and substantive negotiations relating to such claim.
b) Excite will indemnify, defend and hold harmless Cyberian, its
affiliates, officers, directors, employees, consultants and
agents from any and all third party claims, liability, damages
and/or costs (including, but not limited to, attorneys fees)
arising from:
i) The breach of any warranty, representation or covenant in
this Agreement; or
ii) Any claim arising from content displayed on the Excite
Network.
Cyberian will promptly notify Excite of any and all such claims and
will reasonably cooperate with Excite with the defense and/or
settlement thereof; provided that, if any settlement requires an
affirmative obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Cyberian in any way and such
obligation, liability, prejudice or impact can reasonably be expected
to be material, then such settlement shall require Cyberian's written
consent (not to be unreasonably withheld or delayed) and Excite may
have its own counsel in attendance at all proceedings and substantive
negotiations relating to such claim.
c) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT
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<PAGE>
MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ANY AND ALL IMPUED
WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE REGARDING SUCH SUBJECT
MATTER.
1O. LIMITATION OP LIABILITY
EXCEPT UNDER SECTIONS 9(a) and 9(b), IN NO EVENT WILL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES. WHETHER BASED ON BREACH OF CONTRACT, TORT
(INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE
LIABILITY OF EXCITE FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER.
WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, IS LIMITED
TO, AND WILL NOT EXCEED, THE AMOUNTS ACTUALLY PAID BY CYBERIAN TO
EXCITE HEREUNDER.
11. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names
and/or confidentiality would result in irreparable injury for
which there is no adequate remedy at law. Therefore, in the event
of any breach or threatened breach of a party's obligations
regarding trademarks service marks or trade names or
confidentiality, the aggrieved party will be entitled to seek
equitable relief in addition to its other available legal
remedies in a court of competent jurisdiction. For the purposes
of this section only, the parties consent to venue in either the
state courts of the county in which Excite has its principal
place of business or the United States District Court for the
Northern District of California.
b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names and/or confidentiality, the parties
will first attempt to resolve the dispute(s) through good faith
negotiation. In the event that the dispute(s) cannot be resolved
through good faith negotiation, the parties will refer the
dispute(s) to a mutually acceptable mediator for hearing in the
county in which Excite has its principal place of business.
c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names and/or confidentiality, cannot be
resolved through good faith negotiation
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<PAGE>
and mediation, the parties will refer the dispute(s) to the
American Arbitration Association for resolution through binding
arbitration by a single arbitrator pursuant to the American
Arbitration Association's rules applicable to commercial
disputes. The arbitration will be held in the county in which
Excite has its principal place of business.
12. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole or
----------
in part, without the other patty's written consent (which will
not be unreasonably withheld), except that no such consent will
be required in connection with (i) a merger, reorganization or
sale of all. or substantially all, of such party's assets or (ii)
Excite's assignment and/or delegation of its rights and
responsibilities hereunder to a wholly-owned subsidiary or joint
venture in which Excite holds an interest. Any attempt to assign
this Agreement other than as permitted above will be null and
void.
b) Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the laws of the State of California.
notwithstanding the actual state or country of residence or
incorporation of Cyberian.
c) Notice. Any notice under this Agreement will be in writing and
------
delivered by personal delivery, express courier, confirmed
facsimile, confirmed email or certified or registered mail,
return receipt requested, and will be deemed given upon personal
delivery, one (1) day after deposit with express courier, upon
confirmation of receipt of facsimile or email or five (5) days
after deposit in the mail. Notices will be sent to a party at
its address set forth below or such other address as that party
may specify in writing pursuant to this Section.
d) No Agency. The parties are independent contractors and will have
---------
no power or authority to assume or create any obligation or
responsibility on behalf of each other. This Agreement will not
be construed to create or imply any partnership, agency or joint
venture.
e) Force Majeure. Any delay in or failure of performance by either
-------------
party under this Agreement will not be considered a breach of
this Agreement and will be excused to the extent caused by any
occurrence beyond the reasonable control of such party including,
but not limited to, acts of God, power outages and governmental
restrictions.
f) Severability. In the event that any of the provisions of this
------------
Agreement are held by to be unenforceable by a court or
arbitrator, the remaining portions of the Agreement will remain
in full force and effect.
