<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1999
REGISTRATION NO. 333-76383
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
STREAMLINE.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 04-3187302
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Numbers) Identification No.)
</TABLE>
------------------------------
27 DARTMOUTH STREET
WESTWOOD, MASSACHUSETTS 02090
(781) 407-1900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
TIMOTHY A. DEMELLO
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
STREAMLINE.COM, INC.
27 DARTMOUTH STREET
WESTWOOD, MASSACHUSETTS 02090
(781) 407-1900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
WAYNE D. BENNETT, ESQ. KEITH F. HIGGINS, ESQ.
BINGHAM DANA LLP ROPES & GRAY
150 FEDERAL STREET ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02110
(617) 951-8000 (617) 951-7000
FACSIMILE NO. (617) 951-8736 FACSIMILE NO. (617) 951-7050
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
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, as amended, 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 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 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
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO OFFERING AGGREGATE AMOUNT OF
BE PRICE PER OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE (1) FEE (2)
<S> <C> <C> <C> <C>
Common stock, $0.01 par value per share....................................... 5,750,000 $13.00 $74,750,000 $20,781
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933, as amended.
(2) Of this amount, a registration fee of $19,182 was paid at the time of the
initial filing of this registration statement.
------------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed without
notice. Streamline.com may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities, and
Streamline.com is not soliciting offers to buy these securities, in any state
where the offer or sale of these securities is not permitted.
<PAGE>
Prospectus (Not Complete)
Issued May 19, 1999
5,000,000 SHARES
[LOGO]
STREAMLINE.COM, INC.
COMMON STOCK
------------
Streamline.com is offering 5,000,000 shares of its common stock. This is our
initial public offering and no public market currently exists for our shares. We
estimate that the initial public offering price for our shares will be between
$11.00 and $13.00 per share.
-------------------
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "SLNE."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
-----------------
<TABLE>
<CAPTION>
Per Share Total
--------------- -----
<S> <C> <C>
Public Offering Price................................................ $ $
Discounts and Commissions to Underwriters............................ $ $
Proceeds to Streamline.com........................................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This is a firm commitment underwriting. The underwriters have a 30-day
option to purchase up to an additional 650,000 shares from us and 100,000 shares
from Timothy A. DeMello, our Chairman, Chief Executive Officer and President, to
cover any over-allotments. Banc of America Securities LLC expects to deliver the
shares of common stock to investors on ______, 1999.
Banc of America Securities LLC
PaineWebber Incorporated
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
INTERNET
DISTRIBUTION BY
E*TRADE Securities
------------
The date of this prospectus is , 1999
<PAGE>
[Outside Front Gate]
(Two frames with images and text. The first frame is labeled "The Customer" and
contains a picture of a mother and child; accompanying text explains that
consumers demand time-saving alternatives. The second frame is labeled "The
Problem" and contains the image of a child pushing a grocery cart through a
supermarket; accompanying text describes stressful, time-consuming demands.)
[Inside Front Cover]
(Under the heading "The Solution" is a series of pictures and text
circumscribing an oval with text in the center that describes the way in which
Streamline.com simplifies the lives of busy suburban families. Each image
indicates an advantage of using Streamline.com. Rotating clockwise around the
oval, the pictures are labeled "Pantry Replenishment", "Easy Ordering",
"Merchandising", "Warehousing", "Efficient Picking", "Packing", "Delivery",
"Unattended Delivery", each picture being accompanied by a brief list of
descriptive phrases. "Customer", "Merchandising", "Order Assembly", and
"Delivery" appear in the respective corners of the page.)
[Inside Back Cover]
(Under the heading "The Shopping Software", four screen shots labeled,
"Marketplace", "Compare", "Video" and "Personal Shopping List" highlight
features of Streamline.com's CD-ROM application.)
THE MARKS STREAMLINE-REGISTERED TRADEMARK- AND WE BRING IT ALL
HOME-REGISTERED TRADEMARK- ARE FEDERALLY REGISTERED U.S. SERVICE MARKS AND THE
MARKS DRO(SM), DON'T RUN OUT(SM) AND SIMPLE SOURCE(TM) ARE SUBJECT TO PENDING
APPLICATIONS FOR REGISTRATION. EACH OF THESE MARKS ARE THE PROPERTY OF
STREAMLINE. THIS PROSPECTUS CONTAINS TRADEMARKS, SERVICE MARKS AND TRADE NAMES
OF COMPANIES AND ORGANIZATIONS OTHER THAN STREAMLINE.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 4
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...................... 22
Business................................................................................................... 34
Management................................................................................................. 50
Certain Transactions....................................................................................... 58
Principal Stockholders..................................................................................... 60
Description of Capital Stock............................................................................... 62
Shares Eligible for Future Sale............................................................................ 66
Underwriting............................................................................................... 67
Legal Matters.............................................................................................. 70
Experts.................................................................................................... 70
Additional Information..................................................................................... 70
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY. UNLESS OTHERWISE INDICATED,
ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS WILL
NOT EXERCISE THEIR OVER-ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND UNCERTAINTIES. STREAMLINE'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS REFLECTS AN AMENDMENT TO
STREAMLINE'S CERTIFICATE OF INCORPORATION WHICH WILL RESULT IN A 1-FOR-2 REVERSE
STOCK SPLIT OF STREAMLINE'S COMMON STOCK AND ALSO REFLECTS THE CONVERSION OF
STREAMLINE'S SERIES A, SERIES B, SERIES C AND SERIES D CONVERTIBLE PREFERRED
STOCK INTO COMMON STOCK.
STREAMLINE.COM, INC.
We simplify the lives of busy suburban families by providing them with
Internet-based ordering of a wide range of quality goods and services and
delivering these items directly to their homes. By eliminating frequent trips to
multiple physical stores, we significantly shorten and simplify the traditional
shopping needs of our customers, who increasingly demand time-saving lifestyle
solutions. We deliver our products and services to each customer through a
single weekly delivery. Our products, which we purchase directly from
wholesalers, distributors and manufacturers, include:
<TABLE>
<S> <C>
- brand-name groceries - fresh baked goods
- quality meats and seafood - freshly prepared meals
- fresh produce - health and beauty care products
- dairy products, including gourmet - cleaning supplies and other household
cheeses items
- sliced-to-order deli products - specialty pet food and supplies
- organic foods - fresh flowers
- frozen foods - stationery supplies and postage stamps
- kosher foods - seasonal items, including firewood,
charcoal and holiday products
</TABLE>
In addition, we offer a wide range of related services, such as:
<TABLE>
<S> <C>
- dry cleaning pick-up and delivery - package pick-up and delivery
- clothing alteration and repair - bottle and can redemption
- video and video game rental - shoe repair
- film processing and supplies - food and clothing drives
- bottled water and cooler delivery
</TABLE>
Our necessity-based product and service offerings, combined with the
frequency of ordering and delivery, create an opportunity to develop long-term
customer relationships. Streamline's target customers are dual-income households
having at least one child and access to the Internet. During 1998, our average
customer placed approximately 40 orders and average product and service revenue
per order invoice was $102. We also derive revenue from monthly subscription
fees and from advertising, research and marketing fees.
We have provided our products and services to suburban households in the
greater Boston area over the past several years and have developed a business
model that we intend to replicate in other markets across the country. This
model includes:
- an attractive, highly functional and user-friendly Internet-based ordering
process
- a consumer resource center, which is a strategically located,
multi-temperature zone, warehouse-based, dedicated fulfillment center
designed to efficiently aggregate a wide range of goods and services
4
<PAGE>
- a physical presence in the customer's home, which includes a
refrigerator/freezer and a compact storage unit, collectively referred to
as the Streamline box
- a highly targeted customer base of busy suburban families who value
time-saving Internet ordering and unattended home delivery
- an extensive database of customer purchase behavior information
- long-term relationships with leading global consumer packaged goods
companies
Streamline has been recognized as a pioneer in the emerging consumer direct
marketplace by Progressive Grocer magazine. We are developing merchandising
programs with leading consumer packaged goods companies and business partners.
These relationships generally provide us with revenue, through fees received
from participants in these programs, as well as merchandising concepts and other
business opportunities to ensure the most effective use of our channels to the
consumer. Streamline is entering the third year of its working relationships
with the following consumer packaged goods companies:
- The Gillette Company
- Kraft Foods, Inc.
- Nestle USA, Inc.
- The Procter & Gamble Company
- Warner-Lambert Company
and has recently initiated relationships with:
- Campbell Soup Company
- Kimberly-Clark Corporation
- Mott's North America, a subsidiary of Cadbury Schweppes plc
- Nabisco, Inc.
- The Pillsbury Company
- Ralston Purina Company
- Sargento Foods Inc.
We have further expanded our product and service offerings by establishing
alliances, which are primarily revenue-sharing hyperlink arrangements, with
other operators of e-commerce websites, including barnesandnoble.com, eToys.com,
Nordstrom.com, Outpost.com and PCFlowers.com. In addition, we are collaborating
with Nordstrom, Inc., a significant stockholder, on marketing opportunities.
These relationships are governed by short-term contracts or unwritten
arrangements that may be cancelled by either party at any time.
Our objective is to be the leading consumer direct supplier of frequently
purchased goods and services. Our strategy to accomplish this objective
includes:
- expanding nationally by replicating our business model
- developing and strengthening our customer acquisition capabilities
- increasing revenue per customer
- maintaining and developing relationships with consumer packaged goods
companies, e-commerce companies and strategic investors
- maximizing operational efficiency
Streamline.com, Inc. is a Delaware corporation organized in 1993. Our
principal executive offices are located in Westwood, Massachusetts and our
telephone number is (781) 407-1900. Our website is located at
www.streamline.com. Information contained on our website is not incorporated by
reference into this prospectus and you should not consider such information a
part of this prospectus.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Streamline.com...................... 5,000,000 shares
Common stock to be outstanding after this offering.......... 18,273,881 shares
Use of proceeds............................................. For expansion and general
corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol...................... SLNE
</TABLE>
The common stock to be outstanding after this offering is based on shares
outstanding as of March 31, 1999 and excludes 1,999,714 shares of common stock
issuable upon the exercise of outstanding stock options and warrants at a
weighted average exercise price of $5.78 per share. See "Capitalization" and
Notes 9 and 10 to Consolidated Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table contains summary consolidated financial data of
Streamline. You should read this information in conjunction with the
Consolidated Financial Statements and related Notes included elsewhere in this
prospectus.
Pro forma per share amounts in the table below reflect the conversion of all
issued and outstanding shares of preferred stock of Streamline into common stock
as if the shares had been converted immediately upon their issuance. See Note 2
to Consolidated Financial Statements. The pro forma as adjusted balance sheet
data in the table below reflects the sale of 5,000,000 shares of common stock
offered hereby at the initial public offering price of $12.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by Streamline.
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................. $ 922 $ 2,634 $ 6,946 $ 1,202 $ 2,987
Total operating expenses...... 2,811 11,134 17,383 3,726 6,356
Net loss...................... (1,846) (8,315) (11,373) (2,493) (3,262)
UNAUDITED PRO FORMA NET LOSS
PER COMMON SHARE:
Basic and diluted........... $(1.28) $(0.25)
Shares used in computing
unaudited pro forma basic
and diluted net loss per
common share.............. 8,918,465 13,238,167
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
31, 1998 MARCH 31, 1999
----------- ----------------------
PRO FORMA
ACTUAL ACTUAL AS ADJUSTED
----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 12,593 $ 9,317 $ 64,017
Working capital........................................... 12,061 8,277 62,977
Total assets.............................................. 20,066 18,307 73,007
Capital lease obligations, net of current portion......... 381 603 603
Redeemable convertible preferred stock.................... 37,186 37,471 --
Stockholders' (deficit) equity............................ $ (18,593) $ (22,141) $ 70,030
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING US. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE DO NOT PRESENTLY
KNOW ABOUT OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO ADVERSELY IMPACT
OUR BUSINESS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN SUCH CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD FALL, AND YOU MAY LOSE ALL OR PART
OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT STREAMLINE AND OUR
INDUSTRY THAT INVOLVE RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS
ARE USUALLY ACCOMPANIED BY WORDS SUCH AS "BELIEVE," "ANTICIPATE," "PLAN,"
"SEEK," "EXPECT," "INTEND" AND SIMILAR EXPRESSIONS. OUR ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS
BECAUSE OF FACTORS SUCH AS THE RISK FACTORS DISCUSSED BELOW. WE UNDERTAKE NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
WE HAVE A LIMITED OPERATING HISTORY
Although we were founded in 1993, most of our revenue growth has occurred
over the past two years. Accordingly, we have a limited operating history on
which to base an evaluation of our business and prospects. Our prospects are
subject to the risks and uncertainties frequently encountered by companies in
the early stages of development, particularly companies in new and rapidly
evolving markets such as the consumer direct industry. These risks include, but
are not limited to, the lack of widespread acceptance of the Internet as a means
for purchasing products and services and difficulty in managing our growth. We
cannot be certain that we will successfully address these risks. The failure to
do so could have a material adverse effect on our business, financial condition
and results of operations.
Our extremely limited operating history and the uncertain nature of the
markets in which we compete make the prediction of future results of operations
difficult or impossible. Therefore, our recent revenue growth may not indicate
the rate of revenue growth, if any, that we can expect in the future.
WE HAVE EXPERIENCED A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES
We have never achieved profitability and, since inception, have incurred
significant net operating losses. At March 31, 1999, we had an accumulated
deficit of $26.7 million. We expect to continue to incur losses for the
foreseeable future both at our existing consumer resource center and as a result
of substantial expenditures associated with our planned expansion. We also
expect to increase our operating expenses significantly as we expand our sales
and marketing operations and continue to develop our customer service
infrastructure. To the extent that increased revenues do not promptly result
from these expenditures, our business, financial condition and results of
operations could be materially and adversely affected.
WE HAVE NOT SIGNIFICANTLY TESTED OUR ABILITY TO EXECUTE OUR EXPANSION STRATEGY
A critical part of our business strategy is the expansion of our operations
into new regional markets and within existing markets. To date, we have operated
only one facility in one regional market, and we have no experience operating in
any other region or managing multiple facilities. Our ability to expand
successfully will depend on a number of factors in each targeted regional
market, many of which are beyond our control. These factors include:
- acceptance of our product and service offerings
7
<PAGE>
- identification and availability of appropriate and affordable sites for
our facilities
- management of facility construction and development timing and costs
- ability to develop relationships with local and regional product and
service providers
- customer acquisition costs
- hiring and training of qualified personnel
- competition
- establishment of adequate management and information systems and financial
controls
- ability to profitably manage our growth
We cannot be sure that facilities in any new market will have operating results
similar to those of our current facility. In particular, our existing operations
are located in the Boston metropolitan area which an industry study cites as an
early adopter of consumer direct services and as having demographic
characteristics that are favorable for the acceptance of the consumer direct
industry.
Our ability to expand successfully and to manage our growth will also
require us to expand our operational, managerial and technical capabilities,
while maintaining a high level of quality and service at all times. Our failure
to effectively implement our expansion strategy would have a material adverse
effect on our business, financial condition and results of operations.
WE MAY HAVE DIFFICULTY RAISING ADDITIONAL CAPITAL
We will need additional financing over time, the amount and timing of which
will depend on a number of factors, including:
- the pace of our planned expansion into new markets
- our financial performance and results
- general market and economic conditions
We cannot be sure that we will be able to secure additional financing on
acceptable terms. Holders of any future debt instruments or preferred stock that
we may issue would have rights senior to those of the holders of our common
stock, and any future issuance of common stock would result in the dilution of
stockholders' equity interests.
WE RELY ON THE GROWTH OF E-COMMERCE AND THE INFRASTRUCTURE OF THE INTERNET
A majority of our customers place their orders over the Internet, and we
expect the percentage of customers who order our products and services via the
Internet to grow. Our future revenue and profit, if any, substantially depend on
the widespread acceptance and use of the Internet. However, the growth of the
Internet as a commercial medium may be sporadic for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements. If speed, quality or usage demands placed on the Internet continue
to increase, the infrastructure for the Internet may not be able to support
these demands. In addition, growth of the Internet could be delayed as a result
of the pace of development or adoption of new standards and protocols required
to handle increased levels of Internet activity, or due to increased
governmental regulation. Changes in or insufficient availability of
communications services to support the Internet also could result in slower
response times and adversely affect Internet usage generally and affect
Streamline's services in particular. Our future financial condition will be
materially adversely affected if:
- use of the Internet does not continue to grow or grows more slowly than
expected
8
<PAGE>
- the infrastructure for the Internet does not effectively support any
increased usage that may occur
- the Internet does not continue to grow in importance as a commercial
marketplace
Any change in the required Internet infrastructure, standards or protocols may
require us to incur substantial expenditures in order to adapt our services to
these changing or emerging technologies, which could have a material adverse
effect on our business, financial condition and results of operations.
INCREASED COMPETITION MAY RESULT IN DECREASED DEMAND FOR OUR PRODUCTS AND
SERVICES
The market for our products and services is extremely competitive. We
currently or potentially compete with several types of companies, including:
- traditional grocery stores, such as supermarkets and independent grocery
stores, warehouse clubs, drug stores and convenience stores, some of which
fulfill orders received by telephone, fax or the Internet
- various suppliers of other goods and services, including national and
regional chains and independently owned operations, such as dry cleaners,
video rental stores, prepared meal providers, bottled water delivery
companies, pet supply stores and photo labs
- various on-line providers of groceries and other products and services,
such as Peapod, Inc., Hannaford Bros. Cos.' HomeRuns, ShopLink
Incorporated, HomeGrocer.com, Inc., Beacon Home Direct, Inc. d/b/a
Scotty's Home Market, Net Grocer Inc. and WebVan Group, Inc., some of
which are affiliated with large national and regional chains such as
Hannaford Bros. Co. and Stop & Shop Supermarket Co.
- other consumer direct or catalog retailers selling products or services
similar to those sold by Streamline
Many of our competitors are larger and have substantially greater resources than
we do. In addition, we believe that competition will intensify as more companies
offer competitive products and services through the consumer direct channel.
Streamline believes that the main competitive factors in our market are:
- range, quality and availability of products and services
- convenience, reliability and professionalism of delivery
- ease of ordering
- level and accessibility of information regarding products
- quality of customer service
- price
- general brand awareness
If any of our competitors surpass us or are perceived to have surpassed us with
respect to one or more of these factors, we may lose potential customers to
these competitors.
We must also compete to retain our existing customers. We aggressively
market our service to reduce customer attrition and increase the size and
frequency of customers' orders. However, there can be no assurance that these
marketing initiatives will be successful. High rates of customer attrition could
materially and adversely affect our business, financial condition and results of
operations.
9
<PAGE>
WE DEPEND ON CUSTOMER ACCEPTANCE OF DIRECT, UNATTENDED DELIVERY OF GOODS AND
SERVICES
We accept orders for products and services and then deliver them directly
into our customers' garages or another secure location on their property without
requiring that they be present at the time of delivery. Market acceptance of
home delivery of products and services remains uncertain, in part because of the
real or perceived risk of increased exposure to theft and other criminal
activity by delivery personnel or others who may obtain access to the customer's
private property. Streamline's success will depend to a substantial extent on
the willingness of consumers to increase their use of direct delivery of
products and to allow us to enter their property to make unattended deliveries.
The failure of either of these circumstances to occur could materially and
adversely affect our business, financial condition and results of operations.
DIFFICULTY DEVELOPING OUR BRAND WOULD LIMIT OUR ABILITY TO EXPAND OUR CUSTOMER
BASE AND RESULT IN INCREASED CUSTOMER ACQUISITION COSTS
We believe that establishing and maintaining brand identity is a critical
aspect of attracting and expanding our customer base. The importance of brand
recognition will increase with heightened local, regional and national
competition. Promotion and enhancement of our brand will depend largely on our
success in continuing to provide high quality products and services. If
customers do not perceive our product and service offerings to be comprehensive
and of high quality, or if we introduce new services or enter into new business
ventures that customers do not favorably receive, we will risk harming our
brand. If we fail to provide high quality goods and services or otherwise
promote and maintain our brand, or if we incur excessive expenses in an attempt
to promote and maintain our brand, our business, financial condition and results
of operations could be materially and adversely affected.
WE DEPEND SIGNIFICANTLY ON OUR SUPPLIERS TO MEET CUSTOMER DEMAND
We purchase the products and services that we offer from national, regional
and local suppliers. We intend to seek additional suppliers and will rely on
such relationships to allow us to expand the products and services we offer to
our customers. While we currently have favorable working relationships with our
suppliers, we cannot be sure that these relationships will continue in the
future. Additionally, we have no commitments from our suppliers that guarantee
the availability or pricing of products or services. If any product shortages
were to arise, suppliers may choose to allocate products to other retailers. If
any of these relationships were to terminate or expire, we could have difficulty
replacing the supply source in a timely manner. Additionally, if any of our
suppliers were to experience disruptions to their business, such as labor
disputes, supply shortages or distribution problems, or if they were to allocate
products and services ordered by Streamline to their other customers, we might
not be able to satisfactorily fulfill our customers' orders, which could
materially and adversely affect our business, financial condition and results of
operations.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE BASED ON SEASONAL AND OTHER FACTORS
We may experience significant fluctuations in future quarterly operating
results from a number of factors, including:
- the timing and nature of expansion efforts in both new and existing
markets and related expenses
- the introduction of new products or services and customer response to
those introductions
- seasonal trends, such as lower ordering during family vacations
- changes in pricing policies or service offerings
10
<PAGE>
- our ability to establish and expand recognition of the Streamline brand
- our ability to attract new customers and retain existing customers
- our ability to manage inventory and fulfillment operations
- our ability to sustain or improve cost of revenue
- changes in the level of marketing and other operating expenses to support
future growth
- competitive factors
- general economic conditions
Consequently, quarterly revenue and operating results have varied in the
past and may fluctuate significantly in the future. Streamline believes that
period-to-period comparisons of results will not necessarily be meaningful and
you should not rely on them as an indication of future performance. Furthermore,
due to the foregoing factors, among others, it is likely that our future
quarterly operating results will not meet the expectations of securities
analysts or investors from time to time, which may adversely affect the price of
the common stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Selected Quarterly Results of Operations."
WE DEPEND ON OUR MARKETING AND PROMOTIONAL RELATIONSHIPS FOR ADDITIONAL REVENUE
We derive a portion of our revenue through marketing and promotional
relationships with consumer packaged goods companies, and we intend to continue
to enter into similar relationships with other business partners. If we are
unable to continue promoting Streamline to these companies as an effective means
of conducting marketing and promotional efforts, we could experience a
significant decrease in revenue and our business, financial condition and
results of operations could be materially and adversely affected.
COMPETITORS COULD LICENSE OR REPLICATE OUR TECHNOLOGY SYSTEMS
Although we have directed considerable time and expense toward developing
several of the systems that we use in operating our business, such as our CD-ROM
ordering application, we do not own a copyright or other rights that would
preclude competitors from either licensing systems or portions of systems
substantially similar or identical to ours or using our systems as a model for
developing their own. Therefore, our competitors may be able to take advantage
of the time and effort that we expended in developing these systems.
DIFFICULTY IN IMPLEMENTING OUR NEW FINANCIAL MANAGEMENT SYSTEM COULD DISRUPT OUR
OPERATIONS
We are in the process of implementing a new financial management system and
are integrating this new system with other existing systems in order to improve
our accounting, financial reporting and financial control capabilities. To date,
we have paid approximately $200,000 relating to this system and intend to make
additional expenditures of approximately $700,000 in 1999 to complete the
functional roll-out of this system. If we are unsuccessful in implementing and
integrating this new system on schedule and within budget, our business,
financial condition and results of operations could be materially and adversely
affected.
DISRUPTIONS IN OUR TECHNICAL SYSTEMS COULD HARM OUR BUSINESS
Streamline's ability to successfully receive, fill and deliver orders and
our ability to provide high-quality customer service largely depend on the
operation of our technical systems. These systems could be vulnerable to, among
other factors, disruptions caused by system failures, power losses,
communication problems, natural disasters, break-ins and similar problems.
Further, weaknesses in
11
<PAGE>
communications media, such as the Internet, may compromise the security of
confidential electronic information exchanged with customers. Any system
interruptions that result in the unavailability of our website or reduced order
fulfillment performance would reduce customer satisfaction and decrease the
volume of goods sold and the attractiveness of our product and service
offerings. To date, we have not experienced material disruption of service.
However, there can be no assurance that such problems will not occur in the
future.