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g) Entire Agreement. This Agreement is the complete and exclusive
----------------
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement
may only be modified, or any rights under it waived, by a written
document executed by both parties.
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Cyberian Systems, Inc. Excite, Inc.
By: /s/ Robert Rathbun By: /s/ Robert C. Hood
-------------------------- ------------------------
Name: Robert Rathbun Name: Robert C. Hood
------------------------- ----------------------
Title: VP Marketing/Bus. Dev Title: EVP - CFO
------------------------ ---------------------
Date: 12/4/97 Date: 12/04/97
------------------------- ----------------------
27 North Main Street 555 Broadway
Kent, Connecticut 06757 Redwood City, California 94063
850-927-2050 (voice) 650-568-6000 (voice)
850-927-2055 (fax) 650-568-6030 (fax)
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EXHIBIT A
CYBERIAN COMPETITORS
MicroWarehouse
Insight
NECX
CDW
MacMall
12
<PAGE>
Exhibit 10.16
Cyberian Outpost, Inc. has omitted from this Exhibit 10.16 portions of the
Agreement for which Cyberian Outpost, Inc. has requested confidential treatment
from the Securities and Exchange Commission. The portions of the Agreement for
which confidential treatment has been requested are marked with X's in brackets
and such confidential portions have been filed separately with the Securities
and Exchange Commission.
MARKETING AGREEMENT
THIS MARKETING AGREEMENT (the "Agreement") is made as of May 21st, 1998
(the "Effective Date") between THEGLOBE.COM, INC., with its principal place of
business at 31 West 21st Street, New York, NY 10010 ("theglobe"), and CYBERIAN
OUTPOST, INC., with its principal place of business at 27 North Main Street,
P.O. Box 636, Kent, CT 06757 ("Provider").
A. The Standard Terms and Conditions are incorporated herein by reference.
B. The following business terms apply:
(1) IMPRESSIONS. the globe shall deliver at least: (I) [XXXXX] page
impressions of Provider Content each month on theglobe's home page, and (II)
[XXXXX] page impressions of Provider Content each month in contextually
relevant places on theglobe.com as determined by theglobe in is sole discretion.
If theglobe does not meet the foregoing delivery requirements, theglobe's sole
and exclusive obligation shall be to continue to display the Provider Content in
the applicable location(s) until the minimum number of page impressions has been
reached.
(2) EXCLUSIVE POSITIONING. During the turn of this Agreement, Provider
shall be the only entity listed in the retailer listing space under the
"Computer" heading in theglobe's Marketplace. theglobe will promptly eliminate
the "Hardware and Software" heading. However, Provider understands that
existing affiliates under the "Software and Hardware" heading will be in the
"Computer" heading until the legal termination of theglobe's relationship with
such companies has occurred; theglobe shall initiate such legal termination
immediately upon signing of this Agreement.
(3) EMAILS. theglobe shall incorporate Provider branding in at least one
email per month sent to all registered theglobe.com users.
(4) PAYMENT. Provider shall pay [XXXXX] per month, payable monthly in
advance. Payment shall be overdue on the monthly anniversary of the Effective
Date.
THEGLOBE: PROVIDER:
By: /s/ Michael J. O'Neal By: /s/ Darryl Peck
----------------------- ------------------------
Title: Associate Director, Business Title: President & CEO
Development
<PAGE>
STANDARD TERMS AND CONDITIONS
1. DEFINITIONS.
1.1. "PROVIDER CONTENT" means all materials delivered by Provider to
theglobe for display on theglobe.com.