WE DEPEND ON OUR KEY PERSONNEL AND QUALIFIED FUTURE HIRES TO IMPLEMENT OUR
EXPANSION STRATEGY
Our success will depend on the efforts and abilities of our senior
management and key employees, particularly Timothy A. DeMello, our founder,
Chairman, President and Chief Executive Officer. We do not have employment
contracts with most of our key personnel. If we cannot retain existing key
managers and employ additional qualified senior managers, our business,
financial condition and results of operations could be materially and adversely
affected. Furthermore, future expansion of our operations will require us to
attract, train and retain substantial numbers of new personnel. The metropolitan
markets into which we may wish to expand may have very competitive labor
markets. Additionally, as we expand in new and existing markets, we may
experience labor disputes or union organization attempts. These factors could
increase our operating expenses. If we are unable to recruit or retain a
sufficient number of qualified employees, or the costs of compensation or
employee benefits increase substantially, our business, financial condition and
results of operations could be materially and adversely affected.
WE HAVE OUTSOURCED PORTIONS OF OUR CONSUMER RESOURCE CENTER OPERATIONS TO AN
UNPROVEN THIRD PARTY
In May 1999, we entered into an agreement with Genco I, Inc., a national
warehouse operations company, under which we outsourced the merchandise
processing and picking services conducted in our Westwood, Massachusetts
consumer resource center. In connection with our planned expansion, we may enter
similar agreements with Genco for the provision of these services in additional
consumer resource centers. We have not yet had sufficient time to evaluate
Genco's ability to provide these services for us. Moreover, Genco's performance
in our existing consumer resource center will not necessarily be indicative of
its ability to provide comparable services in future consumer resource centers.
If our relationship with Genco were to terminate, expire or experience
disruptions, we could have difficulty replacing these services. Additionally,
Genco's failure to perform in a high-quality, cost-effective and timely manner
in one or more consumer resource centers could interfere with our ability to
satisfactorily deliver our customers' orders and may require us to make
additional expenditures, which could materially adversely affect our business,
financial condition and results of operations.
OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE
E-commerce is characterized by rapidly changing technology. To remain
competitive, we must continue to enhance and improve the responsiveness and
functionality of our software and systems. Our future success will depend upon
our ability to keep pace with technological developments. The development of new
services and the enhancement of existing services entails significant
technological risks. We may not successfully:
- maintain and improve our software and systems
- effectively use new technologies
- adapt our services to emerging industry standards
- develop, introduce and market service enhancements or new services
If we are unable, for technical or other reasons, to develop and introduce new
services or enhancements of existing services in a timely manner in response to
changing market conditions or
12
<PAGE>
customer requirements, or if new services do not achieve market acceptance, our
business, financial condition and results of operations could be materially and
adversely affected.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Streamline's success and ability to compete substantially depend upon our
proprietary systems and technology. We rely on trademark and trade secret laws
to protect our proprietary rights. Streamline has been granted service mark
registrations for the marks STREAMLINE and WE BRING IT ALL HOME and has pending
registration applications for the marks DRO, DON'T RUN OUT and SIMPLE SOURCE.
Additionally, legal standards relating to the protection of intellectual
property rights in Internet-related industries are uncertain and still evolving.
As a result, the future viability or value of our intellectual property rights,
as well as those of other companies that conduct business over the Internet, is
unknown. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our service or obtain and use information
that we regard as proprietary. Policing unauthorized use of our proprietary
rights is difficult. In addition, litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or
trademarks or to determine the validity and scope of the proprietary rights of
others. Litigation might result in substantial costs and diversion of resources
and management attention. Any infringement or misappropriation of our
proprietary rights and the related costs of enforcing those rights could have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY INFRINGE UPON OTHER PARTIES' PROPRIETARY RIGHTS
Our business activities may infringe upon the proprietary rights of others
and other parties may assert infringement claims against us, including claims
that arise from directly or indirectly providing hyperlink text links to
websites operated by third parties. Moreover, from time to time, third parties
may allege infringement by us or our strategic partners on their trademarks,
service marks and other intellectual property rights. Such claims and any
resultant litigation could subject us to significant liability for damages,
might result in invalidation of our proprietary rights and, even if not
meritorious, could result in substantial costs and diversion of resources and
management attention and have a material adverse effect on our business,
financial condition and results of operations.
ALL OF OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
Many computer systems and other equipment with embedded control chips or
microprocessors use only two digits to represent the year, and could fail or
make miscalculations due to interpreting a date including "00" to mean 1900
rather than 2000. We are currently undergoing efforts to ensure that our
critical business systems will not fail or make miscalculations as a result of
the Year 2000 date change. Although we believe that the Year 2000 date change
will not adversely affect most of our internally developed and licensed
information technology, including our financial systems and accounting software,
we cannot assure you that the production systems of many of our strategic
business partners or suppliers will not be adversely affected. In addition, we
cannot be sure that we will not have to spend significantly more than we
currently anticipate on remediation efforts for our critical systems, or that
implementation of any contingency plans we develop to deal with problems
resulting from the Year 2000 date change will successfully avoid or alleviate
this problem. Any such failures could have a material adverse effect on our
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
WE DEPEND ON PRODUCT INFORMATION SUPPLIED BY THIRD PARTIES
We currently purchase and license from third parties graphical and textual
product information that we incorporate into our website and CD-ROM application.
We cannot assure you that third-party information of this type will continue to
be available to us on commercially reasonable terms, if at all.
13
<PAGE>
Any failure to obtain this type of information in the future could significantly
reduce the appeal of our Internet-based ordering systems and could adversely
affect our business, financial condition and results of operations.
WE MAY CONTRACT WITH OTHER COMPANIES TO PROVIDE BUSINESS SERVICES TO US
In the future, we may seek to contract with other companies to perform some
of the operational functions currently performed by our personnel. Should we
choose to outsource any of these activities, we would rely on these other
companies to assist us in operating portions of our business. If any of these
outsourcing relationships were to terminate, expire or experience disruptions,
we could have difficulty replacing these services in a timely manner.
Additionally, any such companies might not perform to our standards of
timeliness, quality and accuracy. As a result, we might not be able to
satisfactorily deliver our customers' orders, which could materially and
adversely affect our business, financial condition and results of operations.
E-COMMERCE SECURITY BREACHES COULD HARM US
The expansion and continued viability of e-commerce and related Internet
communications depends on secure transmission of confidential information. We
rely on encryption and authentication technology to effect secure transmission
of confidential information. Advances in computer capabilities, new discoveries
in the field of cryptography or other developments could result in a compromise
of the codes we use to protect customer transaction data. Any such compromise of
our security could have a material adverse effect on our business, financial
condition and results of operations. Concerns over the security of e-commerce
transactions and individual privacy may also inhibit the growth of the Internet
and other on-line services generally, especially as a means of conducting
commercial transactions.
WE FACE POTENTIAL PRODUCT LIABILITY CLAIMS
We cannot assure you that the products that we deliver will be free from
contaminants. Grocery and other related products occasionally contain
contaminants due to inherent defects in the products or improper handling. If
any of these products cause harm to any of our customers, we could be subject to
product liability lawsuits. If we are found liable under a product liability
claim, or even if we are not found liable but are required to defend ourselves
against such a claim, our customers may substantially reduce or even curtail
ordering products and services from us, which could have a material adverse
effect on our business, financial condition and results of operations.
WE COULD BE AFFECTED BY GOVERNMENT REGULATION OF THE INTERNET AND LEGAL
UNCERTAINTIES RELATING TO E-COMMERCE
Currently, few laws or regulations directly apply to commerce on or access
to the Internet and we are not subject to direct government regulation, other
than regulations applicable to businesses generally and food related businesses
in particular. However, a number of legislative and regulatory proposals
relating to e-commerce are under consideration by federal, state, local and
foreign governments and, as a result, a number of laws or regulations may be
adopted with respect to Internet user privacy, taxation, pricing, quality of
products and services, intellectual property ownership and consumer protection
generally. There is also uncertainty as to how existing laws in a number of
areas will be interpreted to apply to the Internet. The additional burdens
imposed by the adoption of new laws or the application of existing laws to the
Internet may decrease the growth in the use of the Internet, which could in turn
decrease the demand for our services, increase our costs of doing business or
otherwise have a material adverse effect on our business, financial condition
and results of operations.
14
<PAGE>
WE WILL CONTINUE TO BE CONTROLLED BY OUR THREE LARGEST STOCKHOLDERS AND THEY
WILL BE ABLE TO EFFECT IMPORTANT CORPORATE ACTIONS WITHOUT THE APPROVAL OF OTHER
STOCKHOLDERS
Upon completion of this offering, our three largest stockholders will
beneficially own approximately 57.5% of our outstanding common stock. See
"Principal Stockholders." As a result, these stockholders, acting together, will
be able to control the outcome of all matters submitted for stockholder action,
including:
- electing members to our board of directors
- approving significant change-in-control transactions
- determining the amount and timing of dividends paid to themselves and to
our public stockholders
- otherwise controlling our management and operations
OUR STOCK PRICE MAY DECLINE AFTER THIS OFFERING AND MAY BE VOLATILE IN THE
FUTURE
The market for shares in newly public Internet-related companies is subject
to extreme price and volume fluctuations. These broad fluctuations may
materially and adversely affect the market price of our common stock. You may
not be able to resell any shares you buy from us at or above the initial public
offering price due to a number of factors, including:
- actual or anticipated fluctuations in our operating results
- changes in investors' and securities analysts' expectations as to our
future financial performance or changes in financial estimates of
securities analysts
- announcement of new products or product enhancements by us or our
competitors
- technological innovations by us or our competitors
- the operating and stock price performance of comparable companies
In addition, although our common stock will be quoted on the Nasdaq National
Market, an active trading market may not develop or sustain itself after this
offering.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT
Purchasers of common stock in this offering will incur immediate and
substantial dilution of $8.34 in the net tangible book value per share of common
stock from the assumed initial public offering price of $12.00. See "Dilution."
PROVISIONS OF OUR GOVERNING DOCUMENTS AND DELAWARE LAW COULD DISCOURAGE
ACQUISITION PROPOSALS OR DELAY A CHANGE IN CONTROL OF STREAMLINE
Our certificate of incorporation and by-laws contain anti-takeover
provisions, including those listed below, that could make it more difficult for
a third party to acquire control of us, even if that change in control would be
beneficial to stockholders:
- our board of directors has the authority to issue common stock and
preferred stock and to determine the price, rights and preferences of any
new series of preferred stock without stockholder approval
- our board of directors is divided into three classes, each serving
three-year terms
- supermajority voting is required to amend key provisions of our
certificate of incorporation and by-laws
15
<PAGE>
- there are limitations on who can call special meetings of stockholders
- stockholders may not take action by written consent
- advance notice is required for nominations of directors and for
stockholder proposals
In addition, provisions of Delaware law and our stock option plans may also
discourage, delay or prevent a change of control of Streamline or unsolicited
acquisition proposals.
FUTURE SALES BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK
Sales of our common stock in the public market following this offering could
adversely affect the market price of our common stock. Of the 18,273,881 shares
that will be outstanding upon the closing of this offering:
- all of the shares offered under this prospectus will be freely tradeable
in the public market
- approximately 13,000,000 additional shares may be sold after the
expiration of 180-day lock-up agreements
- approximately 1,200,000 additional shares may be sold upon the exercise of
stock options and warrants after the expiration of 180-day lock-up
agreements
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of shares in
this offering will be $54.7 million, or $63.1 million if the underwriters'
over-allotment option is exercised in full, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us and
assuming an initial public offering price of $12.00 per share. We will not
receive any of the proceeds from the sale of shares by Mr. DeMello as part of
any over-allotment option exercise.
We intend to use approximately 60% to 75% of the net proceeds of this
offering to finance the expansion of our business. We expect to use the balance
of the net proceeds for general corporate purposes, including working capital
and capital expenditures. A portion of the net proceeds may also be used for the
acquisition of businesses, products, services or technologies that are
complementary to those of Streamline. There currently are no active
negotiations, understandings, commitments or agreements with respect to any
acquisition. Pending such uses, we intend to invest the net proceeds from this
offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We currently intend to retain earnings for the continued development and
expansion of our business. In the future, the terms of credit agreements or
other contractual provisions may impose restrictions or limitations on the
payment of dividends. In the absence of such restrictions or limitations, the
payment of any dividends will be at the discretion of our board of directors.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Streamline as of March
31, 1999: (1) on an actual basis; (2) on a pro forma basis to give effect to the
conversion of shares of preferred stock into common stock; and (3) on a pro
forma as adjusted basis to reflect the sale of common stock by Streamline at an
assumed initial public offering price of $12.00 per share and the application of
the net proceeds therefrom. The information on an actual basis with respect to
the Series D preferred stock reflects the accrual of 6,145 shares of Series D
preferred stock as a dividend, which together with the 228,570 issued and
outstanding shares of Series D preferred stock, will convert into common stock
as of the closing of this offering. This table should be read in conjunction
with Streamline's Consolidated Financial Statements and the related Notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Capital lease obligations, net of current portion........................... $ 603 $ 603 $ 603
Redeemable convertible preferred stock:
Series A preferred stock, $1.00 par value; 50,000 shares issued and
outstanding; none issued and outstanding, pro forma and pro forma as
adjusted................................................................ 5,000 -- --
Series B preferred stock, $1.00 par value; 80,000 shares issued and
outstanding; none issued and outstanding, pro forma and pro forma as
adjusted................................................................ 8,000 -- --
Series C preferred stock, $1.00 par value; 10,000 shares issued and
outstanding; none issued and outstanding, pro forma and pro forma as
adjusted................................................................ 1,000 -- --
Series D preferred stock, $1.00 par value; 228,570 shares issued and
outstanding; none issued and outstanding, pro forma and pro forma as
adjusted................................................................ 23,471 -- --
----------
Total redeemable convertible preferred stock............................ 37,471 -- --
----------
Stockholders' (deficit) equity:
Common stock, $0.01 par value; 22,700,000 shares authorized, 50,000,000 as
adjusted; 3,699,539 shares issued and 3,665,539 outstanding actual,
13,307,881 issued and 13,273,881 outstanding pro forma, and 18,307,881
shares issued and 18,273,881 outstanding pro forma as adjusted.......... 37 133 183
Additional paid-in capital................................................ 4,774 42,149 96,799
Treasury stock, at cost................................................... (238) (238) (238)
Accumulated deficit....................................................... (26,714) (26,714) (26,714)
---------- ----------- -----------
Total stockholders' (deficit) equity.................................... (22,141) 15,330 70,030
---------- ----------- -----------
Total capitalization.................................................. $ 15,933 $ 15,933 $ 70,633
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The common stock to be outstanding after this offering is based on
13,273,881 shares outstanding as of March 31, 1999 and excludes:
- 1,999,714 shares of common stock issuable upon the exercise of outstanding
stock options and warrants outstanding at March 31, 1999 at an average
exercise price of $5.78 per share
- 1,676,867 additional shares of common stock currently reserved for
issuance under Streamline's stock option and stock purchase plans. See
"Management--Stock Option Plans"
18
<PAGE>
DILUTION
As of March 31, 1999, Streamline had a pro forma net tangible book value of
approximately $12,106,000, or $0.91 per share of common stock after giving
effect to the conversion of all outstanding shares of preferred stock and
accrued preferred dividends into common stock. Pro forma net tangible book value
per share is determined by dividing the net tangible book value of Streamline,
meaning total tangible assets less total liabilities, by the total number of
shares of common stock outstanding after giving effect to the conversion of
preferred stock and accrued preferred dividends of Streamline. After taking into
account the sale of shares offered hereby by Streamline, the pro forma as
adjusted net tangible book value as of March 31, 1999, would have been
approximately $66,806,000, or $3.66 per share. The pro forma as adjusted net
tangible book value assumes that the proceeds to Streamline, net of underwriting
discounts and commissions and offering expenses will be approximately
$54,700,000. Based on the foregoing, there would be an immediate increase in net
tangible book value to existing stockholders attributable to new investors of
$2.75 per share and an immediate dilution of $8.34 per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $ 12.00
Pro forma net tangible book value per share at March 31,
1999......................................................... $ 0.91
Increase per share attributable to new investors............... 2.75
---------
Pro forma as adjusted net tangible book value per share after
this offering.................................................. 3.66
---------
Dilution per share to new investors.............................. $ 8.34
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
after giving effect to the conversion of all outstanding shares of preferred
stock of Streamline, including the accrued dividend of 6,145 shares, into
9,608,342 shares of common stock upon the closing of this offering (1) 5,000,000
shares of common stock purchased from Streamline, (2) the total consideration
paid to Streamline and (3) the average price per share paid by the existing
stockholders and by the new investors at an assumed initial public offering
price of $12.00 per share. Underwriting discounts and commissions and offering
expenses have not been deducted.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... 13,273,881 72.6% $ 42,537,000 41.5% $ 3.20
New investors................................... 5,000,000 27.4 60,000,000 58.5 12.00
------------ ----- -------------- -----
Total....................................... 18,273,881 100.0% $ 102,537,000 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>
As of March 31, 1999, there were options outstanding to purchase a total of
1,211,000 shares of common stock, at a weighted average exercise price of $5.85
per share and approximately 302,000 additional shares reserved for future grants
and issuances under Streamline's stock option and stock purchase plans.
Additionally, at March 31, 1999, there were outstanding warrants to purchase a
total of 788,714 shares of common stock at an average exercise price of $5.67
per share. To the extent that any of these options or warrants are exercised,
there will be further dilution to new investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for each of the
fiscal years ended December 31, 1996, 1997 and 1998 has been derived from
consolidated financial statements of Streamline, included elsewhere in this
prospectus, which have been audited by PricewaterhouseCoopers LLP, independent
accountants. The selected financial data for the fiscal year ended December 31,
1995 has been derived from financial statements of Streamline, not appearing
elsewhere in this prospectus, which have been audited by PricewaterhouseCoopers
LLP. The selected financial data for the fiscal year ended December 31, 1994 has
been derived from financial statements of Streamline, not appearing elsewhere in
this prospectus, which have been audited by Arthur Andersen LLP, independent
accountants. The pro forma as adjusted balance sheet data and pro forma per
share and share amounts have not been audited. The statement of operations data
for the quarters ended March 31, 1998 and 1999 are unaudited but have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of operating results
for such periods. The operating results for the quarter ended March 31, 1999 are
not necessarily indicative of the results to be expected for any other interim
period or the full year. You should read this data along with the Consolidated
Financial Statements and related Notes and with Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
QUARTER
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------- -----------
1994 1995 1996 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product and service revenue, net................. $ 29 $ 128 $ 391 $ 1,815 $ 6,026 $ 1,072
Subscription fees................................ -- 6 20 98 391 77
Advertising, research and marketing fees......... -- -- 511 721 529 53
----------- ----------- ----------- ----------- ----------- -----------
Total revenue...................................... 29 134 922 2,634 6,946 1,202
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of revenue.................................. 24 128 391 2,098 4,992 896
Fulfillment center operations.................... -- -- 916 2,769 4,013 946
Sales and marketing.............................. 4 59 441 1,428 1,479 285
Technology systems and development............... 4 7 78 1,673 3,002 636
General and administrative....................... 627 970 985 3,166 3,897 963
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses........................... 659 1,164 2,811 11,134 17,383 3,726
Loss from operations............................... (630) (1,030) (1,889) (8,500) (10,437) (2,524)
Other income (expense), net........................ 7 (20) 43 (80) (330) (40)
Loss before minority interest and extraordinary
item............................................. (623) (1,050) (1,846) (8,580) (10,767) (2,564)
Minority interest in net loss of consolidated
subsidiary....................................... -- -- -- 265 138 71
----------- ----------- ----------- ----------- ----------- -----------
Loss before extraordinary item..................... (623) (1,050) (1,846) (8,315) (10,629) (2,493)
Dividends on preferred stock....................... -- -- 203 157 329 --
----------- ----------- ----------- ----------- ----------- -----------
Loss attributable to common stockholders before
extraordinary item............................... (623) (1,050) (2,049) (8,472) (10,958) (2,493)
Extraordinary item--loss on early redemption of
debt............................................. -- -- -- -- 744 --
----------- ----------- ----------- ----------- ----------- -----------
Net loss attributable to common stockholders....... $ (623) $ (1,050) $ (2,049) $ (8,472) $ (11,702) $ (2,493)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Basic and diluted loss per common share:
Loss per common share before extraordinary
item........................................... $(0.23) $(0.34) $(0.62) $(2.47) $(3.11) $(0.71)
Net loss per common share........................ (0.23) (0.34) (0.62) (2.47) (3.32) (0.71)
Shares used in computing basic and diluted loss per
common share..................................... 2,746,167 3,046,127 3,284,625 3,424,035 3,522,458 3,447,032
Unaudited pro forma basic and diluted net loss per
common share..................................... $(1.28)
Shares used in computing unaudited pro forma basic
and diluted net loss per share................... 8,918,465
<CAPTION>
1999
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product and service revenue, net................. $ 2,568
Subscription fees................................ 186
Advertising, research and marketing fees......... 233
-----------
Total revenue...................................... 2,987
-----------
Operating expenses:
Cost of revenue.................................. 2,022
Fulfillment center operations.................... 1,407
Sales and marketing.............................. 616
Technology systems and development............... 828
General and administrative....................... 1,483
-----------
Total operating expenses........................... 6,356
Loss from operations............................... (3,369)
Other income (expense), net........................ 107
Loss before minority interest and extraordinary
item............................................. (3,262)
Minority interest in net loss of consolidated
subsidiary....................................... --
-----------
Loss before extraordinary item..................... (3,262)
Dividends on preferred stock....................... 286
-----------
Loss attributable to common stockholders before
extraordinary item............................... (3,548)
Extraordinary item--loss on early redemption of
debt............................................. --
-----------
Net loss attributable to common stockholders....... $ (3,548)
-----------
-----------
Basic and diluted loss per common share:
Loss per common share before extraordinary
item........................................... $(0.97)
Net loss per common share........................ (0.97)
Shares used in computing basic and diluted loss per
common share..................................... 3,665,539
Unaudited pro forma basic and diluted net loss per
common share..................................... $(0.25)
Shares used in computing unaudited pro forma basic
and diluted net loss per share................... 13,238,167
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999 (UNAUDITED)
------------------------------------------------ ---------------------------------------
PRO FORMA AS
1994 1995 1996 1997 1998 ACTUAL PRO FORMA(1) ADJUSTED(1)(2)
-------- -------- -------- -------- -------- -------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 111 $ 34 $ 1,005 $ 1,446 $ 12,593 $ 9,317 $ 9,317 $64,017
Working capital (deficit).......... 56 (365) 978 330 12,061 8,277 8,277 62,977
Total assets....................... 162 289 3,618 7,897 20,066 18,307 18,307 73,007
Capital lease obligations, net of
current portion.................. -- 64 325 334 381 603 603 603
Redeemable convertible preferred
stock............................ -- -- 5,203 14,000 37,186 37,471 -- --
Stockholders' equity (deficit)..... 101 (186) (2,179) (8,398) (18,593) (22,141) 15,330 70,030
</TABLE>
- ------------------------------
(1) Reflects the conversion of all outstanding shares of preferred stock of
Streamline, including accrued dividends of 6,145 shares, into 9,608,342
shares of common stock upon the closing of this offering. See
"Capitalization."
(2) Adjusted to give effect to the sale of 5,000,000 shares of common stock
offered by this prospectus at the initial public offering price of $12.00
per share, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by Streamline, and the anticipated
application of the net proceeds therefrom.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. STREAMLINE'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD READ THE FOLLOWING DISCUSSION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Streamline simplifies the lives of busy suburban families by providing
Internet-based ordering and home delivery of a wide range of consumer goods and
services such as groceries, household goods, health and beauty care items, dry
cleaning, video rentals and film processing. Our typical customer tends to be a
dual income household with at least one child and access to the Internet. We
also provide consumer packaged goods companies insight into consumer Internet
purchasing behavior to help facilitate the development of their Internet
merchandising capabilities and to broaden other research and marketing programs.
Streamline has grown rapidly, with revenue increasing to $6.9 million in
1998 from $922,000 in 1996. During this same period, our net loss increased to
$11.4 million in 1998 from $1.8 million in 1996. We expect to continue to incur
losses as we increase expenditures in all areas of operations in order to
execute our business plan. In particular, we expect to incur costs related to:
- expanding into new markets
- increasing our sales and marketing efforts
- continuing our investment in technology
Due to our history of net operating losses, we currently pay no federal or
state income tax. As of December 31, 1998, we had federal and state net
operating loss carry forwards of approximately $22.6 million and $22.4 million,
respectively. We plan to use these net operating losses to offset future income
tax obligations unless federal or state tax law restrictions, such as those
related to an ownership change as defined in the Internal Revenue Code, limit us
from doing so.