1.2. "PROVIDER PAGES" means http://www.outpost.com and all pages linked
directly or indirectly from this page.
1.3. "PROVIDER'S MARKS" means the Provider's domain name and the Provider
logos and trademarks provided by Provider to theglobe under this
Agreement.
1.4. "REFERRAL" means a user who links from theglobe to the Provider Pages
(either from the Marketplace or some other link resident on
theglobe.com). A Referral shall remain a Referral as they browse the
Provider Pages.
2. PAYMENT.
2.1. REPORTING. Within 30 days following the end of each month, theglobe
shall report to Provider the number of page impressions for the
Provider Content delivered that month and such other information as
theglobe generally provides to its advertisers.
2.2. TAXES. All fees and payments stated herein exclude, and the Provider
shall pay, any sales, use, property, license, value added,
withholding, excise or similar tax, federal, state or local, related
to the parties' performance of its obligations or exercise of its
rights under this Agreement and any related duties, tariffs, imposts
and similar charges, exclusive of taxes based on the paying party's
net income.
2.3. PAYMENT TERMS. Overdue payments shall accrue interest, at the lesser
of 1 1/2% per month or the maximum allowable interest under
applicable law, from due date until paid, and Provider shall pay
theglobe's costs of collection (including reasonable attorneys'
fees).
3. MARKETING.
3.1. FRAMING. theglobe in its sole discretion may frame the Provider
Pages, and any consideration theglobe derives from such frames shall
be solely theglobe's.
2
<PAGE>
3.2. DELIVERY OF PROVIDER CONTENT. Provider shall develop and deliver to
theglobe, at Provider's expense, the Provider Content. theglobe may in
its sole discretion refuse to display any Provider Content. In the
event that Provider Content does not conform to theglobe's then-
current technical specifications for such content, theglobe may in its
discretion refuse such Provider Content.
4. LICENSES AND STANDARDS.
4.1. COPYRIGHT GRANT. Provider hereby grains to theglobe a non-exclusive,
royalty-free, worldwide license to use, reproduce, distribute, create
derivative works of, publicly perform, publicly display and digitally
perform the Provider Content on or in conjunction with theglobe.com.
4.2. TRADEMARKS. Provider hereby grains to theglobe a non-exclusive,
royalty-free, worldwide license to use the Provider's Marks in links
to and advertisements and promotions for the Provider Pages.
4.3. RESTRICTIONS. Title to and ownership of Provider's Marks shall remain
with Provider. theglobe shall not form any combination marks with
Provider's Marks. theglobe shall not take any action inconsistent
with the owner's ownership of Provider's Marks and any benefits
accruing from use of such trademarks shall automatically vest in
Provider.
4.4. QUALITY STANDARDS. Provider shall not provide any information from
the Provider Pages that is inconsistent with the labeling,
categorization, advertising and (if applicable) rating of the
Provider Pages. Provider shall provide the goods and services offered
on or through the Provider Pages, and any related customer and
technical support, on a quality level substantially equivalent to the
quality offered by Provider's online competitors. Provider shall
clearly state, and shall follow the stated, warranty and refund
policies. Furthermore, Provider shall treat Referrals on a non-
discriminatory basis.
4.5. PROVIDER CONTEXT STANDARDS. As between theglobe and Provider,
Provider is solely responsible for any legal liability arising of or
relating to Provider Content or the Provider Pages. The Provider
Content and the Provider Pages: (a) shall not infringe any third
party's copyright, patent, trademark, trade secret or other
proprietary rights or rights of publicity or privacy; (b) shall not
violate any law, statute, ordinance or regulation (including without
limitation the laws and regulations governing export control, unfair
competition, antidiscrimination or false advertising); (c) shall not
be defamatory, trade libelous, unlawfully threatening or unlawfully
harassing; (d) shall not be obscene, pornographic or indecent or
contain child pornography; and (e) shall not contain any viruses,
trojan horses, worms, time bombs, cancelbots or other computer
programming
3
<PAGE>
routines that are intended to damage, detrimentally interfere with,
surreptitiously intercept or expropriate any system, data or personal
information.