HISTORY OF GROWTH
Streamline was founded in April 1993. From 1993 through 1995 we focused
primarily on testing the viability of the consumer home delivery market. We
developed our current business concept during that period.
In 1996 we began offering a full range of products and services to a test
group of approximately 100 customers. In October 1996 we completed the
development of our first consumer resource center in the greater Boston area and
commenced marketing our services.
In 1997 we focused on building our business by:
- expanding our product and service offerings
- negotiating wholesale supply of our products and services
- refining our consumer resource center operations
- developing our website and related ordering technology
- enhancing customer service
- increasing the number of customers served
22
<PAGE>
By the end of 1997 we expanded our customer base to approximately 900
customers and served 30 cities and towns in the greater Boston area. During 1997
we also launched the Consumer Learning Center, which provides consumer packaged
goods companies research and merchandising opportunities. Additionally, in 1997
we acquired substantially all of the assets of Shopping Alternatives, Inc., a
consumer direct company based in the Washington, D.C. area.
In 1998 we increased the number of cities and towns served by our consumer
resource center in the greater Boston area to 38 and continued to market our
services to prospective customers in those areas. As a result, we increased our
customer base to approximately 2,000 customers. By March 31, 1999, our customer
base increased to approximately 2,600 customers.
COMPONENTS OF REVENUE
Streamline has three primary sources of revenue. The majority of our revenue
is generated by the sale of consumer products and services that we aggregate in
our fulfillment center and deliver to our customers' homes on a weekly basis. We
sell such products and services to our customers at retail prices. Our customers
also pay us a monthly subscription fee of $30 which we prorate based on the week
of installation or discontinuance if services are provided for less than a full
month. In addition, we receive advertising, research and marketing fees through
arrangements with consumer packaged goods companies and e-commerce companies.
Revenue from products and services is recognized upon delivery to the customer;
subscription fees are recognized monthly; and advertising, research and
marketing fees are recognized over the life of the applicable arrangement or as
services are performed.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenue of certain line items included in Streamline's consolidated
statement of operations data:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ---------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
Revenue:
Product and service revenue, net........... 42.4% 68.9% 86.8% 89.2% 86.0%
Subscription fees.......................... 2.2 3.7 5.6 6.4 6.2
Advertising, research and marketing fees... 55.4 27.4 7.6 4.4 7.8
------ ------ ------ ------ ------
Total revenue............................ 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of revenue............................ 42.4 79.6 71.9 74.6 67.7
Fulfillment center operations.............. 99.4 105.1 57.8 78.7 47.1
Sales and marketing........................ 47.8 54.2 21.3 23.7 20.6
Technology systems and development......... 8.5 63.5 43.2 52.9 27.7
General and administrative................. 106.9 120.2 56.1 80.2 49.7
------ ------ ------ ------ ------
Total operating expenses................. 305.0 422.6 250.3 310.1 212.8
Loss from operations......................... (205.0) (322.6) (150.3) (210.1) (112.8)
Other income (expense), net.................. 4.7 (3.1) (4.8) (3.3) 3.6
Loss before minority interest and
extraordinary item......................... (200.3) (325.7) (155.1) (213.4) (109.2)
Minority interest in net loss of consolidated
subsidiary................................. -- 10.1 2.0 5.9 --
Loss before extraordinary item............... (200.3) (315.6) (153.1) (207.5) (109.2)
Extraordinary item--loss on early redemption
of debt.................................... -- -- 10.7 -- --
------ ------ ------ ------ ------
Net loss..................................... (200.3)% (315.6)% (163.8)% (207.5)% (109.2)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
23
<PAGE>
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
TOTAL REVENUE. Total revenue increased to $3.0 million in the quarter ended
March 31, 1999 from $1.2 million in the comparable period ended March 31, 1998,
an increase of 148.5%. This increase was primarily due to an expanded customer
base generating higher average product and service revenue per invoice; more
subscription fees; and increased advertising, research and marketing fees due to
more consumer packaged goods companies participating in our Consumer Learning
Center.
PRODUCT AND SERVICE REVENUE, NET. Product and service revenue, net is
comprised of the retail prices our customers pay us for the products and
services we sell to them, net of returns. Sales of products and services, net of
returns increased to $2.6 million in the quarter ended March 31, 1999 from $1.1
million in the comparable period ended March 31, 1998, an increase of 139.5%.
The increase in revenue was the result of:
- an increase in our customer base to approximately 2,600 at March 31, 1999
from approximately 1,200 at March 31, 1998, an increase of 125.8%,
primarily due to our marketing efforts to obtain new customers in the
greater Boston market and customer referrals
- a related increase in the number of invoices for product and service
revenue to approximately 24,000 in the quarter ended March 31, 1999 from
11,000 in the comparable period ended March 31, 1998, an increase of
118.1%
- an increase in average product and service revenue per invoice to
approximately $107 in the quarter ended March 31, 1999 from approximately
$100 in the comparable period ended March 31, 1998, an increase of 6.6%,
primarily due to further expansion of our product and service offering
Product and service revenue, net as a percentage of total revenue decreased to
86.0% in the quarter ended March 31, 1999 from 89.2% in the comparable period
ended March 31, 1998. This decrease is due to the timing of member enrollment in
our Consumer Learning Center.
SUBSCRIPTION FEES. Streamline customers pay a monthly subscription fee in
addition to amounts paid for the products and services we deliver to their
homes. Revenue from these fees increased to $186,000 in the quarter ended March
31, 1999 from $76,000 in the comparable period ended March 31, 1998, an increase
of 144.2%, due to our expanded customer base. Subscription fees as a percentage
of total revenue decreased to 6.2% in the quarter ended March 31, 1999 from 6.4%
in the comparable period ended March 31, 1998.
ADVERTISING, RESEARCH AND MARKETING FEES. Revenue from advertising,
research and marketing fees includes Consumer Learning Center membership fees
paid by consumer packaged goods companies for the opportunity to participate in
research and marketing programs. Advertising, research and marketing fees
increased to $233,000 in the quarter ended March 31, 1999 from $53,000 in the
comparable period ended March 31, 1998, an increase of 336.8%. These fees as a
percentage of total revenue increased to 7.8% in the quarter ended March 31,
1999 from 4.4% in the comparable period ended March 31, 1998. The increase in
advertising, research and marketing fees is primarily due to an increase in the
number of consumer packaged goods companies that became members of the Consumer
Learning Center.
TOTAL OPERATING EXPENSES. Total operating expenses increased to $6.4 million,
or 212.8% of total revenues, in the quarter ended March 31, 1999 from $3.7
million, or 310.1% of total revenues, in the comparable period ended March 31,
1998, an increase of 70.6%. The increase in operating expenses is a result of an
increase in order volume. These costs decreased as a percentage of total revenue
due to achieving operational efficiencies and offsetting fixed costs with higher
order volumes.
COST OF REVENUE. The cost of revenue is comprised of the wholesale costs of
products and services we sell to our customers and the costs associated with
generating advertising, research and marketing fees. The cost of revenue
increased to $2.0 million, or 67.7% of total revenue, in the quarter ended
24
<PAGE>
March 31, 1999 from $896,000, or 74.6% of total revenue, in the comparable
period ended March 31, 1998, an increase of 125.6%. This increase was due to
increased order size and customer orders, offset by cost reductions associated
with higher purchase volumes.
FULFILLMENT CENTER OPERATIONS. Expenses attributable to fulfillment center
operations include all costs associated with installing the customer, managing
the facility and processing orders including salaries and wages, employee
benefits, facility rent, utility costs, vehicle expenses and order processing
fees. These expenses increased to $1.4 million, or 47.1% of total revenue, in
the quarter ended March 31, 1999 from $946,000, or 78.7% of total revenue, in
the comparable period ended March 31, 1998, an increase of 48.7%. The decrease
in fulfillment center expenses as a percentage of total revenue resulted from
controlling operational costs while increasing order volume and order size.
SALES AND MARKETING. Sales and marketing expenses include general marketing
expenses and the sales and marketing costs associated with acquiring customers.
Sales and marketing expenses increased to $616,000, or 20.6% of total revenue,
in the quarter ended March 31, 1999 from $285,000, or 23.7% of total revenue, in
the comparable period ended March 31, 1998, an increase of 116.3%. This increase
was due to additional advertising and promotional activities undertaken to
acquire new customers. As a percentage of total revenue, sales and marketing
expenses remained relatively stable.
TECHNOLOGY SYSTEMS AND DEVELOPMENT. Expenses attributable to technology
systems and development include costs associated with development of technology
prior to capitalization, maintenance, implementation of minor enhancements,
information system personnel and consultants, and amortization of purchased and
capitalized software costs. These expenses increased to $828,000, or 27.7% of
total revenue, in the quarter ended March 31, 1999 from $636,000, or 52.9% of
total revenue, in the comparable period ended March 31, 1998, an increase of
30.3%, primarily due to costs associated with maintaining, enhancing and
integrating our technology systems.
GENERAL AND ADMINISTRATIVE. General and administrative costs include
corporate salaries and wages, employee benefits, corporate facility costs and
depreciation, amortization and general administrative expenses including office
equipment and supplies, telephone expenses, travel costs and legal, audit and
other consulting fees. These costs increased to $1.5 million, or 49.7% of total
revenue, in the quarter ended March 31, 1999 from $963,000, or 80.2% of total
revenue, in the comparable period ended March 31, 1998, an increase of 54.0%,
primarily due to the addition of management and administrative staff to support
our growth and expansion strategy.
OTHER INCOME (EXPENSE), NET. Other income, net increased to income of
$107,000 in the quarter ended March 31, 1999 from an expense of $40,000 in the
comparable period ended March 31, 1998, an increase of 366.6%, primarily due to
increased interest income from higher cash balances and the pay down of debt.
MINORITY INTEREST. At March 31, 1998 we held a majority interest in
Streamline Mid-Atlantic, Inc. A portion of Streamline Mid-Atlantic's net losses
were allocated to the minority interest. In November of 1998, we acquired the
remaining minority interest in Streamline Mid-Atlantic and now report its income
or loss in our results of operations.
1998 COMPARED TO 1997
TOTAL REVENUE. Total revenue increased to $6.9 million in 1998 from $2.6
million in 1997, an increase of 163.7%. This increase was primarily due to an
increase in total orders resulting from our expanded customer base.
PRODUCT AND SERVICE REVENUE, NET. Sales of products and related services,
net of returns increased to $6.0 million in 1998 from $1.8 million in 1997, an
increase of 232.0%. Product and service revenue, net as a percentage of total
revenue increased to 86.8% in 1998 from 68.9% in 1997. These increases were
principally due to:
25
<PAGE>
- an increase in our customer base to approximately 2,000 at the end of 1998
from approximately 900 at the end of 1997, an increase of 122.2%,
primarily due to our marketing efforts to obtain new customers in the
greater Boston market
- a related increase in the number of invoices for product and service
revenue to approximately 59,000 in 1998 from approximately 18,000 in 1997,
an increase of 231.6%
SUBSCRIPTION FEES. Revenue from subscription fees increased to $392,000 in
1998 from $99,000 in 1997, an increase of 297.3% due to an increase in our
customer base and the timing of these customer acquisitions. Subscription fees
as a percentage of total revenue increased to 5.6% in 1998 from 3.7% in 1997.
These increases resulted from the growth in our customer base.
ADVERTISING, RESEARCH AND MARKETING FEES. Fees from advertising, research
and marketing services decreased to $529,000 in 1998 from $721,000 in 1997, a
decrease of 26.6%. Advertising, research and marketing fees as a percentage of
total revenue decreased to 7.6% in 1998 from 27.4% in 1997. These decreases are
primarily due to a reduction in the average dollar amount paid by participants
resulting from shorter membership periods.
TOTAL OPERATING EXPENSES. Total operating expenses increased to $17.4 million,
or 250.3% of total revenue, in 1998 from $11.1 million, or 422.6% of total
revenue, in 1997, an increase of 56.1%, largely due to:
- increased fulfillment center operational costs
- increased expenses related to technology systems and development
- increased sales and marketing expenses incurred to increase our customer
base
- increased general and administrative expenses incurred to support our
growing operations
COST OF REVENUE. The cost of revenue increased to $5.0 million, or 71.9% of
total revenue, in 1998 from $2.1 million, or 79.6% of total revenue, in 1997, an
increase of 138.0%, due to the increased order size and number of customer
orders, offset by cost reductions associated with higher purchase volumes.
FULFILLMENT CENTER OPERATIONS. Expenses attributable to fulfillment center
operations increased to $4.0 million, or 57.8% of total revenue, in 1998 from
$2.8 million, or 105.1% of total revenue, in 1997, an increase of 44.9%, due to
the increase in customer order volume.
SALES AND MARKETING. Sales and marketing expenses increased to $1.5
million, or 21.3% of total revenue, in 1998 from $1.4 million, or 54.2% of total
revenue, in 1997, an increase of 3.6%. As a result of increased customer
referrals and the more effective utilization of marketing channels, sales and
marketing expenses decreased as a percentage of total revenue.
TECHNOLOGY SYSTEMS AND DEVELOPMENT. Expenses attributable to technology
systems and development increased to $3.0 million, or 43.2% of total revenue, in
1998 from $1.7 million, or 63.5% of total revenue, in 1997, an increase of
79.5%. Certain costs associated with our website, on-line ordering, warehouse
management and other enterprise systems were capitalized during 1997 and 1998
and are being amortized over the useful lives of the assets. In 1998 the
increased expense is largely due to increased amortization of these capitalized
costs and costs associated with maintaining, enhancing and integrating our
technology systems.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased to
$3.9 million, or 56.1% of total revenue, in 1998 from $3.2 million, or 120.2% of
total revenue, in 1997, an increase of 23.1%, primarily due to the addition of
management and administrative staff to support our growth.
OTHER INCOME (EXPENSE), NET. Other expense, net increased to $330,000 in
1998 from $80,000 in 1997, an increase of 311.0%, largely due to a $518,000
increase in net interest expense resulting
26
<PAGE>
primarily from our issuance of senior discount notes in 1998 offset by $182,000
of interest income we received primarily from investing the proceeds of debt and
equity financings completed during the year. Other expense in 1997 was largely
due to the losses incurred on the disposal of fixed assets.
MINORITY INTEREST. The allocation of the net losses of our subsidiary,
Streamline Mid-Atlantic, Inc., to the minority interest decreased to $139,000 in
1998 from $265,000 in 1997. In 1998, we were allocated a percentage of net
losses in excess of our ownership percentage due to the minority interest being
allocated all of its allowable losses. In November 1998, we acquired the
remaining minority interest and will report 100% of the income or loss of this
subsidiary in our results of operations in future periods.
EXTRAORDINARY LOSS. We incurred an extraordinary loss of $744,000 in 1998
due to the early extinguishment of the senior discount notes issued in April
1998 and retired in September 1998. This loss included approximately $257,000
for a call premium, and $452,000 for the unamortized discount value associated
with the warrants to purchase common stock issued in connection with the senior
discount notes and $35,000 for the issuance of common shares and remaining
deferred financing costs.
1997 COMPARED TO 1996
TOTAL REVENUE. Total revenue increased to $2.6 million in 1997 from $922,000 in
1996, an increase of 185.8%. This increase was due to an increase in the number
of customers and orders in 1997.
PRODUCT AND SERVICE REVENUE, NET. Sales of products and related services,
net of returns increased to $1.8 million in 1997 from $391,000 in 1996, an
increase of 364.4%. Net product and service revenue as a percentage of total
revenue increased to 68.9% in 1997 from 42.4% in 1996. Due to active marketing
efforts, we increased our customer base to approximately 900 at the end of 1997
from approximately 100 households in 1996. The increase in our customer base
resulted in a greater number of orders in 1997.
SUBSCRIPTION FEES. Subscription fees increased to $99,000 in 1997 from
$20,000 in 1996, an increase of 395.1% primarily as a result of an increase in
the number of customers to approximately 900 by the end of 1997 from a pilot
group of 100 in 1996. Subscription fees as a percentage of total revenue
increased to 3.7% in 1997 from 2.2% in 1996 due to this increase in our customer
base.
ADVERTISING, RESEARCH AND MARKETING FEES. Revenue from advertising,
research and marketing fees increased to $721,000 in 1997 from $511,000 in 1996,
an increase of 41.1%. These fees decreased, as a percentage of total revenue to
27.4% in 1997 from 55.4% in 1996. In 1997, we began offering research and
marketing programs to consumer packaged goods companies, whereas, in 1996 the
revenue from market research was a result of our non-recurring participation in
a third party research program while operating with our initial test group of
100 customers.
TOTAL OPERATING EXPENSES. Total operating expenses increased to $11.1 million,
or 422.6% of total revenue, in 1997 from $2.8 million, or 305.0% of total
revenue, in 1996, an increase of 296.1%, due to:
- an increase in the number of customers and orders
- an increase in costs related to consumer resource operations due to the
completion of our first consumer resource center
- increased sales and marketing expenses related to the expansion our
customer base
- an increase in general and administrative expenses as a result of
increasing our infrastructure to support expanded operations
COST OF REVENUE. The cost of revenue increased to $2.1 million, or 79.6% of
total revenue, in 1997 from $391,000, or 42.4% of total revenue, in 1996, an
increase of 436.3%, due to the increase in customer orders and the increase in
costs associated with research and marketing programs.
27
<PAGE>
FULFILLMENT CENTER OPERATIONS. In 1996 we completed construction of our
first facility in the greater Boston, Massachusetts area and began full
operations. Expenses attributable to fulfillment center operations increased to
$2.8 million, or 105.1% of total revenue, in 1997 from $916,000, or 99.4% of
total revenue, in 1996, an increase of 202.3%, as a result of increased labor
associated with processing a higher order volume.
SALES AND MARKETING. Sales and marketing increased to $1.4 million, or
54.2% of total revenue, in 1997 from $441,000, or 47.8% of total revenue, in
1996, an increase of 224.1%. We incurred higher customer acquisition expenses in
1997 because we ended our test phase and began actively marketing our service to
new customers. In 1997 we also began general promotional efforts.
TECHNOLOGY SYSTEMS AND DEVELOPMENT. Expenses attributable to technology
systems and development increased to $1.7 million, or 63.5% of total revenue, in
1997 from $78,000, or 8.5% of total revenue, in 1996, due to the development and
implementation of our website, on-line ordering, warehouse management system and
other enterprise systems in 1997.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased to
$3.2 million, or 120.2% of total revenue, in 1997 from $1.0 million, or 106.9%
of total revenue in 1996, an increase of 221.3% due to an increase in
administrative salaries and related benefits to support the growth in customers.
OTHER INCOME (EXPENSE), NET. Other expense, net of $80,000 in 1997 was
primarily due to the losses incurred on the disposal of fixed assets. Other
income, net of $43,000 in 1996 resulted primarily from the net interest income
we received from investing the proceeds of equity financings completed during
the year offset by leasing and other financing expenses.
MINORITY INTEREST. In 1997 we established a subsidiary, Streamline
Mid-Atlantic, Inc., which sold common stock to third parties and acquired
substantially all of the assets of Shopping Alternatives, Inc. in exchange for
shares of its common stock. These transactions created a minority interest in
our subsidiary, to which we allocated approximately 45% of the subsidiary's 1997
operating loss.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly consolidated statement of
operations data for each of the quarters during the fiscal years ended December
31, 1997 and 1998 and for the quarter ended March 31, 1999. In the opinion of
management, this information has been prepared on the same basis as the audited
financial statements appearing elsewhere in this prospectus, and all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the unaudited quarterly results.
You should read the quarterly data presented below in conjunction with the
Consolidated Financial Statements and related Notes appearing elsewhere in this
prospectus.
28
<PAGE>
The results of operations for any quarter are not necessarily indicative of
future quarterly results of operations. See "Risk Factors."
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Product and service revenue,
net............................ $ 185 $ 340 $ 473 $ 817 $1,072
Subscription fees................ 9 16 27 46 77
Advertising, research and
marketing fees................. 135 270 271 45 53
------------- ------------- ------------- ------------- -------------
Total revenue...................... 329 626 771 908 1,202
Operating expenses:
Cost of revenue.................. 261 392 604 841 896
Fulfillment center operations.... 417 624 751 977 946
Sales and marketing.............. 338 357 390 343 285
Technology systems and
development.................... 125 405 528 615 636
General and administrative....... 425 893 904 944 963
------------- ------------- ------------- ------------- -------------
Total operating expenses........... 1,566 2,671 3,177 3,720 3,726
Loss from operations............... (1,237) (2,045) (2,406) (2,812) (2,524)
Other income (expense), net........ (8) (12) (87) 27 (40)
------------- ------------- ------------- ------------- -------------
Loss before minority interest and
extraordinary item............... $(1,245) $(2,057) $(2,493) $(2,785) $(2,564)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
PERCENTAGE OF REVENUE:
Revenue:
Product and service revenue,
net............................ 56.2% 54.3% 61.3% 90.0% 89.2%
Subscription fees................ 2.7 2.6 3.5 5.1 6.4
Advertising, research and
marketing fees................. 41.0 43.1 35.1 5.0 4.4
------------- ------------- ------------- ------------- -------------
Total revenue...................... 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of revenue.................. 79.3 62.6 78.3 92.6 74.6
Fulfillment center operations.... 126.7 99.7 97.4 107.6 78.7
Sales and marketing.............. 102.7 57.0 50.6 37.8 23.7
Technology systems and
development.................... 38.0 64.7 68.5 67.7 52.9
General and administrative....... 129.2 142.7 117.3 104.0 80.2
------------- ------------- ------------- ------------- -------------
Total operating expenses........... 476.0 426.7 412.1 409.7 310.1
------------- ------------- ------------- ------------- -------------
Loss from operations............... (376.0) (326.7) (312.1) (309.7) (210.1)
Other income (expense), net........ (2.4) (1.9) (11.3) 3.0 (3.3)
------------- ------------- ------------- ------------- -------------
Loss before minority interest and
extraordinary item............... (378.4)% (328.6)% (323.3)% (306.7)% (213.4)%
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product and service revenue,
net............................ $1,401 $1,409 $2,144 $2,568
Subscription fees................ 94 105 116 186
Advertising, research and
marketing fees................. 159 158 158 233
------------- ------------- ------------- -------------
Total revenue...................... 1,654 1,672 2,418 2,987
Operating expenses:
Cost of revenue.................. 1,206 1,164 1,726 2,022
Fulfillment center operations.... 1,009 946 1,112 1,407
Sales and marketing.............. 328 376 490 616
Technology systems and
development.................... 664 637 1,065 828
General and administrative....... 951 884 1,099 1,483
------------- ------------- ------------- -------------
Total operating expenses........... 4,158 4,007 5,492 6,356
Loss from operations............... (2,504) (2,335) (3,074) (3,369)
Other income (expense), net........ (209) (205) 124 107
------------- ------------- ------------- -------------
Loss before minority interest and
extraordinary item............... $(2,713) $(2,540) $(2,950) $(3,262)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
PERCENTAGE OF REVENUE:
Revenue:
Product and service revenue,
net............................ 84.7% 84.2% 88.6% 86.0%
Subscription fees................ 5.7 6.3 4.8 6.2
Advertising, research and
marketing fees................. 9.6 9.5 6.6 7.8
------------- ------------- ------------- -------------
Total revenue...................... 100.0 100.0 100.0 100.0
Operating expenses:
Cost of revenue.................. 72.9 69.6 71.4 67.7
Fulfillment center operations.... 61.0 56.6 46.0 47.1
Sales and marketing.............. 19.8 22.5 20.3 20.6
Technology systems and
development.................... 40.1 38.1 44.1 27.7
General and administrative....... 57.5 52.8 45.4 49.7
------------- ------------- ------------- -------------
Total operating expenses........... 251.3 239.6 227.2 212.8
------------- ------------- ------------- -------------
Loss from operations............... (151.3) (139.6) (127.2) (112.8)
Other income (expense), net........ (12.7) (12.2) 5.1 3.6
------------- ------------- ------------- -------------
Loss before minority interest and
extraordinary item............... (164.0)% (151.8)% (122.1)% (109.2)%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
29
<PAGE>
Streamline's quarterly operating results have fluctuated significantly in
the past due to many factors beyond our control including seasonality.