5. INFORMATION ABOUT REFERRALS. Provider shall not disclose to any third
parties any information or data collected from or about Referrals (including
both voluntarily-disclosed information and any information Provider gleans
about Referrals from their access or use of the Provider Pages), nor may
Provider use such information for any purpose other than as necessary to
deliver purchased goods or services to Referrals. Provider shall use at
least industry-standard methods to protect the security of such Referral-
related information.
6. DISCLAIMER OF WARRANTIES. EACH PARTY PROVIDES ALL MATERIALS AND SERVICES TO
THE OTHER PARTY "AS IS." EACH PARTY DISCLAIMS ALL WARRANTIES AND CONDITIONS,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
TITLE, NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. Each party acknowledges that it has not entered into this Agreement
in reliance upon any warranty or representation except those specifically
set forth herein.
7. TERM AND TERMINATION. The initial term of this Agreement is 6 months
following the Effective Date. Thereafter, the Agreement shall continue until
terminated by either party by providing 60 days prior written notice.
Notwithstanding the foregoing, commencing on the 3 month anniversary
of this Agreement, the parties shall negotiate in good faith for a possible
additional revenue share to theglobe based on theglobe's performance. If,
by the 4 month anniversary of this Agreement, the parties have not reached
a conclusion to these negotiations and theglobe, reasonably and in good
faith, believes that it deserves an additional revenue share that has not
been agreed to by Provider, theglobe may terminate this Agreement.
This Agreement also may be terminated early: (a) if a material breach
is not cured within 30 days of notice, or (b) as described in Section 10.3.
Sections 5, 6, 7, 8, 9 and 10 shall survive termination. In addition, the
provisions of Section 4 shall continue so long as theglobe is required to
perform under Section B(1).
8. LIMITATION ON LIABILITY. EXCEPT IN THE EVENT OF A BREACH OF SECTION 5,
NEITHER PARTY SHALL BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES OR LOST PROFITS (HOWEVER ARISING, INCLUDING NEGLIGENCE) ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT.
EXCEPT IN THE EVENT OF A CLAIM UNDER SECTION 9 OR A BREACH OF SECTION
5, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
4
<PAGE>
OTHER PARTY IN AN AMOUNT GREATER THAN THE AMOUNTS ACTUALLY PAID BY PROVIDER
TO THEGLOBE HEREUNDER.
9. INDEMNITY. Each party (the "Indemnifying Party") shall indemnify the other
party (the "Indemnified Party") against any and all claims, losses, damages
costs and expenses, including reasonable attorneys' fees, which the
Indemnified Party may incur as a result of claims in any form by third
parties arising from: (a) the Indemnifying Party's acts, omissions or
misrepresentations to the extent that the Indemnified Party is deemed a
principal of the Indemnifying Party, or (b) the violation of any third
party proprietary right by the Indemnifying Party's domain name, software
or any content provided by the Indemnifying Party for use on the
indemnified Party's servers. In addition, Provider shall indemnify theglobe
against any and all claims, losses, damages, costs and expenses, including
reasonable attorneys' fees which theglobe may incur as a result of claims
in any form by third parties arising from (x) the Provider Content or the
content on the Provider Pages, (y) Provider's breach of Section 10.5, or
(z) the goods or services offered or sold by Provider. The foregoing
obligations are conditioned on the Indemnified Party: (i) giving the
Indemnifying Party notice of the relevant claim, (ii) cooperating with the
Indemnifying Party, at the Indemnifying Party's expense in the defense of
such claim, and (iii) giving the Indemnifying Party the right to control
the defense and settlement of any such claim, except that the Indemnifying
Party shall not enter into any settlement that affects the Indemnified
Party's rights or interest without the Indemnified Party's prior written
approval. The Indemnified Party shall have the right to participate in the
defense at its expense.