Generally, the number of orders, as well as the total amount spent per order,
tends to decrease in July, August and during school breaks when many busy
suburban families vacation. This pattern is demonstrated by a comparison of
product and service revenue, net for the last three quarters of 1998 and the
first quarter of 1999. This revenue remained stable in the second and third
quarters of 1998 as opposed to the 52.2% increase from the third quarter of 1998
to the fourth quarter of 1998. Product and service revenue, net increased 19.8%
from the fourth quarter of 1998 to the first quarter of 1999. Our operating
results are likely to continue to fluctuate due to seasonality and other
factors, including:
- the ability to attract new customers and retain existing customers
- the timing and nature of the expansion of our business, and the amount of
operating costs and capital expenditures relating to such expansion of our
business
- our ability to manage inventory and fulfillment operations
- the introduction of new products and services and changes in the sales mix
of our product and service offerings
- the ability to maintain or reduce costs of revenue
- our ability to establish and expand recognition of the Streamline brand
- changes in pricing policies
- competitive factors
- general economic conditions
We may also experience significant fluctuations in revenue from our
advertising, research and marketing fees due to the timing and length of our
agreements with participants and affiliates. For example, the Consumer Learning
Center operated primarily in the first three quarters of 1997 and the last three
quarters of 1998 and therefore generated the majority of advertising, research
and marketing fees during those periods. We also expect that revenue from
customer acquisition and revenue sharing contracts with other e-commerce
companies may vary between quarters.
Cost of revenue as a percentage of total revenue has fluctuated between
quarters due to the timing of expenses related to the recognition of
advertising, research and marketing fees. The total costs of revenue as a
percentage of total revenue decreased from 79.6% in 1997 to 71.9% in 1998
primarily as a result of securing better wholesale prices from new and existing
suppliers. The cost of revenue decreased from 71.4% in the fourth quarter of
1998 to 67.7% in the first quarter of 1999, primarily as a result of an increase
in the percentage of total revenue derived from advertising, marketing and
research fees, which have a lower cost of revenue as compared to product and
service revenue, net.
Expenses attributable to fulfillment center operations, which include the
fixed costs to operate our consumer resource center, as well as labor costs
associated with managing inventory and processing orders have typically
increased as a result of increases in our order volume.
Sales and marketing expenses have typically increased as a result of
increased marketing efforts to acquire additional customers.
Technology and development expenses have typically increased due to
incurring costs to develop, enhance and maintain our ordering, warehouse
management, financial and customer information systems. These expenses
significantly increased in the fourth quarter due to the issuance of warrants
for common stock in lieu of payment for services related to the development of
our website and customer ordering systems. See Notes to the Consolidated
Financial Statements.
General and administrative expenses have typically increased as a result of
the addition of management and administrative staff and related expenses to
support our current and future growth.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Streamline has financed its operations and capital requirements through the
sale of redeemable convertible preferred stock and the issuance of senior
discount notes.
Operating activities used cash of $2.2 million in the first quarter of 1999,
$9.4 million in 1998, $6.7 million in 1997 and $1.7 million in 1996 primarily
due to the net losses incurred in each period. Investing activities used cash of
$975,000 in the first quarter of 1999, $2.1 million in 1998, $2.8 million in
1997 and $2.0 million in 1996 primarily due to the purchase of property and
equipment to support the expansion of our operations, and costs associated with
purchased and capitalized software for our warehouse management, customer
ordering, and financial systems. Financing activities used cash of $72,000 in
the first quarter of 1999 and provided cash of $22.7 million in 1998, $10.0
million in 1997, and $4.7 million in 1996 primarily through sales of preferred
stock which generated proceeds of $22.9 million in 1998, $9.0 million in 1997,
and $5.0 million in 1996. During 1998 we received $7.0 million in connection
with the issuance of senior discount notes. A portion of the proceeds from our
sale of preferred stock in September 1998 was used to retire the senior discount
notes.
We expect to incur operating losses in 1999 from our existing consumer
resource center and from the facility we have leased and plan to open in the
greater Washington, D.C. area in the fourth quarter of 1999. We have currently
budgeted expenditures in 1999 of approximately $4.0 million for costs associated
with leasehold improvements, equipment acquisitions and other asset purchases
related to our new facility. Additionally, we plan to continue to enhance our
technology by upgrading or replacing our financial, warehouse management and
customer information systems. We intend to finance these expenditures from
capital resources and future lease financing. We also plan to open new
facilities in 2000 and beyond which may or may not have similar capital
requirements due to size, configuration, location and other local market
conditions.
Pursuant to a letter agreement dated April 13, 1999, Nordstrom, Inc. has
agreed to provide us with financing of up to $10.0 million upon our request.
Nordstrom's commitment will terminate upon the closing of this offering or April
2000, whichever is earlier. The final terms of any such financing will be
determined at the time we request such financing, but will be similar to the
terms of the sale of the Series D preferred stock to Nordstrom in September
1998.
We currently believe that existing cash and short-term investments, together
with the net cash proceeds of this offering, will be sufficient to fund our
planned expansion and working capital needs for at least the next 18 months. We
expect that we will require additional capital financing to support our further
expansion.
We do not believe that inflation has had a material effect on Streamline's
operations during the three year period ended December 31, 1998 or the quarter
ended March 31, 1999.
MARKET RISK
To date, Streamline has not utilized derivative financial instruments or
derivative commodity instruments. We invest our cash in money market funds,
which are subject to minimal credit and market risk, and have no debt.
Therefore, we believe the market risks associated with these financial
instruments are immaterial.
ACQUISITIONS
In 1996 we incorporated our subsidiary Streamline Mid-Atlantic, Inc., for
the purpose of acquiring substantially all of the assets of Shopping
Alternatives, Inc., a consumer direct company based in the Washington, D.C.
area. In 1997 Streamline Mid-Atlantic sold approximately 45% of its common stock
to third parties. In November 1998, we acquired the outstanding minority
interest in Streamline Mid-Atlantic and it once again became a wholly owned
subsidiary. In connection with these transactions we recorded $1.3 million of
goodwill which is being amortized on a straight-line basis over a five-year
term.
31
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 problem stems from the fact that many currently installed
computer systems include software and hardware products that are unable to
distinguish 21st century dates from those in the 20th century. As a result,
computer software and hardware used by many companies and governmental agencies
may need to be upgraded to comply with Year 2000 requirements or risk system
failure or miscalculations causing disruptions to normal business activities.
STATE OF READINESS
We have begun to assess the corporate systems and operations that we believe
could be affected by the Year 2000 problem. We have focused our Year 2000 review
on three areas:
- internal information technology infrastructure
- third-party compliance
- non-information technology systems
INTERNAL INFORMATION TECHNOLOGY INFRASTRUCTURE. Because our consumer and
business systems are essential to our business, financial condition and results
of operations, we began our assessment of these systems prior to other less
critical information technology systems. We use the following information
technology for our internal infrastructure:
- website and Internet ordering systems
- main enterprise systems, such as those used for purchase orders,
invoicing, shipping, warehouse management and accounting
- individual workstations, including personal computers
- network systems
We currently believe that all of our critical systems are Year 2000
compliant. We have received written assurance that our website, ordering systems
and main enterprise systems are Year 2000 compliant. In addition, we are in the
process of implementing a new financial system which is certified Year 2000
compliant by the vendor. We expect this system to be in place by the end of
1999. We are currently conducting Year 2000 compliance testing of our individual
workstations and network systems. To date, we have not discovered Year 2000
problems in these internal systems.
THIRD-PARTY COMPLIANCE. Streamline's material third party business
relationships include:
- customers who order products and services via the Internet, telephone and
fax
- vendors and suppliers who provide the goods and services that we offer to
our customers
We are unable to predict, and have not attempted to assess, the Year 2000
readiness of our customers or the systems they use to interact with Streamline.
Since our customers order our products and services via the Internet or by
telephone or fax, Streamline's operations would be materially adversely affected
if a significant number of customers were unable to use these devices to place
their orders.
Year 2000 disruptions in the systems or equipment used by our suppliers
could result in our being unable to obtain products and services in a timely
manner. We are in the process of developing a standard survey to help us assess
the Year 2000 readiness or our suppliers, but we have not yet begun to collect
information from these companies.
NON-INFORMATION TECHNOLOGY SYSTEMS. Some non-information technology systems
used in our business, such as HVAC and telephone systems, our truck fleet and
refrigeration and other equipment, may contain date-processing embedded
technology. The Year 2000 problem could cause failures in these assets which
could disrupt our operations. We are currently assessing the Year 2000 readiness
of
32
<PAGE>
many of these systems and equipment and expect to have identified and corrected
problems in critical items by September 1999.
COSTS
Streamline's Year 2000 assessment, remediation and testing activities have
been conducted by internal personnel, and we have not recorded the amount of
employee time expended on these tasks. Accordingly, we are unable to determine
the cost of employee time devoted to Year 2000 matters. Until we have further
assessed the Year 2000 readiness of our internal systems and those of third
parties with whom we do business, we will be unable to estimate all of the costs
that we may incur in our Year 2000 compliance efforts. Streamline has funded and
will continue to fund these activities principally through cash flow.
MOST REASONABLE WORST CASE SCENARIO
It is possible that problems related to the Year 2000 could disrupt one or
more of the following systems:
- customer Internet-based ordering
- technology-driven order picking
- inventory replenishment
- credit card settlement
In each case, there is a low technology alternative available which would
allow us to continue to run our business. However, most of the alternatives
would result in increased costs, reduced revenues or service delays, which
should increase our operating losses. Extended disruptions may impact long term
customer and supplier relationships further impacting future profitability.
CONTINGENCY PLAN
Other than the short-term low technology alternatives discussed above, to
date we have not formulated contingency plans related to the failure of our or a
third-party's systems or equipment should they prove to not be Year 2000
compliant. However, we intend to develop contingency plans to address any Year
2000 compliance problems that we discover through our ongoing assessment,
remediation and testing activities.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-1, Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use. SoP 98-1 provides guidance on accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and the related amortization of such costs.
Streamline does not expect the adoption of this standard to have a material
effect on our current capitalization policy.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, Reporting on the Costs of Start-Up Activities. Start-up
activities are defined broadly as those one-time activities related to opening a
new facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer, commencing some new
operation or organizing a new entity. Under SoP 98-5, the cost of start-up
activities should be expensed as incurred. SoP 98-5 is effective for
Streamline's 1999 financial statements and we do not expect its adoption to have
a material effect on our business, financial condition or results of operations.
33
<PAGE>
BUSINESS
OVERVIEW
We simplify the lives of busy suburban families by providing them with
Internet-based ordering of goods and services, coupled with direct-to-the-home
delivery. We significantly shorten and simplify the traditional shopping needs
of our customers who increasingly demand time-saving lifestyle solutions. We
deliver our products and services to each customer through a single weekly
delivery. Products that we purchase at wholesale prices directly from
wholesalers, distributors and manufacturers and sell to our customers at retail
prices include:
<TABLE>
<S> <C>
- brand-name groceries - fresh baked goods
- quality meats and seafood - freshly prepared meals
- fresh produce - health and beauty care products
- dairy products, including gourmet - cleaning supplies and other household items
cheeses
- sliced-to-order deli products - specialty pet food and supplies
- organic foods - fresh flowers
- frozen foods - stationery supplies and postage stamps
- kosher foods - seasonal items, including firewood,
charcoal and holiday products
</TABLE>
In addition, we offer a wide range of related services, such as:
<TABLE>
<S> <C>
- dry cleaning pick-up and delivery - package pick-up and delivery
- clothing alteration and repair - bottle and can redemption
- video and video game rental - shoe repair
- film processing and supplies - food and clothing drives
- bottled water and cooler delivery
</TABLE>
Our product and service offerings, combined with the frequency of ordering
and delivery, provide us the opportunity to develop long-term relationships with
customers.
INDUSTRY BACKGROUND
Consumer direct companies deliver groceries and other consumer products and
services, which consumers have ordered over the Internet or by telephone or fax,
directly to their homes. In a 1996 study, Andersen Consulting estimated that the
U.S. consumer direct market could generate approximately $60 billion in annual
sales in 2007. Several converging trends are driving this growth:
- demographic trends supporting the growth of the consumer direct industry
- growth of the Internet and e-commerce
- limitations of the traditional physical store model
DEMOGRAPHIC TRENDS SUPPORTING THE GROWTH OF THE CONSUMER DIRECT INDUSTRY
NFO Worldwide, Inc. analyzed a group of consumer direct users and profiled
such users as having the following characteristics, among others:
- 61% are dual income households
- 75% have at least one child under 18
- 88% use personal computers
- 40% use time-saving services such as house cleaning services
34
<PAGE>
- 75% use time-saving devices such as mobile phones
NFO and Andersen Consulting separately report that perceived time-saving is
one of the primary benefits driving usage of consumer direct channels. Andersen
Consulting has additionally found that consumer direct companies excel at
meeting the following needs of the busy consumer:
- simplicity
- more effective use of time
- pricing accuracy
- product quality
- minimal physical effort
GROWTH OF THE INTERNET AND E-COMMERCE
The Internet has become an increasingly significant global medium for
consumer commerce and now provides a powerful and efficient means for consumers
to order products and services. International Data Corporation estimates that 21
million U.S. households had Internet access in 1997 and expects this number to
grow to over 67 million by the end of 2002.
Growth in Internet usage among consumers has been fueled by a number of
factors, including:
- increased awareness of the Internet among consumers
- a large and increasing number of personal computers at home
- growing e-commerce activity due to increasing availability of information
and services on the Internet
- more readily available access to the Internet due to the proliferation of
service providers
- advances in the performance and speed of personal computers and modems
- improvements in network systems and infrastructure, including increased
bandwidth
- reduced security risks in conducting commercial transactions via the
Internet
The Internet is also dramatically affecting the manner in which companies
distribute goods and services. Specifically, the Internet allows consumer direct
companies to:
- reach a large national and local audience from a central location
- process business with reduced infrastructure investment and overhead
costs, along with greater economies of scale
- provide consumers with a broad selection of products and services,
increased information and enhanced convenience
As a result of both increased consumer Internet use and this increasing
selection of products and services, a growing number of consumers are
transacting business on the Internet, including buying groceries and other
consumer products. IDC estimates that in 1997 over 36% of Internet users
purchased consumer goods or services over the Internet and that 50% of Internet
users will make on-line purchases in 2002. IDC also estimates that consumer
purchases of goods and services over the Internet will increase from $4.3
billion in 1997 to $54.3 billion in 2002. For example, Jupiter Communications
estimates that consumers spent approximately $65 million in 1997 over the
Internet on grocery and health and beauty products, and that this market will
increase to approximately $4.7 billion by 2002. This estimated penetration still
represents less than one percent of the total dollars expended in 1997 on
grocery and health and beauty products through traditional U.S. retail channels.
35
<PAGE>
LIMITATIONS OF THE TRADITIONAL PHYSICAL STORE MODEL
LIMITED ABILITY TO MEET THE NEEDS OF BUSY CONSUMERS. Consumers are
increasingly time constrained. The increase in dual income families limits the
time available for routine activities, such as shopping, cooking and cleaning.
According to the U.S. Bureau of Labor Statistics, the number of dual income
households totaled 28.5 million in 1998, representing approximately 27.8% of the
total number of households in 1998 as reported by the U.S. Bureau of the Census.
According to Andersen Consulting, the typical consumer visits the supermarket
twice per week and each trip takes an average of 47 minutes excluding the time
required for driving to and from the store, parking, and loading and unloading
packages. The weekly time burden is even greater when one considers time spent
on other chores, such as picking up dry cleaning, returning videos and mailing
packages. According to the Food Marketing Institute, people with full time jobs
complete 50% of their shopping during the weekend.
ECONOMIC CONSTRAINTS. Traditional physical store models face significant
economic limitations due to costs associated with real estate, construction,
store set-up, inventory, and other fixed assets. As an example, according to the
FMI, 7% of a traditional grocery store's operating costs in 1997 were related to
real estate rental costs. Traditional physical store models also have high
ongoing expenses relating to personnel. As measured by the FMI, a traditional
grocery store's labor costs in 1997 typically represented 57% of its operating
costs. In addition, traditional physical stores are limited in their ability to
track critical customer purchasing and preference information and, therefore,
cannot predict customer demand with great accuracy. ACNielsen Corporation has
found that only 55% of customers participate in scannable card programs.
Therefore, these programs do not provide complete consumer purchase data.
Consequently, traditional physical stores, especially grocery stores, must carry
more inventory and, therefore, build or lease more space to warehouse and
display this inventory and employ more people to service this larger space. The
average supermarket currently stocks over 30,000 items and has grown from 31,000
square feet to 39,260 between 1990 and 1997.
Consumers are increasingly seeking a shopping solution which helps them to
save time while providing quality goods and services. Consumer direct companies
are using the Internet to satisfy this need while traditional physical stores
face fundamental constraints that limit their ability to meet these demands.
THE STREAMLINE SOLUTION
We have created a lifestyle solution for today's busy suburban family by
providing an efficient means of purchasing and receiving groceries and other
related products and services. We supply consumers with a simple, informative
and enjoyable Internet-based shopping experience by offering a targeted,
necessity-based range of products and services enhanced by weekly unattended
home delivery.
The principal benefits to our customers include:
- convenience and simplicity
- time savings
- access to detailed information about products and services
- competitive pricing
- personalized care and service
36
<PAGE>
Through key relationships with premier national, regional and local business
partners, we aggregate a wide range of products and services for our customers,
including:
<TABLE>
<CAPTION>
SAMPLE OF
1997 ESTIMATED STREAMLINE'S GEOGRAPHIC SCOPE
U.S. SALES PRODUCT AND SERVICE OF PARTNER'S
PRODUCT AND SERVICE (IN BILLIONS) PROVIDERS OPERATIONS
- ----------------------------- ----------------- --------------------------- -----------------
<S> <C> <C> <C>
Groceries, dry and perishable $ 475 SuperValu Operations, Inc. National
Health and Beauty Care 49(1) Millbrook Corporation National
Prepared Meals 29 Legal Sea Foods, Inc. Regional
S.E. Olson's Uptown Gourmet Local
Specialty Pet Food and 11(1) Iams Company National
Supplies
Ralston Purina Company National
Video and Video Game Rentals 10 BlockBuster Videos, Inc. National
Dry Cleaning 6(2) Quest Dry Cleaning Inc. Local
Bottled Water and Cooler 4 Poland Spring Corporation Regional
Delivery
</TABLE>
- ------------------------
(1) Estimated 1998 annual sales.
(2) Estimated 1996 annual sales.
We estimate that our process allows customers to complete an entire order in
20 to 30 minutes per week from the comfort of their homes, thereby reducing
their need to make frequent trips to multiple traditional stores. NFO has
conducted research which concludes that 94% of Streamline customers consider us
to be their primary provider of groceries and other household goods and
services.
OUR VIRTUAL AND PHYSICAL CHANNELS
To deliver superior value to the consumer, Streamline has built two
dedicated pipelines direct to the home: a virtual channel using the Internet and
a physical channel using our direct delivery system.
(Diagram depicting the types of products and services delivered to
Streamline.com's customer resource center and indicating that there exists
two-way virtual and physical channels between Streamline.com and its customers.
The top half of the diagram contains two rows of pictures showing the types of
products and services that Streamline.com provides. On the left side, under the
heading "Product Offering" are pictures labeled "Fresh Baked Goods", "Quality
Meats and Seafood", "Cleaning Supplies and Household Items", "Freshly Prepared
Meals", "Brand Name Groceries", "Health and Beauty Care Products", "Specialty
Pet Food and Supplies", and "Fresh Produce". On the right side, under the
heading "Service Offering" are pictures labeled "Film Processing and Supplies",
"Video Rentals", "Dry Cleaning", "Stamps", "Fresh Flowers", "Bottled Water and
Cooler Delivery", "Package Pick-up and Delivery", and "Bottle and Can
Redemption". In the center of the diagram is a depiction of a building labeled
"The Consumer Resource Center". Arrows come down from the product and service
offerings toward the consumer resource center, and bi-directional vertical
arrows run between the consumer resource center and a picture of a two story
home. One bi-directional arrow is labeled "Virtual Channel" and is accompanied
by an image of a computer; the other is labeled "Physical Channel" and is
accompanied by an image of a truck bearing Streamline.com's logo.)
37
<PAGE>
OUR VIRTUAL CHANNEL
Our virtual channel, which refers to the ongoing two-way exchange of
information through the Internet between our customers and us, is a central
element of the Streamline experience. Because our customers order frequently, we
use the ordering process as a way to gather and distribute information about the
products and services we provide. From the comfort of their homes, customers can
use our Internet-based ordering system to browse weekly specials, review and
compare product nutritional information and place orders. The Internet-based
ordering system also provides us a direct line of communication to our customers
and serves as an efficient means of collecting data on their ordering habits and
preferences. Currently, over 70% of our customers order via the Internet, and we
plan to migrate exclusively to Internet-based ordering.
<TABLE>
<CAPTION>
CUSTOMER USES STREAMLINE USES
- --------------------------------------------- ---------------------------------------------
<S> <C>
- - ordering products and services - collecting data on customer purchasing
behavior
- - browsing offerings by category and - promoting new products and services
searching
for particular items - alerting customers to special offers and
other
- - customizing a PERSONAL SHOPPING LIST of time-sensitive information
frequently ordered items - conducting market research
- - customizing a DON'T RUN OUT list to
automatically reorder items on a preset - responding to customer inquiries
schedule
- - providing feedback on customer service and
products and services
- - downloading and analyzing details of past
purchases
</TABLE>
Streamline's virtual channel enables us to create and manage high-value,
sustainable and long-term customer relationships. On average, we receive weekly
feedback from over 35% of our customers. We routinely collect and analyze
customer feedback and satisfaction levels to continually improve customer
satisfaction. We use this information to more efficiently serve the customer by
refining our understanding of the customer's product preferences, cross-category
purchasing behavior, attitudes and lifestyle.
Our virtual channel also creates a unique opportunity to market on a
one-to-one basis to a highly specific and demographically attractive group of
consumers and to encourage increased spending through our channel. Our virtual
channel can be used to deliver interactive, information-rich multimedia messages
targeted specifically to the consumer. We also promote our virtual channel to
consumer packaged goods companies and other strategic partners as a means of
delivering targeted marketing programs, including Internet advertising and
sampling programs. Historically, consumer packaged goods companies have garnered
much of their market information through traditional grocery store purchase
data. Streamline, however, can more comprehensively track purchasing data and
can provide consumer packaged goods companies with information on the
effectiveness of their marketing programs, without ever disclosing an individual
customer's personal information.
OUR PHYSICAL CHANNEL
We have created our own efficient, direct-to-the-customer distribution
channel comprised of:
- THE CONSUMER RESOURCE CENTER. Streamline's model consumer resource center
is a strategically located, multi-temperature zone, warehouse-based,
dedicated fulfillment center of approximately
38
<PAGE>
100,000 square feet that is designed to serve approximately 10,000
customers within a 15 to 20 mile radius.
- STREAMLINE'S DELIVERY FLEET. Streamline's uniformed drivers, or field
service representatives, deliver goods and services in leased refrigerated
trucks bearing Streamline's logo. Within these vehicles, secure containers
separate different types of products and services to ensure quality during
transport.
- THE STREAMLINE BOX. The Streamline box is a refrigerator/freezer with a
compact storage unit that is located in a secure area at the customer's
home, such as in a garage. The Streamline Box allows us to maintain the
separation of different types of products within proper temperature zones
even after delivery.
<TABLE>
<CAPTION>
CUSTOMER USES STREAMLINE USES
- ---------------------------------------------- -------------------------------------------
<S> <C>
- - aggregating multiple shopping trips - lowering facility operating costs
- - avoiding crowded stores - optimizing fleet utilization and time per
stop
- - eliminating stress of waiting for a delivery - promoting a weekly shopping pattern
person
- - maintaining chill chain for product quality - increasing order size and frequency
- - providing additional storage space - providing back haul capability that
allows for an expanded product offering
</TABLE>
The Streamline solution also addresses some of the limitations of the
traditional physical store model:
REDUCED REAL ESTATE, LABOR AND ADMINISTRATIVE EXPENSES. Streamline's model
consumer resource center is located in an industrial setting, as opposed to a
more expensive location, such as a strip mall or other retail location typical
of a traditional physical store. Additionally, our facilities do not require
display cases, cash registers, customer parking lots or other space-consuming
elements associated with the traditional physical store. We further reduce real
estate, labor and administrative expenses by consolidating goods and services
within a single operation, thereby eliminating much of the overhead that would
otherwise be required to provide similar products and services through separate
grocery stores, dry cleaners, video stores, pet supply stores, and other similar
stores.