10. GENERAL PROVISIONS.
10.1. GOVERNING LAW. This Agreement will be governed and construed in
accordance with the laws of the State of New York without giving
effect to conflict of laws principles. Both parties submit to
jurisdiction in New York and further agree that any cause of action
arising under this Agreement shall be brought in a court in New
York, New York.
10.2. SEVERABILITY; HEADINGS. If any provision herein is held to be
invalid or unenforceable for any reason, the remaining provisions
will continue in full force without being impaired or invalidated in
any way. Headings are for reference purposes only and in no way
define, limit, construe or describe the scope or extent of such
section.
10.3. FORCE MAJEURE. If performance hereunder is prevented, restricted or
interfered with by any act or condition whatsoever beyond the
reasonable control of a party, the party so affected, upon giving
prompt notice to the other party, shall be excused from such
performance to the extent of such prevention, restriction or
interference. Each party acknowledges that the operation of the
other party's website and services may be interfered with by
numerous factors outside of a party's control, and theglobe does not
guarantee continuous or uninterrupted
5
<PAGE>
display of Provider Content. However, if for any reason (including a
force majeure) the Provider Pages are not available for more than 4
hours in any one 24 hour period or 97% in any one month, theglobe
may terminate this Agreement.
10.4. INDEPENDENT CONTRACTORS. The parties are independent contractors,
and no agency, partnership, joint venture, employee-employer or
franchisor-franchisee relationship is intended or created by this
Agreement. Neither party shall make any warranties or
representations on behalf of the other party.
10.5. COMPLIANCE WITH LAWS. At its own expense, Provider shall comply
with all applicable laws, regulations, rules, ordinances and orders
regarding the operation of the Provider Pages, the offering of goods
and services from the Provider Pages, and its other activities
related to this Agreement.
10.6. NOTICE. Any notices hereunder shall be given to the appropriate
party at the address specified above or at such other address as the
party shall specify in writing. Notice shall be deemed given: upon
personal delivery; if sent by fax, upon confirmation of receipt; or
if sent by certified or registered mail, postage prepaid, 5 days
after the date of mailing.
10.7. ENTIRE AGREEMENT; WAIVER. This Agreement sets forth the entire
understanding and agreement of the parties, and supersedes any and
all oral or written agreements or understandings between the
parties, as to the subject matter of this Agreement. It may be
changed only by a writing signed by both parties. The waiver of a
breach of any provision of this Agreement will not operate or be
interpreted as a waiver of any other or subsequent breach.
6
<PAGE>
EXHIBIT 10.17
Cyberian Outpost, Inc. has omitted from this Exhibit 10.17 portions of
the Agreement for which Cyberian Outpost, Inc. has requested confidential
treatment from the Securities and Exchange Commission. The portions of the
Agreement for which confidential treatment has been requested are marked
with X's in brackets and such confidential portion have been filed
separately with the Securities and Exchange Commission.