MORE EFFECTIVE INVENTORY MANAGEMENT. Streamline has aggregated a targeted
offering of products and services which promote purchasing in high frequency
because of their consumable, renewable or disposable nature. By focusing on busy
suburban families, Streamline is able to tailor our assortment of products and
services so as to meet customer demand while reducing the number of
stock-keeping units, or SKUs, that we provide. Currently, we maintain
approximately 10,000 of the SKUs most commonly ordered by busy suburban
families, as opposed to a typical grocery store's offering of 30,000 SKUs. Our
targeted SKU assortment allows us to reduce inventory carrying costs, lower
operating costs, more accurately forecast demand and provide customers with a
more efficient ordering process.
MORE EFFECTIVE CUSTOMER INTERACTION. Customers place their orders by one of
two Internet-based ordering methods, a website or a CD-ROM application developed
with Intel Productions, or by telephone or fax. The Internet-based ordering
technology used by the majority of our customers allows Streamline to deliver
product information rapidly and conveniently while removing the need to
physically display products in a costly and inefficient manner. In addition to
saving customers from having to visit a number of different traditional physical
stores, we also provide our customers with a more efficient method of
purchasing.
39
<PAGE>
STREAMLINE'S STRATEGY
Streamline's objective is to become the leading national consumer direct
supplier of groceries and other related products and services to busy suburban
families. We intend to achieve this objective through the following principal
strategies:
EXPAND NATIONALLY BY REPLICATING OUR BUSINESS MODEL. Streamline seeks to
expand our business by establishing consumer resource centers in selected
markets across the country. We estimate that the top 20 markets in the U.S.
provide access to approximately 40% of the population. Eventually, we intend to
serve busy suburban families in nearly all of these markets by establishing
local operations based on our existing model of offering weekly unattended
deliveries from a consumer resource center.
Our strategy is to be the first consumer direct provider of groceries and
other related products and services in many of our target markets, which we
believe will provide us an opportunity to obtain as customers a considerable
portion of the busy suburban families in those areas. As we expand, we intend to
focus on increasing our brand recognition through targeted promotional and
marketing programs, individually and with existing and future strategic
partners. We expect that the increased brand awareness will accelerate our
customer acquisition rate as we enter new markets and expand within existing
markets.
We are currently in the process of opening our second market, in the
Washington, D.C. area, and are scouting locations in additional target markets.
Although not our primary expansion focus, we are also considering licensing our
business model and technologies to third parties for international
implementation. Additionally, we will consider opportunities to acquire or
invest in products, services or technologies complementary to our business if
any such opportunities arise. However, we have no present understandings,
commitments or agreements with respect to any acquisitions or investments, and
none are planned or under negotiation. See "Business--Expansion Strategy and
Market Selection."
DEVELOP AND STRENGTHEN OUR CUSTOMER ACQUISITION CAPABILITIES. The ability
to rapidly acquire customers while maintaining service quality is essential to
achieving and maintaining consumer resource center profitability as we implement
our expansion plans. Our strategy is to supplement our existing customer
acquisition programs by forming relationships with strategic partners with whom
we will be able to engage in joint marketing and other directed sales efforts.
We plan to implement and continue to develop a variety of co-marketing programs
that make use of Nordstrom's brand loyalty, existing customer relationships and
presence in many of our target markets. The goal of these programs, coupled with
our current advertising and customer referral programs, is to reduce our
customer acquisition costs and facilitate rapid customer acquisition in new and
existing markets.
INCREASE REVENUE PER CUSTOMER. We seek to increase the average size of our
customers' weekly orders by fulfilling a greater portion of their needs. Our
strategy is to increase penetration of the existing products and services we
offer and to introduce new product and service offerings. Streamline's
technology allows us to track customer purchasing data, both individually and in
the aggregate, to determine the types of products and services that a busy
suburban family is most likely to appreciate. We expect to use this data to help
us determine which new products and services should be added to our offerings
and whether to provide them directly or through strategic relationships with
other companies. By increasing the size and scope of our offerings, we seek to
expand our role as an aggregator and to capture the economic benefits associated
with providing products and services through a single consolidated operation,
rather than through a traditional multiple store format. Additionally, by
maintaining a high level of customer satisfaction with our offerings, we expect
that customers will increasingly use Streamline as the primary supplier of many
of the products and services they require.
MAINTAIN AND DEVELOP RELATIONSHIPS WITH CONSUMER PACKAGED GOODS COMPANIES,
E-COMMERCE COMPANIES AND STRATEGIC INVESTORS. The spending habits of our
customers and the level of interaction that they
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have with us, both via the Internet and through our physical channel, makes us
an effective conduit for accessing a customer base that is attractive to other
providers of goods and services. Consumer packaged goods companies compensate
Streamline for the opportunity to gain insight into consumer purchase behavior
and to conduct on-line merchandising programs. Additionally, we provide direct
links to websites maintained by select e-commerce companies offering items that
may be of interest to busy suburban families. We have also established business
relationships with several of our investors, such as:
- developing our CD-ROM application with Intel Corporation
- entering into lease financing arrangements with General Electric Capital
Corporation
- developing marketing opportunities, which are not governed by a written
contract, with Nordstrom, Inc.
We intend to continue to maintain strong relationships with our existing
strategic investors and to seek out additional business opportunities.
MAXIMIZE OPERATIONAL EFFICIENCY. Our consumer resource center, located in
an industrial setting, allows us to create efficient operational processes. For
example, we use customer purchasing data to maximize the efficiency of our
internal operations. By understanding the ordering patterns of our customers, we
are better able to capture and forecast real demand for our products and
services, which enables us to maintain lower inventory levels and decrease
inventory carrying costs. Additionally, our unattended delivery system, through
which we deliver orders to our customers at a fixed delivery time, allows us to
maximize fleet utilization and create routing efficiencies. We are in the
process of implementing route planning software to gain further efficiencies in
our physical channel. As we expand our operations, our strategy is to centralize
many functions such as customer acquisition, Internet-based order taking,
customer service and general administrative functions and to consider
outsourcing other functions in order to lower overall operating expenses and
reduce operating risks.
DETAILS OF THE STREAMLINE PROCESS
Our process focuses on the ordering and delivery of quality goods and
services to the busy suburban family in a simple and efficient manner:
INITIAL CUSTOMER INSTALLATION. A Streamline representative visits each new
customer's home to install a Streamline box, consisting of a
refrigerator-freezer, for perishable and frozen items, and a shelving unit, used
for delivery and pick-up of dry goods, dry cleaning, video rentals and other
products. The Streamline box is located in the customer's garage or in another
secure location that does not give access to the interior of the customer's
home. Access to these secure locations is obtained through a keypad entry system
provided, installed and maintained by Streamline.
TAKING THE ORDER. Customers can place and modify their orders via the
Internet, or by telephone or fax, until 11:00 p.m. the evening before their
scheduled delivery day. Currently more than 70% of our customers order via the
Internet due to the convenience and broader functionality offered through an
on-line experience. We plan to migrate to exclusively Internet-based ordering
due to the accuracy and cost efficiencies gained by using such technology.
We provide each customer with an on-line personal shopping list. This list
of approximately 200 items is tailored to each customer and represents a
substantial majority of the items included in a typical weekly order.
Alternatively, the customer can simply select from any of the other products and
services we offer. A customer can add or delete items from the personal shopping
list at any time through our website or CD-ROM application. A customer can also
be prompted to order through our DON'T RUN OUT program which allows the customer
to automatically order items on a pre-defined cycle.
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For example, a customer can indicate once through this program and have a
half-gallon of milk delivered every week or a five-pack of razor blades
delivered every six weeks.
We have designed the website and CD-ROM application to be intuitive, fun and
easy to use. Customers can easily locate products by using the SHOP function
which categorizes products into groups, such as BAKERY, PET FOOD or PAPER GOODS,
or by using a robust, key-word search capability to locate items without knowing
full product descriptions. The customer shopping experience is further enhanced
by an interactive marketing capability in our CD-ROM application which allows
targeted and relevant advertising and immediate ordering of goods and services.
For example, when ordering a BlockBuster Video, an interactive promotion may ask
if the customer would like to order popcorn; with a click, we add popcorn to
that week's order.
ASSEMBLING THE ORDER AT THE CONSUMER RESOURCE CENTER. Streamline's model
consumer resource center is outlined below.
THE CONSUMER RESOURCE CENTER
(Diagram indicating space allocation for consumer resource center. On the
left side, in the exterior space, are four trucks lined from top to bottom
placed in front of bay doors leading into the interior space; three trucks with
"Streamline.com" logos on them which are facing away (left) from the interior
space; one with "Supplier" on the side facing towards the interior space. The
interior space is divided into areas to indicate the activities conducted in
each location of the consumer resource center. Moving from left to right and top
to bottom, the spaces are designated as follows: ROW ONE: "Just-in-Time Items";
"Refrigerated Goods Picked and Staged"; "Frozen Goods Picked and Staged"; ROW
TWO: "Completed Orders Staged for Delivery"; "Dry Goods Picked"; ROW THREE:
"Fast Moving"; "Slow Moving". The remainder of the interior space is filled with
graphics representing the goods fitting into each category, with the exception
of the bottom right corner, which has been designated "Services Consolidated".)
Operations within the consumer resource center include:
- receiving, quality-checking and stocking of products
- preparing and picking customer orders and placing them in appropriate
containers
- loading the delivery fleet
- providing back haul services, such as video tape returns, dry cleaning,
film processing, shoe repair and bottle and can redemption
We receive inventory on a frequent basis to ensure availability and
freshness. Additionally, quality assurance personnel examine each perishable
item prior to order fulfillment to ensure that we provide only top-quality goods
to our customers. We also maintain quality and improve picking efficiency by
segregating products into a number of different areas in the consumer resource
center based on
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product characteristics, such as perishability, fragility, temperature zone,
odor and purchase frequency. Refrigerated and frozen goods are maintained at
appropriate temperatures, while household items, such as soap and cleaning
supplies, and service items, such as dry cleaning, are kept separate from food
items.
Since orders are received until 11:00 p.m. for delivery the next day, order
picking takes place overnight. We optimize the picking process by employing
traditional logistical techniques, such as segregating fast- and slow-moving
items. To maximize efficiency, our employees pick multiple customer orders at
one time, aided by a hand-held computerized device that directs them to pick
orders in the most efficient pattern while maintaining accuracy through bar
coding. Once the order is picked and consolidated in each customer's delivery
bins, we stage it for delivery in the morning. At that point, we assemble each
customer's grocery products with other items to be delivered, including products
that we receive each morning such as fresh baked goods and prepared meals.
In May 1999, we entered into an agreement with Genco I, Inc., a national
warehouse operations company, under which we outsourced the merchandise
processing and picking services conducted in our Westwood, Massachusetts
consumer resource center. In connection with our planned expansion, we may enter
into similar agreements with Genco for the provision of these services in
additional consumer resource centers.
ORDER FULFILLMENT AND DELIVERY. Once we have filled, assembled and staged
customer orders at the consumer resource center, we place them in refrigerated
trucks specially designed to ensure quality during delivery. Customers receive
their orders on a weekly schedule on a fixed day at any time from 9:00 a.m. to
6:00 p.m. As a result, the delivery system allows for geographic concentration,
better load balancing and optimized route efficiency. To maintain proper
temperature and to properly separate incompatible items, such as a carton of
eggs and a frozen turkey, we separate our products and services in delivery
containers designated for certain types of items, including:
<TABLE>
<CAPTION>
TYPE OF CONTAINER SAMPLE CONTENTS
- ------------------------------------------------ ---------------------------------------------------
<S> <C>
bins for frozen products........................ ice cream and frozen vegetables
bins for refrigerated items..................... prepared meals, fresh meats, seafood and dairy
products
bins for ambient temperature food products...... baked goods, canned goods and other dry groceries
bins for ambient temperature non-food cleansers, detergents and health and beauty
products........................................ products
hanging bags or boxes........................... dry cleaning
flower boxes.................................... fresh flowers
individual items................................ bottled water and other bulk items
</TABLE>
By using a refrigerated truck and multi-temperature storage unit in the
customer's home, Streamline maintains the temperature integrity of a customer's
order better than if the customer purchased from a traditional retail
store--that is, refrigerated and frozen products are kept cool during the
delivery process, as opposed to being subject to differing temperature zones.
Our field service representatives are trained to bring quality customer
service direct to the home. Streamline's field service representatives are
uniformed and bonded and deliver to the customers in trucks that prominently
display our logo. Additionally, the Streamline box is equipped with a message
pad to facilitate communication between the customer and our field service
representative.
The Streamline box is combined with a weekly delivery cycle to provide an
in-home connection with the customer and allow back haul to enable Streamline to
expand its product offering to include renewable items such as dry cleaning and
video rentals. Streamline has also used its back haul capability to promote
community awareness through programs such as clothing and food drives to benefit
local organizations.
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EXPANSION STRATEGY AND MARKET SELECTION
We intend to expand our business by establishing consumer resource centers
in selected markets across the country. We expect that we will be able to
centralize most of our operations, including order processing, customer service,
customer acquisition and general management and administration, in our corporate
headquarters, located in Westwood, Massachusetts. Our model consumer resource
center will require an estimated 150 to 200 individuals, comprised of local
personnel to support our physical channel, along with a small management staff.
Our strategy is to have consumer resource centers in nearly all of what we
have identified as the top 20 markets in the U.S. for our service.
TOP 20 U.S. MARKETS
<TABLE>
<CAPTION>
NUMBER
OF HOUSEHOLDS
METROPOLITAN AREA (IN MILLIONS)
- --------------------------------------------- -----------------
<S> <C>
New York/New Jersey.......................... 7.0
Los Angeles.................................. 5.2
Chicago...................................... 3.2
Philadelphia................................. 2.7
San Francisco................................ 2.5
Boston....................................... 2.2
Washington, D.C.............................. 2.0
Dallas....................................... 2.0
Detroit...................................... 1.9
Houston...................................... 1.7
Atlanta...................................... 1.6
Seattle...................................... 1.6
Cleveland.................................... 1.5
Minneapolis.................................. 1.5
Tampa/St. Petersburg......................... 1.4
Miami........................................ 1.4
Denver....................................... 1.2
Sacramento................................... 1.1
Baltimore.................................... 1.0
Charlotte.................................... 0.8
- ------------------------
Source: The Lifestyle Market Analyst, 1999.
</TABLE>
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In assessing our expansion plans, we consider several factors in determining
the attractiveness of each target market, such as:
- number of households
- number of households with at least one child
- median income of households
- number of homeowners
- personal computer and Internet use
- strategic partnering opportunities
Our current development plan is to open a second consumer resource center,
in the Washington, D.C. area, in the fourth quarter of 1999. In addition,
Streamline plans to open consumer resource centers in new markets across the
U.S. while simultaneously expanding in existing markets with additional centers.
Specifically, we plan to open two to three additional facilities in 2000 with an
additional three to five facilities becoming operational in 2001. Although not
our primary expansion focus, we are also considering licensing our business
model and technologies to third parties for international implementation.
The number of consumer resource centers actually opened, as well as their
locations, will vary depending on a number of factors, including:
- regional acceptance of our products and services
- the availability of appropriate and affordable sites for our facilities
- managing construction and obtaining local permits
- our ability to develop relationships with local and regional suppliers
- our ability to hire and train qualified personnel
- general economic and financial conditions
RELATIONSHIPS WITH CONSUMER PACKAGED GOODS COMPANIES
Streamline's business model has allowed us to develop strategic
relationships with a number of leading consumer packaged goods companies. These
companies compensate Streamline for the opportunity to gain insight into
consumer purchase behavior and to conduct on-line merchandising programs.
Additionally, since we deliver products to our customers with high frequency,
our physical channel provides an opportunity for consumer packaged goods
companies to conduct focused market research within particular demographic
groups consistent with the busy suburban family.
To strengthen our relationships with consumer packaged goods companies,
Streamline developed and sponsors the Consumer Learning Center, an on-site
research center designed to further develop the best thinking on consumer
behavior in the emerging consumer direct industry. Through the Consumer Learning
Center we work with each participant to:
- conduct quarterly research with a proprietary panel of consumers, located
throughout the U.S., who are selected because of their frequent use of
consumer direct services
- design, implement, and assess the effectiveness of marketing promotions at
Streamline
- solicit rich, qualitative feedback from Streamline customers through
quarterly focus groups
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In addition to conducting research on the consumer direct industry,
Streamline provides Consumer Learning Center participants marketing and
promotional opportunities. Participants in the Consumer Learning Center pay
Streamline a membership fee.
Consumer Learning Center participants include the following:
<TABLE>
<S> <C>
- - Campbell Soup Company - Nestle USA, Inc.
- - The Gillette Company - The Pillsbury Company
- - Kimberly-Clark Corporation - The Procter & Gamble Company
- - Kraft Foods, Inc. - Ralston Purina Company
- - Mott's North America, a subsidiary of - Sargento Foods Inc.
Cadbury Schweppes plc - Warner-Lambert Company
- - Nabisco Inc.
</TABLE>
OTHER ALLIANCES
We have recently formed alliances with e-commerce companies to expand our
product and service offerings. These alliances generally require the e-commerce
companies to make payments to us based on a percentage of revenue generated
through the alliance. Although we have not yet generated significant revenue
through these alliances, we believe that they will provide us with several key
benefits, including:
- generating additional revenue
- assisting in the building of our customer base
- enhancing awareness and expansion of the Streamline brand
Streamline has alliances in place with the following:
<TABLE>
<CAPTION>
AFFILIATE SITES PRODUCTS SUPPLIED
- ------------------------------------ ------------------------------------
<S> <C>
barnesandnoble.com.................. books
eToys.com........................... toys
Nordstrom.com....................... clothing
Outpost.com......................... computer software and hardware
PCFlowers.com....................... flowers
</TABLE>
CUSTOMERS AND CUSTOMER ACQUISITION
Our target customers are busy suburban families, particularly dual-income
households having at least one child in the home and access to the Internet,
which we believe represent the top consuming households for our products and
services. These households have significant purchasing power, high levels of
education, sizable amounts of discretionary income, and are comfortable using
technology. We believe they are the most valuable consumer segment in the
consumer direct channel in terms of potential profitability and willingness to
pay for time-saving alternatives. Approximately 85% of our current customer
households have at least one child in the home. During 1998, our average
customer placed approximately 40 orders and the average product and service
revenue per invoice was $102.
Currently, we generate leads primarily through direct mail campaigns, local
advertising and referrals. To better target our ideal customer, our advertising
and direct mailings focus on families and emphasize the time savings and
convenience provided by our service. We believe that we generate a significant
portion of our leads through referrals from existing customers. We have found
that our customers tend to refer potential customers from the same demographic
group--that is, busy suburban families. Moreover, customer referrals lower our
customer acquisition costs. For these reasons, we actively encourage customer
referrals by offering incentives for each new customer directed to us.
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The following chart provides information with respect to the ten towns in
the greater Boston area in which we have achieved greatest market penetration,
as of March 31, 1999:
<TABLE>
<CAPTION>
1990 PERCENTAGE
AVERAGE HOUSEHOLD APPROXIMATE OF HOUSEHOLDS
TOWN INCOME(1) NUMBER OF HOUSEHOLDS(2) SERVED BY STREAMLINE
- ------------------------- -------------------- ------------------------- -----------------------
<S> <C> <C> <C>
Weston................... $ 95,134 3,400 5.4%
Dover.................... 91,376 1,800 5.2
Wayland.................. 72,057 4,400 3.4
Sherborn................. 93,925 1,500 3.3
Westwood................. 58,559 4,800 3.0
Wellesley................ 79,111 8,700 2.8
Medfield................. 66,084 3,800 2.4
Sudbury.................. 79,092 5,400 2.3
Sharon................... 61,692 6,200 1.5
Milton................... 53,130 8,500 1.5
</TABLE>
- ------------------------------
(1) Source: 1990 U.S. Census.
(2) Source: U.S. Postal Service.
We focus on developing relationships with strategic partners with whom we
will be able to engage in joint marketing and other directed sales efforts in an
attempt to reduce our customer acquisition costs. For example, in connection
with the opening of our facility in the Washington, D.C. area, we are working
with Nordstrom, Inc., as well as other area partners to determine ways to inform
their existing busy suburban family customers of Streamline's services. Although
we have no formal agreement with Nordstrom, Inc., we plan to implement and
continue to develop a variety of co-marketing programs that make use of
Nordstrom's brand loyalty, existing customer relationships and presence in many
of our target markets. For example, Nordstrom, Inc. has physical stores in 14 of
the top 20 U.S. markets, and distributes 60 million catalogs per year across all
major markets in the U.S. They also have a sizable in-store sales force and a
significant e-commerce initiative located at www.nordstrom.com.
CUSTOMER SERVICE
We have created a number of relationship management systems designed to
encourage feedback and promote issue resolution. We also maintain a
comprehensive customer service database that enables us to deliver personalized
customer service and to efficiently track customer requests for new products and
services.
Our customer service team is cross-trained and encouraged to address all
customer comments and inquiries, which we receive via the Internet, by telephone
and fax, and by messages left on Streamline boxes for our field representatives.
Each customer comment or inquiry, whether positive, negative or neutral, is
stored and categorized in our customer service database. We attempt to resolve
issues and answer questions at the first point of contact between us and the
customer, and in any event within 24 hours of initial contact.
TECHNOLOGY
Streamline employs both proprietary and commercially available licensed
technologies to integrate our various systems, including order-taking, inventory
control, warehouse management and customer service.
Streamline offers its customers two options for ordering via the Internet.
Customers can visit our website at www.streamline.com to review product and
service offerings, to revise their personal shopping list and DON'T RUN OUT
selections, and to place or revise their orders. The website offers
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high-quality graphical representations of, and textual information regarding,
our products and services. The website also provides a two-way communication
channel between us and our customers.
In addition to our website, we have recently introduced a hybrid
CD-ROM/Internet application in order to deliver customers a graphic ordering
system designed to alleviate the bandwidth constraints experienced by many
Internet users. The CD-ROM is the result of over 18 months of development
efforts involving Streamline and Intel Corporation, with input and assistance
from consumer packaged goods companies. The CD-ROM provides a graphical
interface that is even more robust than that of our website. Among the
enhancements included in the CD-ROM application are the ability to:
- provide a side by side comparison of multiple products
- watch a cooking demonstration with audio
- receive pop-up ordering suggestions, such as the opportunity to buy hot
fudge topping while purchasing ice cream.
Streamline's systems and technology are continually reviewed, updated and
supported by in-house technicians, system administrators and outside consultants
and systems integration specialists.
COMPETITION
Both the retail industry and the consumer direct industry are highly
competitive. Streamline currently or potentially competes with several types of
companies, including:
- traditional retail stores, including grocery stores, warehouse clubs, drug
stores and convenience stores, some of which fulfill orders received by
telephone, fax or the Internet
- various suppliers of other goods and services, both chains and
independently owned operations, such as dry cleaners, video rental stores,
prepared meal providers, bottled water delivery operations, pet supply
stores and photo labs
- various on-line providers of groceries and other products and services,
such as Peapod, Inc., Hannaford Bros. Cos.' HomeRuns, ShopLink
Incorporated, HomeGrocer.com, Inc., Beacon Home Direct, Inc. d/b/a
Scotty's Home Market, Net Grocer Inc. and WebVan Group, Inc.
- other consumer direct or catalog retailers of products or services
Streamline believes that the main competitive factors in our market are:
- range, quality and availability of products and services
- convenience, reliability and professionalism of delivery
- ease of ordering
- level and accessibility of information regarding products
- quality and responsiveness of customer service
- price
- general brand awareness
Many of our competitors are larger and have substantially greater resources
than we do. In addition, we believe that competition among consumer direct
suppliers of groceries and other products and services will continue to
intensify as new on-line suppliers and traditional retailers recognize the
potential of the consumer direct channel.
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INTELLECTUAL PROPERTY
Streamline regards its copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to its success and
relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, clients, partners
and others to protect its proprietary rights. Streamline pursues the
registration of its trademarks and service marks in the U.S. and has applied for
the registration of several of its trademarks and service marks. Streamline has
been granted service mark registrations for the marks STREAMLINE and WE BRING IT
ALL HOME and has pending registration applications for the marks DRO, DON'T RUN
OUT and SIMPLE SOURCE. Streamline has not sought trademark, service mark or
copyright protection outside of the U.S. Accordingly, satisfactory intellectual
property protection may not be available in each country where Streamline may
offer its products and services in the future.
EMPLOYEES
As of March 31, 1999, Streamline had 189 full-time and part-time employees,
which worked in corporate, selling general and administrative functions and in
our suburban Boston consumer resource center. On May 16, 1999, in connection
with the outsourcing of our merchandise processing and picking services at this
facility, 71 full-time and part-time employees were transferred to Genco I, Inc.
Streamline also employs a limited number of independent contractors and
temporary employees on a periodic basis. None of Streamline's employees are
represented by a labor union and Streamline considers its labor relations to be
good.
FACILITIES
Streamline is headquartered in Westwood, Massachusetts, where we lease
approximately 67,000 square feet of commercial space pursuant to a term lease
that expires on October 31, 2000, subject to a five-year renewal at Streamline's
option. These facilities are used for executive office space, including sales
and marketing and finance and administration, and for the operation of our
initial consumer resource center. We also maintain a facility in Gaithersburg,
Maryland where we lease an aggregate of approximately 93,000 square feet of
commercial space pursuant to a term lease that expires on October 1, 2007 with
respect to 56,000 square feet and on July 22, 2009 with respect to 37,000 square
feet. We believe that our current facilities will be adequate to meet our needs
in the Boston and Washington, D.C. areas for the remainder of the year. We
intend to acquire additional facilities in connection with our planned
expansion.
LEGAL PROCEEDINGS
Streamline is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SELECTED KEY EMPLOYEES
The executive officers, directors and selected key employees of Streamline
as of March 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --------- -------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Timothy A. DeMello.................... 40 Chairman, President and Chief Executive
Officer
Richard T. Joseph..................... 36 Chief Financial Officer
Terence W. Toran...................... 50 Chief Development Officer
David K. Blakelock.................... 37 Vice President, Operations
Frank F. Britt........................ 32 Vice President, Marketing and Merchandising
Mary E. Wadlinger..................... 39 Vice President, Customer Quality
John Cagno............................ 40 Vice President, Information Technology
Mark A. Cohn(1)....................... 42 Director
Thomas A. Crowley(2).................. 50 Director
John P. Fitzsimons(2)................. 53 Director
Thomas O. Jones....................... 54 Director
J. Daniel Nordstrom(1)................ 36 Director
Faith B. Popcorn(1)................... 55 Director
OFFICERS AND SELECTED KEY EMPLOYEES
Lauren A. Farrell..................... 31 Associate Vice President and Controller
Gina L. Wilcox........................ 30 Associate Vice President, Strategic
Relations
Kevin M. Sheehan...................... 35 Vice President and General Manager,
Washington Market
Cathy Papoulias....................... 42 Vice President, Corporate Development
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
TIMOTHY A. DEMELLO is the founder, Chairman, President and Chief Executive
Officer of Streamline. Prior to launching Streamline in 1993, Mr. DeMello was
founder, President and Chief Executive Officer of Replica Corporation.
Previously, Mr. DeMello served as Vice President of L.F. Rothschild, Unterberg,
Towbin from 1985 to 1987 and as Vice President of Kidder Peabody & Company from
1981 to 1985. Mr. DeMello received a Bachelor of Science degree in business from
Babson College and currently sits on its Board of Trustees. Mr. DeMello also
sits on the Board of Trustees for the Pan-Mass Challenge, a charitable
foundation that raises money for cancer research.
RICHARD T. JOSEPH joined Streamline as Chief Financial Officer in May 1999.
From April 1998 to May 1999, Mr. Joseph served as Chief Financial Officer of
Software Emancipation Technology, a client/ server software developer. He was
employed by Planet Direct Corp., a web-based on-line service and a wholly owned
subsidiary of CMGI, Inc., as Vice President-Finance, Chief Financial Officer and
Secretary from November 1996 to April 1998. From November 1994 to November 1996,
he served as Vice President-Finance, Chief Financial Officer and Treasurer at
ESSENSE Systems, Inc., a client/ server software developer. From 1985 to
November 1994, Mr. Joseph held several positions at Ernst & Young, LLP. Mr.
Joseph received a Bachelor of Science degree in accounting and management from
Boston College. He is a certified public accountant.
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TERENCE W. TORAN became Streamline's Chief Development Officer in May 1999
after serving as interim Chief Financial Officer since March 1999. From 1997
until joining Streamline, he served as Vice President, Development of Carematrix
Corp., a retirement living company. From 1996 to 1997, Mr. Toran was a principal
of Nassau Advisors, a management consulting and development firm which he
co-founded. From 1986 to 1996, he served in a number of capacities for Marriott
International, Inc., most recently as Senior Vice President, Finance and Market
Development--Food Services Division. While at Marriott he also served as the
Vice President, Finance and Development--Retirement Living Division where he was
responsible for the national rollout of over 100 facilities. He also directed
and controlled the annual development plan for lodging and restaurant units. Mr.
Toran received a Masters of Business Administration from Amos Tuck School at
Dartmouth College and a Bachelor of Science degree in chemical engineering from
Princeton University.
DAVID K. BLAKELOCK joined Streamline as Vice President, Operations in
January 1995. From April 1987 until he joined Streamline, Mr. Blakelock was a
consultant for Senn-Delaney Management Consultants, a unit of Arthur Andersen,
most recently managing the East Coast Distribution & Logistics Practice. Mr.
Blakelock received a Masters of Business Administration from the University of
Chicago and a Bachelor of Science degree in engineering from Union College.
FRANK F. BRITT joined Streamline in August 1996 as Vice President, Marketing
and Merchandising. From February 1990 to August 1996, Mr. Britt was a senior
manager in the consumer products practice with Andersen Consulting's Strategic
Services Division. Prior to 1990, he worked in the Operations Management
Practice at Arthur D. Little, Inc. Mr. Britt holds a Bachelor of Science degree
in marketing and logistics from Syracuse University.
MARY E. WADLINGER joined Streamline in January 1997 as Director of
Operations and has served as Vice President, Customer Quality since May 1997.
From August 1989 until June 1996, Ms. Wadlinger was the Director of Process
Improvement at Melville Corporation, where she managed strategic re-engineering
efforts in customer service, merchandise allocation, logistics and store
operations for Marshall's, CVS Pharmacy and Kay-Bee Toys. Ms. Wadlinger received
her Bachelor of Science degree in finance from the University of Maine at Orono.
JOHN CAGNO has served as Vice President, Information Technology since
January 1999. From August 1996 to January 1999, Mr. Cagno was Vice President,
Information Services at Brookstone Company, Inc. He also served as Director,
Retail Information Systems at Reebok International Ltd. from January 1995 to
August 1996. From January 1994 to January 1995, Mr. Cagno was Director,
Information Systems at Nature Food Centre.
MARK A. COHN has served as a director of Streamline since June 1993. Mr.
Cohn founded Damark International, Inc. and has been its Chief Executive Officer
since 1986.
THOMAS A. CROWLEY has served as a director of Streamline since September
1997. Mr. Crowley has been Managing Director of GE Equity, a division of General
Electric Capital Corporation, since February 1998. Prior to his current
position, he served in a number of capacities at GE Capital since August 1987,
including Managing Director, Corporate Ventures from January 1996 to February
1998, Senior Vice President, Equity Capital Group from November 1994 to January
1996, and Senior Vice President, Corporate Finance Group from July 1991 to
November 1994.
JOHN P. FITZSIMONS has served as a director of Streamline since September
1998. Mr. Fitzsimons has been Senior Vice President, Director of Equities of
Reliance Insurance Company since February 1999. Prior to his current position,
he served as Vice President of Reliance Insurance Company from 1990 through 1994
and as Vice President, Director of Equities from 1994 to February 1999.
THOMAS O. JONES has served as a director since January 1998. He was Chief
Information Officer of Streamline from March 1997 to December 1997. He has also
been President and CEO of Elm Square
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Technologies, Inc. since January 1994. Mr. Jones was a Senior Lecturer at
Harvard Business School from November 1991 to June 1995 and at MIT Sloan School
from September 1998 to December 1998.
J. DANIEL NORDSTROM has served as a director of Streamline since September
1998. In 1995, Mr. Nordstrom was appointed Co-President of Nordstrom, Inc.,
where he oversees the Direct Sales Division which he launched in 1993.
Previously, he served in several capacities at Nordstrom, Inc. Mr. Nordstrom
received his Masters of Business Administration degree from the University of
Washington in 1989.
FAITH B. POPCORN has served as a director of Streamline since June 1997. Ms.
Popcorn founded BrainReserve, Inc., a marketing consultancy company, in January
1974 and has been its chairman since that time.
LAUREN A. FARRELL joined Streamline as Controller in May 1996 and became an
Associate Vice President in December 1998. From December 1994 to May 1996, she
was Financial Reporting Manager at Saga International Holidays, Ltd., a direct
marketing company in the travel industry. Ms. Farrell was with American Auto
Auction, Inc. as Controller from October 1992 to December 1994 and previous to
that assignment, she was a tax consultant with Arthur Andersen. Ms. Farrell
received a Bachelor of Science degree from Bentley College. She is a certified
public accountant.
GINA L. WILCOX joined Streamline as Director of Strategic Relations in
November 1996 and became Associate Vice President, Strategic Relations in
December 1998. From June 1995 until she joined Streamline, Ms. Wilcox was a
consultant in the consumer products practice with Andersen Consulting's
Strategic Services Division. Ms. Wilcox received her Masters of Business
Administration degree in 1995 from Harvard Business School.
KEVIN M. SHEEHAN joined Streamline in February 1997 and has served in
various positions, including Vice President and General Manager, Washington
Market since January 1999. Mr. Sheehan also served as President of Streamline
Mid-Atlantic, Inc. from February 1997 to May 1998. From April 1994 to February
1997, Mr. Sheehan was President and CEO of Shopping Alternatives, Inc., a
provider of home grocery shopping services based in the Washington, D.C. area.
CATHY PAPOULIAS joined Streamline as Vice President, Corporate Development
in February 1999. She was Vice President of Pendleton James Associates from
January 1997 to January 1999. In June 1995, Ms. Papoulias founded Spartan
Trading, an import trading company, acting as President until January 1997. From
March 1987 to August 1994, Ms. Papoulias served in several capacities with
ACNielsen Corporation, most recently as Vice President of Global Accounts.
BOARD OF DIRECTORS
Our charter and by-laws provide that the size of our board of directors
shall be determined by resolution of the board of directors.
The board of directors is divided into three classes, with the members of
the respective classes serving for staggered three-year terms. The first class
consists of Mr. Fitzsimons and Ms. Popcorn, the second of Mr. Crowley and Mr.
Jones, and the third of Mr. Cohn, Mr. DeMello and Mr. Nordstrom, with the
initial terms of the directors in these classes expiring upon the election and
qualification of the directors at the 2000, 2001 and 2002 annual meetings of
stockholders, respectively. At each annual meeting of stockholders, directors
will be re-elected or elected for full three-year terms. See "Description of
Capital Stock--Delaware Law and Certain Charter and By-Law Provisions."
Messrs. Crowley, Fitzsimons and Nordstrom were nominated and elected as
directors by the holders of our preferred stock in accordance with provisions of
our charter that will terminate upon the closing of this offering. They will
remain as directors until they resign or the stockholders elect their
replacements.
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Our executive officers are appointed by the board of directors and serve
until their successors have been duly elected and qualified. There are no family
relationships among any of our executive officers or directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The compensation committee consists of Mr. Cohn, Mr. Nordstrom and Ms.
Popcorn. The compensation committee reviews and evaluates the salaries,
supplemental compensation and benefits of our officers, reviews general policy
matters relating to compensation and benefits of our employees and makes
recommendations concerning these matters to the board of directors. The
compensation committee is also authorized to administer our stock option and
stock purchase plans.
The audit committee consists of Messrs. Crowley and Fitzsimons. The audit
committee reviews with our independent accountants the scope and timing of its
audit services, the accountants' report on our financial statements following
completion of their audit and our policies and procedures with respect to
internal accounting and financial controls. In addition, the audit committee
will make annual recommendations to the board of directors for the appointment
of independent accountants for the ensuing year.
DIRECTOR COMPENSATION
Directors of Streamline have not received compensation for their services as
directors. However, non-employee directors are reimbursed for travel expenses.
Streamline maintains directors' and officers' liability insurance and our
by-laws provide for mandatory indemnification of directors and officers to the
fullest extent permitted by Delaware law. In addition, the charter limits the
liability of directors to us or our stockholders for breaches of the directors'
fiduciary duties to the fullest extent permitted by Delaware law. See
"Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions." Under our director stock option plan, at the discretion of the
board of directors, non-employee directors are eligible to receive options to
purchase shares of common stock at the fair market value on the date of grant.
Currently, Mr. Cohn has an option to purchase 12,500 shares of common stock at
an exercise price of $1.50 per share and Ms. Popcorn has an option to purchase
12,500 shares of common stock at an exercise price of $2.04 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is currently comprised of Mr. Cohn, Mr. Nordstrom
and Ms. Popcorn. No member of the compensation committee has been an employee of
Streamline. No executive officer of Streamline serves as a member of the board
of directors or compensation committee of any other entity that has one or more
executive officers serving as a member of Streamline's board of directors or
compensation committee.
EMPLOYMENT AGREEMENTS
We have an employment agreement with Mr. DeMello, dated as of April 9, 1999,
providing for Mr. DeMello to be employed as our President and Chief Executive
Officer. Under the terms of the employment agreement, Mr. DeMello is to be paid
a base annual salary of $200,000, subject to increase from time to time by the
board of directors, and is eligible to receive an annual bonus at the discretion
of the board of directors which is not to exceed 50% of his then current base
salary. Mr. DeMello is also entitled to life insurance, health insurance and
other employee fringe benefits to the extent that we make benefits of this type
available to our other executive officers. Under the employment agreement, upon
the closing of this offering Mr. DeMello will receive stock options to purchase
250,000 shares of common stock at an exercise price equal to the initial public
offering price. These stock options become exercisable at the rate of 20% per
year over five years. If we terminate Mr. DeMello's
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<PAGE>
employment without cause or if he resigns for good reason, we must continue to
pay his base salary and benefits for a period of two years and any stock options
and restricted stock that he may have at the time will become immediately
exercisable and fully vested.
We have an employment agreement with Mr. Britt, dated as of July 1, 1996,
providing for Mr. Britt to be employed as our Vice President of Marketing and
Merchandising for a 12-month period, subject to automatic extension for
successive 12-month periods unless either party advises the other at least 60
days prior to the expiration of the current term of its desire not to extend the
term of employment. Under the terms of the employment agreement, Mr. Britt is to
be paid a base annual salary of not less than $100,000, subject to increase from
time to time by the board of directors following and based on annual reviews of
Mr. Britt's performance. The employment agreement also contains non-competition
and non-solicitation provisions that are intended to survive the termination of
employment for a period of 24 months.
With the exception of Mr. DeMello and Mr. Britt, none of Streamline's
executive officers have an employment contract with Streamline and each of such
officers serves at the discretion of the board of directors. All of our
executive officers and key employees have signed non-disclosure agreements and
non-competition and non-solicitation agreements that extend for two years after
employment termination.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of Streamline's chief executive officer and the three other most highly
compensated executive officers whose total salary and bonus exceeded $100,000
for the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE FOR 1998
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
------------------------ SECURITIES
NAME AND PRINCIPAL POSITION(S) SALARY BONUS UNDERLYING OPTIONS
- ----------------------------------------------------------- ----------- ----------- -------------------
<S> <C> <C> <C>
Timothy A. DeMello......................................... $ 157,385 -- --
Chairman, President and Chief Executive Officer
David K. Blakelock......................................... 109,908 $ 1,800 --
Vice President, Operations
Frank F. Britt............................................. 109,908 -- --
Vice President, Marketing and Merchandising
Mary E. Wadlinger.......................................... 102,442 1,800 35,000
Vice President, Customer Quality
</TABLE>
STOCK OPTION GRANTS
The following table contains information concerning the grants of options to
purchase common stock made in the year ended December 31, 1998 to each of the
officers named in the Summary Compensation Table. Stock options are generally
granted at 100% of the fair value of the common stock as determined by the board
of directors on the date of grant. In reaching the determination of fair value
at the time of each grant, the board of directors considers a range of factors,
including Streamline's current financial position; its recent revenue, results
of operations and cash flows; its assessment of Streamline's competitive
position in its markets and prospects for the future; the status
54
<PAGE>
of Streamline's customer acquisition and marketing efforts; current valuations
for comparable companies; and the illiquidity of an investment in the common
stock.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
- -------------------------------- ------------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Timothy A. DeMello.............. -- -- -- -- -- --
David K. Blakelock.............. -- -- -- -- -- --
Frank F. Britt.................. -- -- -- -- -- --
Mary E. Wadlinger............... 35,000 29.23% $ 7.00 1/1/08 $ 154,079 $ 390,467
</TABLE>
- ------------------------
(1) Shares underlying options generally vest over a three-year period. See
"Management--Stock Option Plans."
(2) Assumes appreciation in the independently appraised value of the common
stock of 5% and 10% per year over the ten-year option period as mandated by
the rules and regulations of the Securities and Exchange Commission, and
does not represent Streamline's estimate or projection of the future value
of the common stock. The actual value realized may be greater or less than
the potential realizable values set forth in the table.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option holdings for
the year ended December 31, 1998 with respect to each of the officers named in
the Summary Compensation table.
1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END(1)
-------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Timothy A. DeMello............................. -- -- -- --
David K. Blakelock............................. 100,000 12,500 $1,020,000 $ 127,500
Frank F. Britt................................. 50,000 37,500 498,000 373,500
Mary E. Wadlinger.............................. 16,666 33,334 108,130 216,270
</TABLE>
- ------------------------
(1) Value is determined by subtracting the exercise price from the proposed
initial offering price of the common stock, multiplied by the number of
shares underlying the options.
In the year ended December 31, 1998 none of the officers named in the
Summary Compensation Table exercised any options.
STOCK OPTION PLANS
1993 EMPLOYEE OPTION PLAN
In June 1993, Streamline's board of directors and stockholders approved
Streamline's 1993 employee option plan, which provides for the grant of
incentive stock options and nonqualified stock
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<PAGE>
options to employees, including officers and employee directors, consultants and
advisors. A maximum of 2,500,000 shares have been authorized for issuance
pursuant to the employee option plan. As of March 31, 1999, 49,633 shares had
been issued upon exercise of options granted under the employee option plan and
options for 1,186,000 shares were outstanding. No participant in the employee
option plan may, in any year, be granted stock options or awards with respect to
more than 1,000,000 shares of common stock.
The board of directors administers the employee option plan and has the
authority to determine which eligible individuals are to receive options, the
terms of such options, the status of such options as incentive or nonqualified
stock options under the federal income tax laws, including the number of shares,
exercise prices and times at which the options become and remain exercisable and
the time, manner and form of payment upon exercise of an option. The exercise
price of options granted under the employee option plan may not be less than
100% of the fair market value of a share of common stock on the date of grant,
or 110% in the case of incentive stock options issued to an employee who at the
time of grant owns more than 10% of the combined voting power of all classes of
Streamline stock. The options become exercisable at such time or times as are
determined by the board of directors and expire after a specified period that
may not, in the case of incentive stock options, exceed ten years.
From and after the closing of this initial public offering, the compensation
committee shall determine the selection of a director or an officer as a
recipient of an option, the timing of the option grant, the exercise price of
the option and the number of shares subject to the option.
In the event of a consolidation, merger or sale of all or substantially all
of the assets of Streamline in which outstanding shares of common stock are
exchanged for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of Streamline, the board of
directors of Streamline, or the board of directors of any corporation assuming
the obligations of Streamline, may, in its discretion, provide that outstanding
options under the employee option plan be:
- assumed, or equivalent options substituted, by the acquiring or succeeding
corporation, or an affiliate thereof
- exercised within a specified period of time, at the end of which period
the options will terminate
- terminated in exchange for a cash payment
- exercised in full immediately prior to such event
With the consent of an option holder, the board of directors can cancel that
holder's options and replace them with new options for the same or a different
number of shares having a higher or lower exercise price per share than the
cancelled options or amend the terms of any option outstanding to provide for a
higher or lower exercise price per share. The board of directors may also, in
its sole discretion, accelerate the date or dates on which all or any particular
option or options granted under the employee option plan may be exercised or
extend the dates during which all, or any particular, option or options granted
under the employee option plan may be exercised.
The board of directors may amend or modify the employee option plan at any
time, subject to the rights of holders of outstanding options. The employee
option plan will terminate on June 9, 2007.
1993 DIRECTOR OPTION PLAN
In June 1993, Streamline's board of directors and stockholders approved the
1993 director option plan which provides for the grant of nonqualified stock
options to directors of Streamline who are not also employees of Streamline.
Options are granted under the director option plan at the discretion of the
board of directors at an exercise price equal to the fair market value of the
common stock on the date of grant, and have a term of five years.
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<PAGE>
In the event of a consolidation, merger or sale of all or substantially all
of the assets of Streamline in which outstanding shares of common stock are
exchanged for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of Streamline, the board of
directors of Streamline, or the board of directors of any corporation assuming
the obligations of Streamline, may, in its discretion, provide that outstanding
options under the director option plan be:
- assumed, or equivalent options substituted, by the acquiring or succeeding
corporation, or an affiliate thereof
- exercised within a specified period of time, at the end of which period
the options will terminate
- terminated in exchange for a cash payment
- exercised in full immediately prior to such event
A maximum of 250,000 shares have been authorized for issuance pursuant to
the director option plan. As of March 31, 1999, 62,500 shares had been issued
upon exercise of options granted under the director option plan and options for
25,000 shares were outstanding.
1999 EMPLOYEE STOCK PURCHASE PLAN
In April 1999, Streamline's board of directors and stockholders approved the
1999 employee stock purchase plan, which enables eligible employees to acquire
shares of Streamline's common stock through payroll deductions. Our employee
stock purchase plan is intended to qualify as an employee stock purchase plan
under Section 423 of the Internal Revenue Code. The initial offering period will
start on the date of this prospectus and will end on December 31, 1999, unless
otherwise determined by the board of directors. Subsequent offerings under the
employee stock purchase plan are planned to start on January 1 and July 1 of
each year and end on June 30 and December 31 of each year. During each offering
period, an eligible employee may select a rate of payroll deduction of from 1%
to 10% of compensation, up to an aggregate of $12,500 in any offering period.
The purchase price for Streamline's common stock purchased under our employee
stock purchase plan is 85% of the lesser of the fair market value of the shares
on the first day or the last day of the offering period. An aggregate of 250,000
shares of common stock have been reserved for issuance under the employee stock
purchase plan.
401(K) PLAN
Streamline has established a tax-qualified cash or deferred profit sharing
plan or 401(k) plan covering all of Streamline's eligible full-time employees.
Streamline adopted the 401(k) plan effective January 1, 1997. Under the plan,
participants may elect to contribute, through salary reductions, up to 15% of
their annual compensation subject to a statutory maximum. Streamline does not
currently provide additional matching contributions under the 401(k) plan, but
may do so in the future. The 401(k) plan is designed to qualify under Section
401 of the Internal Revenue Code of 1986, as amended, so that contributions by
employees or by Streamline to the plan, and income earned on plan contributions,
are not taxable to employees until withdrawn from the 401(k) plan, and so that
contributions by Streamline, if any, will be deductible by Streamline when made.
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CERTAIN TRANSACTIONS
In May and June 1996, Reliance Insurance Company purchased a total of 50,000
shares of Streamline Series A cumulative convertible preferred stock for an
aggregate purchase price of $5.0 million. John P. Fitzsimons, a director of
Streamline, is a Senior Vice President, Director of Equities of Reliance.
In June and September 1997, Intel Corporation, PaineWebber Capital Inc.,
General Electric Capital Corporation and SAP America, Inc. each acquired 20,000
shares of Streamline Series B convertible preferred stock and Reliance acquired
10,000 shares of Streamline Series C convertible preferred stock, for an
aggregate purchase price of $9.0 million.