RENEWAL
<TABLE>
<S> <C>
GO2NET Insertion Order: 0440-98-0256
999 Third Avenue Suite 4700 Rep: JK Coordinator: MP
Seattle, WA 98104 Date: 5/6/98
Advertiser: Cyberian Outpost Parent Company:
Advertising Contact: Bob Rathbun Agency: N/A
Contact's Telephone: 860-927-2050 Fax: 860-927-2055
Advertiser's Address: 27 N. Main Street, Kent, CT
Billing Address: same as above
Billing Contact: Bob Rathbun Telephone: 860-927-2050
Billing email address: [email protected]
URL Advertisement is to be linked to:
Email address of ad creative contact:
Alt Text:
</TABLE>
ADVERTISING PACKAGE:
<TABLE>
<S> <C> <C> <C> <C>
[MC front page] [MC Keywoods] [StockSite] ROS go2vision
[MC run-of-site] [Marketplace] [Playsite] MetaSpy [Other]
</TABLE>
Ads will be served:
X from go2net's servers
- ---
remotely
The advertiser can comply with the ad specs
foundathttp://www.go2net.com/ads/adspecs.html Initial_______
Ad Description: MetaCrawler Marketplace Keyword Campaign Keywords: Keywords will
be hardware/software related
Start Date: May 8, 1998 End Date: August 8, 1998
Pricing: Flat fee of [XXXXX] per month
Impressions:
[XXXXX] (120 x 60) impressions per month on MetaCrawler home page
<PAGE>
[XXXXX] (468 x 60) impressions per month on MetaCrawler home page
[XXXXX] keyword impressions per month
Inclusion on MetaCrawler Marketplace page
Permanent link on MetaCrawler home page (at least [XXXXX] home page
views/month)
Added Value: [XXXXX] bonus impressions per month on other go2net sites
Additional impressions delivered May 11-31:
[XXXXX] (120 x 60) impressions
[XXXXX] (468 x 60) ROS on MetaCrawler
[XXXXX] (468 x 60) on other go2net sites (PlaySite, StockSite, Useless
Pages)
Billing Schedule: Pay net 20 each month after start date.
We ask that all ad banners/squares be sent to go2net in email as attached files.
This email should also include:
1) the alt tag(s) desired for banner(s)
2) the url(s) the ad(s) should be linked to
3) if ad(s) correspond to specific keywords, a detailed listing of which ad(s)
corresponds to which word(s) is also required.
Failure to send any of the above items may cause delay in placing ads into
rotation.
Send ad to: [email protected]
Private URL for checking and delivery and click-throughs will be provided when
ad goes live.
Please send all payments and direct any billing questions attn: Accounts
Receivable.
AD SPECS:
MetaCrawler:
Banner: 468 x 60; 12k file size; maximum animation 8 seconds
Square (portal): 125 x 125; 8k file size; maximum animation 8 seconds
Marketplace: 120 x 60; 6k file size; no animation
PlaySite:
Banner: 468 x 60; 12 k file size; no animation
go2net content (StockSite/Useless Pages):
Banner: 468 x 60; 12k file size; maximum animation 8 seconds
Square (portal): 125 x 125; 8k file size; maximum animation 8 seconds
We only accept image advertising. No shockwave, egi script, real audio, image
maps, pull-down menus, Intend or Java. Just plain images and animated images.
Any changes an advertiser asks go2net to make to an ad will be subject to a
minimum $500 fee.
Advertiser's Initials:_____________
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The undersigned is legally empowered to enter into this Agreement and agrees to
be bound by the terms and conditions of this Agreement. Sign contract and
return with payment to go2net, Inc.
Advertiser
Signature: /s/ Robert Rathbun Title: VP, Marketing
------------------------- --------------------------------
Print Name: Robert Rathbun Date: 5/8/98
------------------------- --------------------------------
go2net, Inc.
Signature: /s/ Ethan Caldwell Title GM
------------------------- --------------------------------
Print Name: Ethan A. Caldwell Date: 5/8/98
------------------------- --------------------------------
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Advertising Agreement Terms & Conditions
The advertiser named on the Advertising Order attached hereto ("Order") desires
to have certain material developed and published on the World Wide Web/Internet
by go2net, Inc. ("go2net") upon the terms and conditions set forth herein and on
the terms and conditions set forth in the Advertising Order attached hereto
(together, this "Agreement").
All payments shall be due in advance. Advertisers who have submitted credit
applications and received approval from go2net on such applications will be
given net 20 days terms. A late charge of 1.5 percent per month of the
outstanding balance shall be applied to each payment not made within 20 days
from receipt of the invoice.