In April 1998, DDJ Canadian High Yield Fund and Mellon Bank, N.A., solely in
its capacity as Trustee for General Motors Employees Domestic Group Pension
Trust as directed by DDJ Capital Management, LLC and not in its individual
capacity, purchased senior discount notes and warrants of Streamline in 777
attached units. Streamline also issued an aggregate of 7,500 shares of common
stock to these purchasers in connection with the financing. DDJ Canadian High
Yield Fund purchased 222 units and Mellon Bank, N.A., solely in its capacity as
trustee as described above, purchased 555 units. The face amount of the senior
discount notes was approximately $7.8 million which resulted in proceeds to
Streamline of $7.0 million. The warrants have an exercise price of $7.00 per
share and were exercisable for up to 425,000 shares of common stock in the
aggregate, 225,000 of which were vested and 200,000 of which were subject to
vesting.
In September 1998, Nordstrom, Inc. acquired 228,570 shares of Series D
convertible preferred stock of Streamline for an aggregate purchase price of
approximately $22.9 million. J. Daniel Nordstrom, a director of Streamline, is
Co-President of Nordstrom, Inc.
In September 1998, in connection with the Series D financing, Streamline
repaid the $7.0 million principal amount of senior discount notes plus $591,000
which included accrued interest and redemption premium, amended the warrant
agreement with DDJ Canadian High Yield Fund and Mellon Bank, N.A., solely in its
capacity as trustee as described above, to fix the total number of shares
issuable upon exercise of the warrants to 225,000, and sold these parties a
total of 5,000 additional shares of common stock for nominal cash consideration.
Additionally, in September 1998, we repaid non-negotiable convertible promissory
notes with an aggregate principal amount of $600,000 plus accrued interest. The
notes accrued interest at a rate of 8% per annum and were convertible into
common stock. Mark A. Cohn, a director of Streamline, was repaid $100,000 plus
accrued interest of approximately $4,400. James Maxmin, a director of Streamline
until September 1998, was repaid $100,000 plus accrued interest of approximately
$4,500.
Thomas O. Jones, a director of Streamline, is the President of Elm Square
Technologies, Inc. On March 7, 1997, Streamline entered into a development and
consulting agreement with Elm Square whereby Elm Square committed to develop an
Internet ordering system and customer support database and also provide
technology consulting services to Streamline. Although the agreement terminated
according to its terms on December 31, 1997, an ongoing business relationship
continues between Elm Square and Streamline. During fiscal year 1998, Streamline
paid Elm Square approximately $1.7 million for software development,
implementation and consulting services. We continue to pay Elm Square
approximately $150,000 per month for ongoing services of this nature. In March
1997, in connection with the development agreement, Streamline issued Elm Square
a warrant to purchase 50,000 shares of common stock at a purchase price of $2.04
per share. In December 1998, Streamline issued Elm Square a warrant to purchase
an additional 100,000 shares of common stock at a purchase price of $4.00 per
share in connection with ongoing services provided by Elm Square.
Intel Corporation is a beneficial owner of more than 5% of Streamline's
Series B convertible preferred stock. On June 13, 1997, Streamline entered into
a development agreement with Intel,
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<PAGE>
whereby Intel committed to develop a CD-ROM application for Streamline and
Streamline issued warrants for up to 142,857 shares of common stock, exercisable
at $7.00 per share. An additional 28,000 warrants, exercisable at $7.00 per
share, were issued to Intel in January 1998 in connection with ongoing
development efforts by Intel. All of Intel's warrants became fully vested in
July 1998 upon Intel's delivery of the final version of the application.
General Electric Capital Corporation is a beneficial owner of more than 5%
of Streamline's Series B convertible preferred stock, and Thomas A. Crowley, a
director of Streamline, is a Managing Director of Ventures of GE Capital. In
September 1997, we agreed to give GE Capital opportunities to provide us with
any future debt financing that we required and, in connection with these
proposed arrangements, we granted GE Capital warrants to purchase up to 142,857
shares of common stock. Of such warrants 25% are vested and exercisable at $7.00
per share and 75% vest in the event GE Capital provides a specified level of
future debt financing to Streamline by September 23, 1999 and are exercisable at
greater than or equal to $8.40 per share. On November 21, 1997, Streamline
entered into a 36 month lease with GE Capital for office furniture. Streamline
paid GE Capital approximately $82,000 in 1998 and $21,000 in the first quarter
of 1999 to lease such furniture. Streamline has entered into lease agreements
with Penske Truck Leasing, a subsidiary of GE Capital, for 60-month leases of 13
Streamline delivery vehicles. Streamline paid Penske approximately $116,000 in
1998 and $53,000 in the first quarter of 1999 to lease such trucks.
Reliance Insurance Company, Intel Corporation, PaineWebber Capital Inc.,
General Electric Capital Corporation, SAP America, Inc., DDJ Canadian High Yield
Fund, Mellon Bank, N.A. solely in its capacity as trustee as described above,
and Nordstrom, Inc. are entitled to demand and piggyback registration rights
with respect to the common stock they will hold upon the closing of this
offering and the common stock they will hold upon the exercise of Streamline
warrants. See "Description of Capital Stock--Registration Rights."
Pursuant to a letter agreement dated April 13, 1999, Nordstrom, Inc. has
agreed to provide us with financing of up to $10.0 million upon our request.
Nordstrom's commitment will terminate upon the closing of this offering or April
2000, whichever is earlier. The final terms of any such financing will be
determined at the time we request such financing but will be similar to the
terms of the sale of Series D preferred stock to Nordstrom in September 1998. We
issued Nordstrom a warrant to purchase 75,000 shares of common stock at an
exercise price of $7.00 per share in connection with this financing commitment.
For a description of other transactions and employment and other
arrangements between Streamline and its directors and executive officers, see
"Management--Director Compensation" and "--Executive Compensation."
We believe that all of the transactions set forth above that were
consummated with parties that may be deemed to be affiliated with us were made
on terms no less favorable to us than could have been obtained from unaffiliated
third parties. We will require that all future transactions with parties
affiliated with us, including loans between us and our officers, directors,
principal stockholders and their affiliates, be approved by a majority of the
board of directors, including a majority of independent and disinterested
directors, and that such transactions will need to be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
Streamline's common stock as of March 31, 1999, and as adjusted to reflect the
sale of shares offered hereby, by (1) each person known by Streamline to own
beneficially more than five percent of Streamline's common stock, (2) each of
Streamline's directors and each of the officers named in the Summary
Compensation Table, and (3) all current executive officers and directors of
Streamline as a group.
Unless otherwise indicated, each person named in the table has sole voting
power and investment power or shares such power with his or her spouse with
respect to all shares listed as owned by such person. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting or investment power with respect to the
securities. The number of shares of common stock outstanding used in calculating
the percentage for each listed person includes any shares the individual has the
right to acquire within 60 days of March 31, 1999, and assumes the conversion of
all outstanding shares of preferred stock into common stock of Streamline.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES BENEFICIALLY OWNED
BENEFICIALLY ----------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Nordstrom, Inc....................................................... 5,989,641(1) 44.7% 32.6%
J. Daniel Nordstrom
1617 Sixth Avenue
Seattle, WA 98101
Reliance Insurance Company........................................... 2,597,615(2) 19.8 14.3
John P. Fitzsimons
55 East 52nd Street
New York, NY 10055
Timothy A. DeMello................................................... 1,926,000(3) 14.7 10.6
c/o Streamline.com, Inc.
27 Dartmouth Street
Westwood, MA 02090
Thomas A. Crowley.................................................... 321,428(4) 2.4 1.8
Faith B. Popcorn..................................................... 56,250(5) * *
Mark A. Cohn......................................................... 55,000(6) * *
Thomas O. Jones...................................................... 150,000(7) 1.1 *
David K. Blakelock................................................... 125,000(8) * *
Frank F. Britt....................................................... 87,500(8) * *
Mary E. Wadlinger.................................................... 33,333(8) * *
All executive officers and directors as a group (12 people).......... 11,341,767(9) 81.6% 60.0%
</TABLE>
- ------------------------
* Less than 1% of our outstanding common stock.
(1) Includes 5,714,250 shares beneficially owned by Nordstrom, Inc. and an
additional 75,000 shares issuable upon the exercise of a warrant owned by
Nordstrom. Also includes 200,391 shares of common stock issuable upon
conversion of shares of Series D preferred stock dividends expected to
accrue through May 31, 1999. Mr. Nordstrom, a director of Streamline, is
Co-President of Nordstrom. Although Mr. Nordstrom may be deemed to be a
beneficial holder of such shares, he disclaims all such beneficial ownership
except to the extent of his financial interest therein.
(2) Consists of shares beneficially owned by Reliance Insurance Company. Mr.
Fitzsimons, a director of Streamline, is the Senior Vice President, Director
of Equities of Reliance. Although Mr. Fitzsimons may be deemed to be a
beneficial holder of such shares, he disclaims all such beneficial ownership
except to the extent of his financial interest therein.
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(3) Includes an aggregate of 10,000 shares held in custody for Mr. DeMello's
children and an aggregate of 200,000 shares held in trusts with respect to
which Mr. DeMello or his children have a beneficial interest. Mr. DeMello
disclaims beneficial ownership of such shares except to the extent of his
financial interest therein.
(4) Consists entirely of shares beneficially owned by General Electric Capital
Corporation, of which Mr. Crowley is the Managing Director of Ventures.
Includes 285,714 shares held by GE Capital and 35,714 shares issuable to GE
Capital upon the exercise of a stock purchase warrant exercisable within 60
days of March 31, 1999. Mr. Crowley disclaims beneficial ownership of the
shares held by GE Capital except to the extent of his financial interest
therein.
(5) Includes 6,250 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1999 and 50,000 shares issuable upon the
exercise of a stock purchase warrant, exercisable within 60 days of March
31, 1999, held by BrainReserve, Inc., of which Ms. Popcorn is the founder
and Chief Executive Officer. Ms. Popcorn disclaims beneficial ownership of
the shares held by BrainReserve except to the extent of her financial
interest therein.
(6) Includes 12,500 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1999.
(7) Consists entirely of shares issuable upon the exercise of stock purchase
warrants, exercisable within 60 days of March 31, 1999, held by Elm Square
Technologies, Inc., of which Mr. Jones is the President. Mr. Jones disclaims
beneficial ownership of the shares held by Elm Square except to the extent
of his financial interest therein.
(8) Consists entirely of shares issuable upon the exercise of options
exercisable within 60 days of March 31, 1999.
(9) Includes 264,583 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1999.
Timothy A. DeMello, Chairman, President and Chief Executive Officer of
Streamline since its formation in 1993, has granted the underwriters an option
to purchase 100,000 shares of common stock as part of the underwriters'
over-allotment option. If this option is exercised in full, after this offering
Mr. DeMello will beneficially own 1,826,000 shares of common stock, or 9.7% of
the shares outstanding. This post-offering number of shares includes an
aggregate of 10,000 shares held in custody for Mr. DeMello's children and an
aggregate of 200,000 shares held in trusts with respect to which Mr. DeMello or
his children have a beneficial interest. Mr. DeMello disclaims beneficial
ownership of such shares except to the extent of his financial interests
therein.
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DESCRIPTION OF CAPITAL STOCK
Effective as of the closing of this offering, the authorized capital stock
of Streamline will consist of 50,000,000 shares of common stock and 5,000,000
shares of preferred stock, each having a par value of $0.01 per share.
COMMON STOCK
As of March 31, 1999, there were 13,273,881 shares of common stock
outstanding and held of record by 164 stockholders, after giving effect to the
conversion of all outstanding shares of Series A convertible preferred stock,
Series B convertible preferred stock, Series C convertible preferred stock and
Series D convertible preferred stock upon the closing of this offering. Based
upon the number of shares of common stock outstanding as of that date and giving
effect to the issuance of the 5,000,000 shares of common stock offered hereby
there will be 18,273,881 shares of common stock outstanding upon the closing of
this offering, assuming no exercise of the underwriters' over-allotment option.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
Streamline, the holders of common stock are entitled to receive ratably the net
assets of Streamline available after the payment of all debts and other
liabilities, subject to the prior rights of any outstanding preferred stock.
Holders of the common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
offered by Streamline in this offering will be, when issued and paid for, fully
paid and non-assessable. The rights, preferences and privileges of holders of
common stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that Streamline may designate
and issue in the future. Upon the closing of this offering, there will be no
shares of preferred stock outstanding.
PREFERRED STOCK
The board of directors is authorized, subject to limitations prescribed by
Delaware law, without further stockholder approval, from time to time to issue
up to an aggregate of 5,000,000 shares of preferred stock in one or more series
and to fix or alter the designations, preferences and rights, and any
qualifications, limitations or restrictions thereof, of the shares of each such
series, such as the number of shares constituting any such series and the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, including sinking fund provisions, redemption price or prices and
liquidation preferences thereof. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change of control of Streamline.
Streamline has no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
The holders of approximately 9,467,221 shares of common stock and warrants
to purchase an additional 506,571 shares of common stock as of March 31, 1999
will have demand rights to register those shares under the Securities Act
beginning 180 days after the date of this prospectus. Streamline granted such
rights under the terms of a Series A stock purchase agreement, dated as of May
15, 1996, and registration rights agreements, dated as of June 13, 1997, April
15, 1998 and September 18, 1998, to investors that participated in Streamline's
preferred stock and senior discount note financings, some of which are
affiliates of directors of Streamline.
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If requested by holders of common stock issued upon conversion of our Series
A preferred stock to register at least 100,000 shares or shares having a market
value of at least $1.0 million, then, subject to limitations relating to the
timing of the request, Streamline must file a registration statement under the
Securities Act covering all registrable shares requested to be included. We are
required to effect up to three such demand registrations. We have the right to
delay any such registration for up to 60 days where registration would have an
adverse impact on transactions being pursued by Streamline, but will be
prohibited until 90 days after the effectiveness of such registration from
registering any other Streamline securities under the Securities Act, except in
connection with our employee benefit plans or a corporate reorganization. We
will bear all fees, costs and expenses of any of these demand registrations
other than underwriting discounts and commissions.
Under the registration rights agreement dated June 13, 1997, if requested by
holders of at least 30% of the common stock issued upon conversion of our Series
B and C preferred stock to register shares having a market value of at least
$2.0 million, then, subject to limitations relating to the timing of the
request, Streamline must file a registration statement under the Securities Act
covering all registrable shares requested to be included. We are required to
effect up to two such demand registrations. Once Streamline is eligible to
register shares using a short-form registration statement, we will be required,
if requested to do so by holders of at least 20% of the common stock issued upon
conversion of our Series B and C preferred stock to register shares having a
market value of at least $1.0 million. We have the right to delay any such
registration for up to 90 days where registration would have an adverse impact
on transactions being pursued by Streamline, but will be prohibited until 90
days after the effectiveness of such registration from registering any other
Streamline securities under the Securities Act, except in connection with our
employee benefit plans or a corporate reorganization. We will bear all fees,
costs and expenses of any of these demand registrations other than underwriting
discounts and commissions.
The registration rights agreement dated April 15, 1998, requires us, if
requested by holders of at least 30% of the common stock issued upon conversion
of warrants issued by us in connection with our sale of senior discount notes
and other shares of common stock issued in connection with that transaction,
subject to limitations relating to the timing of the request, to file a
registration statement under the Securities Act covering all registrable shares
requested to be included. We are required to effect up to two such demand
registrations. Once Streamline is eligible to register shares using a short-form
registration statement, we will be required, if requested to do so by holders of
at least 20% of the common stock issued upon conversion of warrants issued by us
in connection with our sale of senior discount notes and other shares of common
stock issued in connection with that transaction, to register shares having a
market value of at least $350,000. We have the right to delay any such
registration for up to 90 days where registration would have an adverse impact
on transactions being pursued by Streamline, but will be prohibited until 90
days after the effectiveness of such registration from registering any other
Streamline securities under the Securities Act, except in connection with our
employee benefit plans or a corporate reorganization. We will bear all fees,
costs and expenses of any of these demand registrations other than underwriting
discounts and commissions.
Under the registration rights agreement dated September 18, 1998, if
requested by holders of at least 30% of the common stock issued upon conversion
of our Series D preferred stock to register shares having a market value of at
least $2.0 million, then, subject to limitations relating to the timing of the
request, Streamline must file a registration statement under the Securities Act
covering all registrable shares requested to be included. We are required to
effect up to two such demand registrations. Once Streamline is eligible to
register shares using a short-form registration statement, we will be required,
if requested to do so by holders of at least 20% of the common stock issued upon
conversion of our Series D preferred stock, to register shares having a market
value of at least $1.0 million. We have the right to delay any such registration
for up to 90 days where registration would have an adverse impact on
transactions being pursued by Streamline, but will be prohibited until
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90 days after the effectiveness of such registration from registering any other
Streamline securities under the Securities Act, except in connection with our
employee benefit plans or a corporate reorganization. We will bear all fees,
costs and expenses of any of these demand registrations other than underwriting
discounts and commissions.
In addition, under all of the agreements described above, holders of
registrable shares have piggyback registration rights. If Streamline proposes to
register any of its securities under the Securities Act other than in connection
with our employee benefit plans or a corporate reorganization, then, subject to
limitations based on the number of shares to be registered and the terms on
which they are to be sold, the holders of registrable shares may require us to
include all or a portion of their shares in such registration, although the
managing underwriter of any such offering has the right to limit the number of
shares in such registration. We will bear all fees, costs and expenses of such
registrations other than underwriting discounts and commissions.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a certain period of time. That period is three
years from the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes certain
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns, or owned within three years prior, 15% or more of the
corporation's voting stock.
Streamline's certificate of incorporation, also called its charter, and
by-laws provide for the division of the board of directors into three classes,
as nearly equal in size as possible, with each class beginning its three-year
term in different years. See "Management--Executive Officers, Directors and
Selected Key Employees." Any director may be removed only for cause by the vote
of a majority of the shares entitled to vote for the election of directors.
Our by-laws provide that for nominations for 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 of the matter
in writing to Streamline's secretary. To be timely, a notice of nominations or
other business to be brought before an annual meeting must be delivered between
120 days and 150 days prior to date one year after the date of the preceding
year's proxy statement. If the date of the current year's annual meeting is more
than 30 days before or 60 days after such anniversary, or if no proxy statement
was delivered to stockholders in connection with the preceding year's annual
meeting, a stockholder's notice will be timely if it is delivered not earlier
than 90 days prior to the current year's annual meeting and not later than 60
days prior to the annual meeting or 10 days following the date on which public
announcement of the date of the annual meeting is first made by Streamline,
whichever is later. With respect to special meetings, notice must generally be
delivered not more than 90 days prior to such meeting and not later than 60 days
prior to such meeting or 10 days following the day on which public announcement
of the date of the annual meeting is first made by Streamline, whichever is
later. The notice must contain, among other things, certain information about
the stockholder delivering the notice and, as applicable, background information
about each nominee or a description of the proposed business to be brought
before the meeting.
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Our charter empowers the board of directors, when considering a tender offer
or merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to stockholders. These factors may include:
- comparison of the proposed consideration to be received by stockholders in
relation to the market price of Streamline's capital stock, the estimated
current value of Streamline in a freely negotiated transaction and the
estimated future value of Streamline as an independent entity
- the impact of such a transaction on the employees, suppliers and clients
of Streamline and its effect on the communities in which Streamline
operates
The provisions described above could make it more difficult for a third
party to acquire, or of discouraging a third party from acquiring control of
Streamline.
Our charter also provides that any action required or permitted to be taken
by the stockholders of Streamline may be taken only at duly called annual or
special meetings of the stockholders, and that special meetings may be called
only by the chairman of the board of directors, a majority of the board of
directors or the president of Streamline. However, holders of a majority of the
common stock entitled to vote on the election of directors may call a special
meeting for the purpose of filling a vacancy on the board of directors, and
holders of at least two-thirds of the common stock entitled to vote generally
may call a special meeting for any other purpose. These provisions could have
the effect of delaying until the next annual stockholders' meeting stockholder
actions that are favored by the holders of a majority of the common stock. These
provisions may also discourage another person or entity from making a tender
offer to Streamline stockholders for the common stock. This is because the
person or entity making the offer, even if it acquired a majority of the
outstanding voting securities of Streamline, would be unable to call a special
meeting of the stockholders or to take action by written consent. As a result,
any desired actions they would like to take, such as electing new directors or
approving a merger, would have to wait until the next duly called stockholders'
meeting.
The Delaware General Corporation Law provides 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 by-laws, unless the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. The charter requires the affirmative vote of the holders of at least
67% of the outstanding voting stock of Streamline to amend or repeal any of the
provisions of our charter described above, or to reduce the number of authorized
shares of common stock and preferred stock. The 67% vote is also required to
amend or repeal any of the provisions of our by-laws that are described above.
Our by-laws may also be amended or repealed by a majority vote of the board of
directors. The 67% 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 be outstanding at the time any amendments are submitted to
stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock. Upon completion of this offering, based upon the number of shares
outstanding at March 31, 1999, there will be 18,273,881 shares of common stock
outstanding assuming the underwriters do not exercise their over-allotment
option, and no warrants or options are exercised. Of these shares, the 5,000,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except that any shares purchased
by "affiliates" of Streamline, as that term is defined in Rule 144 under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below.
SALES OF RESTRICTED SHARES
The outstanding shares of common stock not sold in this offering will be
deemed "restricted securities" under Rule 144 under the Securities Act. Of these
shares, 13,070,467 are subject to 180-day lock-up agreements with the
representatives. Upon expiration of the lock-up agreements 180 days after the
date of this prospectus, all such shares will be available for sale in the
public market, subject to the provisions of Rule 144. Stockholders who are
parties to the lock-up agreement have agreed that for a period of 180 days after
the date of this prospectus, they will not sell, offer, contract or grant any
option to sell, pledge, transfer, establish an open put equivalent position or
otherwise dispose of any shares of common stock, any options to purchase shares
of common stock or any shares convertible into or exchangeable for shares of
common stock, owned directly by such persons or with respect to which they have
the power of disposition, unless permitted to do so by Banc of America
Securities LLC.
In general, under Rule 144, beginning 90 days after the effective date of
this prospectus, a stockholder who has beneficially owned his or her restricted
securities for at least one year will be entitled to sell, within any
three-month period, a limited number of such shares. The number of shares may
not exceed the greater of 1% of the then outstanding shares of common stock or
the average weekly trading volume in the common stock during the four preceding
calendar weeks. In addition, under Rule 144(k), if a period of at least two
years has elapsed since the date restricted securities were acquired from
Streamline or an affiliate of Streamline, a stockholder who is not an affiliate
of Streamline at the time of sale and has not been an affiliate of Streamline
for at least three months prior to the sale will be entitled to sell the shares
immediately without restriction.
Securities issued in reliance on Rule 701, such as shares of common stock
acquired upon exercise of certain options granted under our stock option plans,
are also restricted and, beginning 90 days after the effective date of this
prospectus, may be sold by stockholders other than affiliates of Streamline
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year holding period requirement.
WARRANTS AND OPTIONS
As of March 31, 1999, there were warrants and options outstanding to
purchase an aggregate of 1,999,714 shares of common stock, of which 1,969,714
were subject to lock-up agreements. Warrants and options to purchase an
aggregate of 1,089,979 shares were exercisable as of March 31, 1999, of which
1,079,646 were subject to lock-up agreements.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock issuable under our stock
option and stock purchase plans promptly following the closing of this offering.
Shares issued pursuant to such plans shall be, after the effective date of the
Form S-8 registration statements, eligible for resale in the public market
without restriction, subject to Rule 144 limitations applicable to affiliates
and the lock-up agreements noted above, if applicable.
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UNDERWRITING
Streamline is offering the shares of common stock described in this
prospectus through a number of underwriters. Banc of America Securities LLC,
PaineWebber Incorporated and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, are the representatives of the underwriters. Streamline has
entered into a firm commitment underwriting agreement with the representatives.
Subject to the terms and conditions of the underwriting agreement, Streamline
has agreed to sell to the underwriters, and the underwriters have each agreed to
purchase the number of shares of common stock listed next to its name in the
following table.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------- ------------
<S> <C>
Banc of America Securities LLC........................................
PaineWebber Incorporated..............................................
Dain Rauscher Wessels.................................................
------------
Total.............................................................