All materials that Advertiser desires to have go2net place online are subject to
go2net's approval. go2net expressly reserves the right, at its sole discretion
and at any time, to cancel any Advertising Order or reject any advertising
material, including withdrawing any advertising materials which are currently on
display or have previously been published. If any advertising materials are
withdrawn or canceled prior to display, go2net's only obligation to Advertiser
will be to refund any fees paid in advance of the canceled advertising.
The term of the advertising shall be as set forth on the Advertising Order
attached hereto. Either party may terminate this Agreement at any time in the
event of a material breach by the other party, which remains uncured after
thirty days written notice thereof. Notice shall be deemed to have been
received five days after mailing such notice if sent by first class mail or on
the day transmitted if sent by facsimile transmission. go2net further reserves
the right to cancel this agreement for any reason, provided written notice is
sent to the Advertiser.
For any reason other than a material breach by go2net, Advertiser may not
terminate this agreement.
Advertiser is solely responsible for any legal liability arising out of or
relating to the material that Advertiser desires to have go2net place online for
purposes of the advertising ("Advertising Material"). Advertiser represents and
warrants that the Advertising Material it seeks to have go2net place online
complies with go2net's standards, and that Advertiser holds the necessary rights
to permit use of the Advertising Materials by go2net for the purpose of this
Agreement; and that the use, reproduction, distribution, or transmission of the
Advertising Material will not violate any criminal laws or any rights of any
third parties, including, but not limited to, such violations as infringement or
misappropriation of any copyright, patent, trademark, trade secret, music,
image, or other proprietary or property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity, violation
of any anti-discrimination law or regulation, or any other right of any person
or entity. Advertiser agrees to indemnify go2net and to hold go2net harmless
from any and all liability, loss, damages, claims, or causes of action,
including reasonable legal fees and expenses that may be incurred by go2net,
arising out of or related to Advertiser's breach of any of the foregoing
representations and warranties.
go2net is not responsible or liable for any errors in content or omissions or
consequences, damages, costs, refunds or rebates of any kind arising from any
interruption of service or other unavailability of the Internet or Web site in
which the advertising is displayed for whatever reason.
4
<PAGE>
go2net makes no representations or warranties relating to the results of
Advertiser's advertising by means of the Internet, including without limitation,
the number of page views or click-throughs such advertising will receive and any
promotional effect thereof.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Washington, without giving effect to its conflicts of laws rules.
Any dispute or controversy arising under or related to this Agreement shall be
adjudicated in a court of competent jurisdiction within the City of Seattle,
State of Washington. The parties hereto each hereby waive any jurisdiction,
venue and inconvenient forum objections to any state or federal court sitting in
the City of Seattle, Washington.
This Agreement supersedes and replaces any existing written or oral agreements
between go2net and Advertiser and may be modified only in writing signed by both
parties. Any failure by go2net to enforce any provision of this Agreement shall
not constitute a waiver of any term hereof. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof. If any
provision of this Agreement is determined to be invalid, illegal or
unenforceable, the enforceability of the remaining provisions shall not be
affected.
go2net shall have the right to hold Advertiser and/or its agency or agent
jointly and severally liable for such monies go2net is due and payable on
publication of the advertisement. If payments are not made in a timely manner,
go2net, at its option, may terminate this Agreement.
Initial: Advertiser /s/ R.R. go2net /s/ E.C.
-------- --------
Date Signed: 5/8/98
---------------
5
<PAGE>
EXHIBIT 11.1
CYBERIAN OUTPOST, INC. AND SUBSIDIARY
COMPUTATION OF LOSS PER SHARE
<TABLE>
<CAPTION>
MARCH 6,
1995 (DATE
OF
INCEPTION) YEARS ENDED THREE MONTHS
THROUGH FEBRUARY 28, ENDED MAY 31,
FEBRUARY 29, ---------------- ---------------
1996 1997 1998 1997 1998
------------ ------- ------- ------ -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Basic:
Net loss...................... $ (372) $(1,338) $(7,092) $ (722) $(4,156)
Accumulated dividends on
Redeemable Series C
Convertible Preferred Stock.. -- -- -- -- (356)
Accretion on Redeemable Series
C Convertible Preferred
Stock........................ -- -- -- -- (120)
------ ------- ------- ------ -------
Net loss applicable to common
stockholders................. $ (372) $(1,338) $(7,092) $ (722) $(4,632)
====== ======= ======= ====== =======
Basic weighted average shares
outstanding.................. 5,244 6,145 6,633 6,494 6,680
====== ======= ======= ====== =======
Basic loss per common share... $(0.07) $ (0.22) $ (1.07) $(0.11) $ (0.69)
====== ======= ======= ====== =======
Diluted:
Net loss applicable to common
stockholders................. $ (372) $(1,338) $(7,092) $ (722) $(4,632)
====== ======= ======= ====== =======
Basic weighted average shares
outstanding.................. 5,244 6,145 6,633 6,494 6,680
Net effect of dilutive stock
options and warrants based on
the treasury stock method.... -- -- -- -- --
------ ------- ------- ------ -------
Diluted weighted average
shares outstanding........... 5,244 6,145 6,633 6,494 6,680
====== ======= ======= ====== =======
Diluted loss per common
share........................ $(0.07) $ (0.22) $ (1.07) $(0.11) $ (0.69)
====== ======= ======= ====== =======
</TABLE>
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULE
The Boards of Directors
Cyberian Outpost, Inc. and Subsidiary:
The audits referred to in our report dated April 24, 1998, except for note
10(d), which is as of July 7, 1998, included the related financial statement
schedule as of February 28, 1997 and 1998, and for the period from March 6,
1995 (dated of inception) through February 29, 1996 and for the years ended
February 28, 1997 and 1998, included in the Registration Statement. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the inclusion of our report dated April 24, 1998, except for
note 10(d), which is as of July 7, 1998, with respect to the consolidated
balance sheets of Cyberian Outpost, Inc. and Subsidiary, as of February 28,
1997 and 1998, and the related consolidated statements of operations,
redeemable preferred stock and stockholders' deficit, and cash flows for the
period from March 6, 1995 (date of inception) through February 29, 1996, and
for the years ended February 28, 1997 and 1998, which report appears in this
Registration Statement, and to the references to our firm under the headings
"Selected Consolidated Financial Data," and "Experts" in this Registration
Statement.
KPMG Peat Marwick LLP
Providence, Rhode Island
July 8, 1998
<PAGE>
EXHIBIT 99.1
The undersigned hereby consents to the references to the undersigned under
the caption "Industry Overview" included in the Registration Statement on Form
S-1 of Cyberian Outpost, Inc. and any amendment thereto.
Jupiter Communications
/s/ Yvette DeBow
_____________________________________
Yvette DeBow
July 6, 1998
<PAGE>
EXHIBIT 99.2
The undersigned hereby consents to the references to the undersigned under
the caption "Industry Overview" included in the Registration Statement on Form
S-1 of Cyberian Outpost, Inc. and any amendments thereto.
IDC
/s/ Alexa McCloughan
-------------------------------------
Alexa McCloughan
July 8, 1998
<PAGE>
EXHIBIT 99.3
CONSENT OF WORD OF NET PROMOTIONS
The undersigned hereby consents to the references to the undersigned under
the caption "Linking and Affiliate Programs" included in the Registration
Statement on Form S-1 of Cyberian Outpost, Inc. and any amendments thereto.
Word of Net Promotions.
/s/ Roma Casey
-------------------------------------
Roma Casey
July 2, 1998
<PAGE>
EXHIBIT 99.4
CONSENT OF LOUISE R. COOPER
The undersigned hereby consents to being named as Vice President of
Worldwide Marketing in the Registration Statement on Form S-1 of Cyberian
Outpost, Inc. and any amendments thereto.
/s/ Louise R. Cooper
_____________________________________
Louise R. Cooper
July 7, 1998