------------
------------
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters
also may allow, and any dealers may reallow, a concession of not more than
$ per share to some other dealers. If all the shares are not sold at the
initial public offering price, the underwriters may change the offering price
and the other selling terms. The common stock is offered subject to a number of
conditions, including:
- receipt and acceptance of our common stock by the underwriters
- the right to reject orders in whole or in part
The underwriters have an option to buy up to 650,000 additional shares of
common stock from Streamline and 100,000 additional shares of common stock from
Timothy A. DeMello. These additional shares would cover sales of shares by the
underwriters which exceed the number of shares specified in the table above, and
will be sold by Streamline and Mr. DeMello on a pro rata basis in the event that
the option is not exercised in full. The underwriters have 30 days to exercise
this option. If the underwriters exercise this option, they will each purchase
additional shares approximately in proportion to the amounts specified in the
table above. Streamline will pay the expenses, other than the underwriting
discount and commissions paid by Mr. DeMello, associated with the exercise of
the over-allotment option.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Streamline and Mr. DeMello. Such
amounts are shown assuming no exercise and full exercise of the underwriters'
option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY STREAMLINE
-------------------------
FULL
NO EXERCISE EXERCISE
----------- ------------
<S> <C> <C>
Per Share................................................ $ $
Total.................................................... $ $
<CAPTION>
PAID BY MR. DEMELLO
-------------------------
FULL
NO EXERCISE EXERCISE
----------- ------------
<S> <C> <C>
Per Share................................................ -- $
Total.................................................... -- $
</TABLE>
Streamline and substantially all holders of its stock prior to this
offering, as well as substantially all holders of stock options and warrants,
have entered into lock-up agreements with the underwriters.
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Under those agreements, Streamline and those holders of stock, options and
warrants may not dispose of or hedge any Streamline common stock or securities
convertible into or exchangeable for shares of Streamline common stock unless
permitted to do so by Banc of America Securities LLC. These restrictions will be
in effect for a period of 180 days after the date of this prospectus. At any
time and without notice, Banc of America Securities LLC may, in its sole
discretion, release all or some of the securities from these lock-up agreements.
Streamline and Mr. DeMello will indemnify the underwriters against
liabilities, including liabilities under the Securities Act. If Streamline and
Mr. DeMello are unable to provide this indemnification, they will contribute to
payments the underwriters may be required to make in respect of those
liabilities.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
- short sales
- stabilizing transactions
- purchases to cover positions created by short sales
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
- over-allotment
- stabilization
- syndicate covering transactions
- imposition of penalty bids
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter-market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for the common stock
of Streamline. The initial public offering price will be negotiated between
Streamline and the underwriters. Among the factors to be considered in such
negotiations are:
- the history of, and prospects for, Streamline and the industry in which it
competes
- the past and present financial performance of Streamline
- an assessment of Streamline's management
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- the present state of Streamline's development
- the prospects for future earnings of Streamline
- the prevailing market conditions of the applicable U.S. securities market
at the time of this offering
- market valuations of publicly traded companies that Streamline and the
representatives believe to be comparable to Streamline
- other factors deemed relevant
An affiliate of PaineWebber Incorporated, a representative, is the
beneficial owner of approximately 285,714 shares of our common stock.
The underwriters, at our request, have reserved for sale to our employees,
affiliates and strategic partners at the initial public offering price up to
five percent of the shares being offered by this prospectus and up to 250,000
shares for sale to our customers. The sale of shares to our employees,
affiliates and strategic partners will be made by Banc of America Securities
LLC. We do not know if our employees, affiliates, strategic partners or
customers will choose to purchase all or any portion of these reserved shares,
but any purchases they do make will reduce the number of shares available to the
general public. The sale of shares to our customers will be made through
individual brokerage accounts set up with E*TRADE Securities, the Internet
distributor for this offering. If all of these reserved shares are not
purchased, the underwriters will offer the remainder to the general public on
the same terms as the other shares offered by this prospectus.
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Streamline by Bingham Dana LLP, Boston, Massachusetts and for the underwriters
by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The consolidated balance sheets of Streamline at December 31, 1997 and 1998
and the consolidated statements of operations, stockholders' deficit and cash
flows for each of the three years in the period ended December 31, 1998 included
in this prospectus have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the common stock we are offering by this prospectus.
This prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement and its
exhibits for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission.
You can read our Securities and Exchange Commission filings, including the
registration statement, over the Internet at the Securities and Exchange
Commission's web site at http://www.sec.gov. You may also read and copy any
document we file with the Securities and Exchange Commission at its public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also
obtain copies of these documents at prescribed rates by writing to the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference facilities.
70
<PAGE>
STREAMLINE.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1998 and March 31, 1999 (unaudited)................... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and the quarters ended March 31, 1998 and 1999 (unaudited)........................... F-4
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1996, 1997 and 1998 and the quarter ended March 31, 1999 (unaudited)........................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the quarters ended March 31, 1998 and 1999 (unaudited)........................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Streamline.com, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Streamline.com, Inc. and its subsidiary at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 13, 1999
F-2
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ MARCH 31, MARCH 31,
1997 1998 1999 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(NOTE 2)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,445,943 $12,593,160 $ 9,316,736 $ 9,316,736
Accounts receivable, net of allowance for doubtful
accounts of none at December 31, 1997 and 1998 and
approximately $25,000 at March 31, 1999,
respectively........................................... 76,656 87,779 595,935 595,935
Inventory................................................ 254,474 323,656 338,799 338,799
Prepaid expenses and other current assets................ 375,106 148,695 398,996 398,996
----------- ----------- ----------- -----------
Total current assets............................... 2,152,179 13,153,290 10,650,466 10,650,466
Property and equipment, net.............................. 3,459,388 3,663,481 4,229,503 4,229,503
Purchased and capitalized software, net.................. 1,528,855 2,025,282 2,293,280 2,293,280
Goodwill, net of accumulated amortization................ 648,433 991,746 931,361 931,361
Other assets, net........................................ 108,032 232,019 202,227 202,227
----------- ----------- ----------- -----------
Total assets....................................... $ 7,896,887 $20,065,818 $18,306,837 $18,306,837
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Capital lease obligations................................ $ 197,155 $ 236,326 $ 298,729 $ 298,729
Accounts payable......................................... 1,131,475 447,410 965,943 965,943
Accrued expenses......................................... 493,416 408,436 1,108,565 1,108,565
----------- ----------- ----------- -----------
Total current liabilities.......................... 1,822,046 1,092,172 2,373,237 2,373,237
----------- ----------- ----------- -----------
Long-term portion of capital lease obligations............. 334,308 380,751 602,719 602,719
----------- ----------- ----------- -----------
Commitments and contingencies (Note 11)
Minority interest in consolidated subsidiary............... 138,598 -- -- --
Redeemable convertible preferred stock (Note 7), ($1.00 par
value);
Authorized: 300,000 at December 31, 1997, 680,000 at
December 31, 1998, and March 31, 1999, actual and pro
forma
Issued and outstanding: 140,000 shares issued and
outstanding at December 31, 1997, 368,570 shares
issued and outstanding at December 31, 1998 and March
31, 1999 actual, and none at March 31, 1999 pro
forma................................................ 14,000,000 37,185,765 37,471,478 --
----------- ----------- ----------- -----------
Stockholders' (deficit) equity:
Common stock, $0.01 par value;
Authorized: 12,500,000 at December 31, 1997, 22,700,000
at December 31, 1998, and March 31, 1999, actual and
pro forma
Issued and outstanding: 3,526,032 shares issued and
3,497,032 outstanding at December 31, 1997, 3,699,539
shares issued and 3,665,539 outstanding at December
31, 1998 and March 31, 1999 actual and 13,307,881
shares issued and 13,273,881 outstanding at March 31,
1999 pro forma....................................... 35,260 36,995 36,995 133,079
Additional paid-in capital............................... 3,848,768 5,060,436 4,774,723 42,150,117
Treasury stock, at cost: 29,000 shares at December 31,
1997, 34,000 shares at December 31, 1998 and March 31,
1999, actual and pro forma............................. (203,000) (238,000) (238,000) (238,000)
Accumulated deficit...................................... (12,079,093) (23,452,301) (26,714,315) (26,714,315)
----------- ----------- ----------- -----------
Total stockholders' (deficit) equity............... (8,398,065) (18,592,870) (22,140,597) 15,330,881
----------- ----------- ----------- -----------
Total liabilities, redeemable convertible preferred
stock and stockholders' (deficit) equity......... $ 7,896,887 $20,065,818 $18,306,837 $18,306,837
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ------------ ------------
(NOTE 2)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product and service revenue,
net............................ $ 390,801 $ 1,814,793 $ 6,025,573 $ 1,072,080 $ 2,567,734
Subscription fees................ 19,908 98,566 391,579 76,350 186,412
Advertising, research and
marketing fees................. 511,000 721,000 529,138 53,225 232,500
----------- ----------- ------------ ------------ ------------
Total revenue...................... 921,709 2,634,359 6,946,290 1,201,655 2,986,646
----------- ----------- ------------ ------------ ------------
Operating expenses:
Cost of revenue.................. 391,123 2,097,642 4,992,092 895,986 2,021,479
Fulfillment center operations.... 915,863 2,768,995 4,012,617 946,244 1,407,102
Sales and marketing.............. 440,493 1,427,810 1,479,210 284,613 615,615
Technology systems and
development.................... 78,327 1,672,870 3,002,514 635,668 828,205
General and administrative....... 985,400 3,166,552 3,896,756 963,264 1,483,189
----------- ----------- ------------ ------------ ------------
Total operating expenses........... 2,811,206 11,133,869 17,383,189 3,725,775 6,355,590
----------- ----------- ------------ ------------ ------------
Loss from operations............. (1,889,497) (8,499,510) (10,436,899) (2,524,120) (3,368,944)
Other income (expense):
Interest income.................. 74,744 58,148 239,992 5,083 122,586
Interest expense................. (31,341) (50,659) (568,834) (45,198) (15,656)
Other............................ -- (87,914) (1,647) -- --
----------- ----------- ------------ ------------ ------------
Total other income (expense),
net.............................. 43,403 (80,425) (330,489) (40,115) 106,930
----------- ----------- ------------ ------------ ------------
Loss before minority interest and
extraordinary item............... (1,846,094) (8,579,935) (10,767,388) (2,564,235) (3,262,014)
Minority interest in net loss of
consolidated subsidiary.......... -- 265,428 138,598 71,252 --
----------- ----------- ------------ ------------ ------------
Loss before extraordinary item..... (1,846,094) (8,314,507) (10,628,790) (2,492,983) (3,262,014)
Extraordinary item--loss on early
redemption of debt............... -- -- 744,418 -- --
----------- ----------- ------------ ------------ ------------
Net loss........................... $(1,846,094) $(8,314,507) $(11,373,208) $(2,492,983) $ (3,262,014)
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
Dividends on preferred stock....... 202,900 157,264 328,765 -- 285,713
Net loss attributable to common
stockholders..................... $(2,048,994) $(8,471,771) $(11,701,973) $(2,492,983) $ (3,547,727)
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
Basic and diluted net loss per
common share..................... $ (0.62) $ (2.47) $ (3.32) $ (0.71) $ (0.97)
Shares used in computing basic and
diluted net loss per common
share............................ 3,284,625 3,424,035 3,522,458 3,497,032 3,665,539
Unaudited pro forma basic and
diluted net loss per common share
(Note 2)......................... $ (1.28) $ (0.25)
Shares used in computing unaudited
pro forma basic and diluted net
loss per share................... 8,918,465 13,238,167
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL TOTAL
$0.01 PAR PAID-IN TREASURY ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL STOCK DEFICIT DEFICIT
---------- --------- ------------ ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995............. 3,284,625 $ 32,846 $ 1,699,420 $ (1,918,492) $ (186,226)
Dividends on preferred stock........... (202,900) (202,900)
Issuance of warrants for the purchase
of common stock in exchange for goods
and services......................... 56,100 56,100
Net loss............................... (1,846,094) (1,846,094)
---------- --------- ------------ ----------- -------------- --------------
Balance, December 31, 1996............. 3,284,625 32,846 1,552,620 (3,764,586) (2,179,120)
Sale of common stock................... 163,857 1,639 1,145,361 1,147,000
Dividends on preferred stock........... (157,264) (157,264)
Issuance of warrants for the purchase
of common stock in exchange for goods
and services......................... 738,326 738,326
Options exercised...................... 77,550 775 89,065 89,840
Repurchase of common stock (29,000
shares).............................. $ (203,000) (203,000)
Change in interest in consolidated
subsidiary........................... 480,660 480,660
Net loss............................... (8,314,507) (8,314,507)
---------- --------- ------------ ----------- -------------- --------------
Balance, December 31, 1997............. 3,526,032 35,260 3,848,768 (203,000) (12,079,093) (8,398,065)
Dividends on preferred stock........... (328,765) (328,765)
Issuance of warrants in connection with
notes payable........................ 525,300 525,300
Reduction in value of warrants granted
in 1997 in exchange for goods and
services............................. (67,462) (67,462)
Issuance of common stock and warrants
for the purchase of common stock in
exchange for goods and services...... 12,500 125 516,600 516,725
Options exercised...................... 34,583 346 61,563 61,909
Common stock issued to acquire minority
interest............................. 126,424 1,264 504,432 505,696
Treasury stock acquired in connection
with forgiveness of notes receivable
(5,000 shares)....................... (35,000) (35,000)
Net loss............................... (11,373,208) (11,373,208)
---------- --------- ------------ ----------- -------------- --------------
Balance, December 31, 1998............. 3,699,539 36,995 5,060,436 (238,000) (23,452,301) (18,592,870)
Dividends on preferred stock........... (285,713) (285,713)
Net loss............................... (3,262,014) (3,262,014)
---------- --------- ------------ ----------- -------------- --------------
Balance, March 31, 1999 (unaudited).... 3,699,539 $ 36,995 $ 4,774,723 $ (238,000) $ (26,714,315) $ (22,140,597)
---------- --------- ------------ ----------- -------------- --------------
---------- --------- ------------ ----------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
STREAMLINE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- ------------
(NOTE 2)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(1,846,094) $(8,314,507) $(11,373,208) $(2,492,983) $ (3,262,014)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and
amortization................. 157,490 674,202 1,532,413 347,590 497,293
Amortization of discount on
notes payable................ -- -- 525,300 -- --
Loss on disposal of fixed
assets....................... -- 86,372 120,044 -- --
Amortization of goodwill and
other assets................. -- 151,849 256,592 35,490 60,385
Bad debt expense............... 25,000
Issuance of warrants for the
purchase of common stock in
exchange for consulting
services..................... 56,100 330,000 446,700 -- --
Minority interest in net loss
of consolidated subsidiary... -- (265,428) (138,598) (71,252) --
Changes in assets and
liabilities
Accounts receivable.......... (5,152) (67,995) (11,123) (147,159) (533,156)
Inventory.................... (175,959) (78,515) (69,182) (14,486) (15,143)
Prepaid expenses and other
current assets............. (45,778) (236,196) 226,411 304,852 (250,301)
Other assets................. -- -- (182,796) (129,919) 29,792
Accounts payable............. 73,453 600,307 (684,065) 698,318 518,535
Accrued expenses............. 55,813 428,730 (84,980) 33,079 700,129
----------- ----------- ------------ ----------- ------------
Net cash used in operating
activities....................... (1,730,127) (6,691,181) (9,436,492) (1,436,470) (2,229,480)
----------- ----------- ------------ ----------- ------------
Cash flows from investing
activities:
Purchases of property and
equipment...................... (1,904,447) (1,449,721) (833,275) (61,410) (447,367)
Additions to purchased and
capitalized software........... (48,544) (1,386,197) (1,237,847) (367,900) (527,844)
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities....................... (1,952,991) (2,835,918) (2,071,122) (429,310) (975,211)
----------- ----------- ------------ ----------- ------------
Cash flows from financing
activities:
Payments on notes receivable from
related parties................ (292,442) -- -- -- --
Proceeds from sale of common
stock.......................... -- 1,147,000 100 -- --
Proceeds from sale of common
stock of subsidiary............ -- 400,000 -- -- --
Proceeds from sale of preferred
stock.......................... 5,000,000 9,000,000 22,857,000 -- --
Proceeds from the exercise of
stock options.................. -- 89,840 61,909 -- --
Purchases of treasury stock...... -- (203,000) -- -- --
Dividend payments on preferred
stock.......................... -- (360,164) -- -- --
Issuance of notes receivable..... -- -- (35,000) -- --
Proceeds from notes
payable-related party.......... -- -- 600,000 600,000 --
Payments on notes payable-related
party.......................... -- -- (600,000) -- --
Proceeds from notes payable...... -- -- 7,000,000 -- --
Payments on notes payable........ -- -- (7,000,000) --
Principal payments on capital
lease obligations.............. (53,745) (105,435) (229,178) (55,213) (71,733)
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities....................... 4,653,813 9,968,241 22,654,831 544,787 (71,733)
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash and
cash equivalents................. 970,695 441,142 11,147,217 (1,320,993) (3,276,424)
Cash and cash equivalents,
beginning of period.............. 34,106 1,004,801 1,445,943 1,445,943 12,593,160
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents, end of
period........................... $ 1,004,801 $ 1,445,943 $ 12,593,160 $ 124,950 $ 9,316,736
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Supplemental disclosure of cash
flow information:
Cash paid for interest........... $ 31,000 $ 47,000 $ 495,000 $ 27,000 $ 14,000
Supplemental non-cash transactions:
Assets acquired with capital
lease obligations.............. $ 340,000 $ 267,000 $ 315,000 $ 202,000 $ 356,000
Issuance of subsidiary's stock
and warrants in connection with
acquisition (Note 3)........... -- 485,000 -- -- --
Assumption of liabilities in
connection with acquisition
(Note 3)....................... -- 370,000 -- -- --
Issuance of common stock in
connection with purchase of
minority interest
(Note 3)....................... -- -- 506,000 -- --
Issuance and remeasurement of
warrants in connection with
capitalized assets (Note 10)... -- 408,000 (34,000) 133,000
Issuance of warrants in
connection with debt (Note
5)............................. -- -- 525,000 -- --
Issuance of common stock for
services provided.............. -- -- 35,000 -- --
Common stock received in
consideration of note
receivable (Note 8)............ -- -- 35,000 -- --
Dividends accrued on preferred
stock (Note 7)................. 203,000 157,000 329,000 -- 286,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
1. DESCRIPTION OF BUSINESS
Streamline.com, Inc. ("Streamline.com" or the "Company") was incorporated in
the state of Delaware in 1993 and provides Internet-based ordering and home
delivery of a wide range of goods and services to consumers. The Company seeks
to simplify the shopping chores of busy suburban families who place a high value
on their time and demand service excellence. The Company consolidates products
and services currently offered by various suppliers into a single weekly
delivery to its customers, thus minimizing their need to make frequent trips to
multiple physical stores. The Company currently provides its products and
services from a single service center in the greater Boston suburbs which it
intends to replicate in other markets nationwide. Additionally, the Company has
working relationships with various consumer packaged goods companies to perform
market research on consumer purchasing behavior.
The Company has incurred cumulative losses through December 31, 1998 of
approximately $26,700,000. The Company expects to incur additional losses and
require additional financing as it expands its service into new and existing
markets. The Company plans to obtain additional equity financing during 1999
through an initial public offering of its common stock. In April 1999, the
Company received a commitment from a current stockholder to provide financing of
up to $10,000,000 if the Company requires additional financing prior to the end
of April 2000 and if the offering contemplated in this registration statement
has not been consummated by that time. This financing, if it occurs, will be in
the form of a sale by the Company of Series D redeemable convertible preferred
stock (the "Series D"). The sale would be on terms substantially similar to the
Series D (See Note 7) except that the Company shall redeem such shares, two
years from the date of issuance, for the aggregate purchase price plus accrued
interest at a rate of 6% per annum. The difference between the total fair value
of such Series D on the date of redemption and the redemption amount paid will
remain outstanding as preferred stock. In connection with this financing
commitment, the Company granted 75,000 warrants to purchase common stock at an
exercise price of $7.00 per share. These warrants expire in April of 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. In 1998, the Company purchased the remaining
minority interest in its subsidiary (See Note 3). All significant intercompany
transactions have been eliminated.
REVENUE RECOGNITION
Product and service revenue is recognized upon delivery of goods and
services to the customer. Advertising, research and marketing fees are
recognized over the life of the contract or as the services are performed.
Subscription revenues are billed and recognized monthly.
CUSTOMER ACQUISITION COSTS AND PRE-OPENING COSTS
Customer acquisition costs and pre-opening costs are expensed as incurred.
F-7
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less at the time of purchase to be cash
equivalents. The Company invests its excess cash in money market funds which are
subject to minimal credit and market risk. Cash equivalents at December 31, 1997
and 1998 and March 31, 1999 included approximately $1,030,000, $12,256,000, and
$8,876,000 respectively, in money market funds. The Company's cash equivalents
are classified as available-for-sale and recorded at amortized cost which
approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives of three to seven years using the straight-line method.
Assets held under capital leases are amortized over the shorter of the lease
life or the estimated useful life of the asset. Repairs and maintenance costs
are expensed as incurred. Upon retirement or sale, the cost of the assets
disposed and the related accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in the results of operations.
PURCHASED SOFTWARE, CAPITALIZED SOFTWARE AND TECHNOLOGY SYSTEMS AND DEVELOPMENT
Purchased third party software and related implemention costs are recorded
at cost and are amortized over their estimated useful lives, typically three
years using the straight-line method. Internal and external costs incurred
related to the application development stage of internal use software are
capitalized and amortized over their estimated useful lives, typically three
years using the straight-line method. Amortization expense related to purchased
and capitalized software is included in technology systems and development
expense.
Technology development costs are charged to technology systems and
development expense as incurred. Technology development costs include internal
and external costs incurred in the development and enhancement of software used
internally or used in connection with services provided by the Company that do
not otherwise qualify for capitalization, the costs of maintenance and minor
enhancements and the costs associated with maintaining and supporting internal
information systems.
The Company capitalized approximately $1,386,000, $1,238,000, and $528,000
for purchased and capitalized software for the years ended December 31, 1997 and
1998, and the quarter ended March 31, 1999 respectively. Amortization expense
for purchased and capitalized software was approximately $13,000, $189,000,
$708,000, $114,000 and $260,000 for years ended December 31, 1996, 1997 and 1998
and the quarters ended March 31, 1998 and 1999, respectively.
GOODWILL
Goodwill is being amortized on a straight-line basis over a five-year term.
The Company periodically evaluates the possible impairment of long-lived assets,
including goodwill, whenever events or changes in circumstances indicate that
the carrying value of the assets may not be recoverable. If such an event
occurred, the Company would project the future discounted cash flows expected to
result from the asset. If such projections indicated that the carrying value
would not be recoverable, the Company would reduce the carrying value of the
asset by the estimated excess of such value over
F-8
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future projected discounted cash flows. Accumulated amortization of goodwill as
of December 31, 1997 and 1998 and March 31, 1999 was approximately $146,000,
$308,000, and $368,000, respectively.
YEAR 2000 COSTS
Costs of modifying computer software to ensure Year 2000 compliance are
expensed as incurred.
ADVERTISING
The Company expenses costs related to advertising as incurred. Advertising
expense was approximately $43,000, $389,000, $557,000, $92,000 and $268,000 for
the years ended December 31, 1996, 1997 and 1998, and the quarters ended March
31, 1998 and 1999, respectively.
INVENTORY
The Company values all of its inventories at the lower of cost or market
value. Cost is determined on an average cost basis. All inventory items
represent finished goods.
INCOME TAXES
The Company provides for income taxes under the liability method which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between financial statement and tax bases of assets and
liabilities, as measured by the current tax rates. Under this method, a
valuation allowance is required against net deferred tax assets if, based upon
the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Management periodically evaluates the recoverability of deferred tax assets
and the level of the adequacy of the valuation allowance. At such time as it is
determined that it is more likely than not that deferred tax assets are
realizable, the valuation allowance will be appropriately reduced.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees
in fixed amounts with fixed exercise prices at least equal to the fair market
value of the Company's common stock at the date of grant. The Company has
adopted the disclosure only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," (Note 9).
Stock-based awards, including warrants to non-employees are accounted for at
their fair value.
RISKS AND UNCERTAINTIES AND USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the
F-9
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The Company has a limited operating history, has never achieved
profitability and is therefore subject to the risks and uncertainties such as
the uncertain nature of the markets in which the Company competes and the risk
that the Company may be unable to manage any future growth successfully.
In addition, the Company is subject to the risks encountered by companies
relying on the continued growth of on-line commerce and Internet infrastructure.
The risks include the use of the Internet as a viable commercial marketplace and
the potentially inadequate development of the necessary network infrastructure.
Finally, the Company has historically experienced seasonal fluctuations in
revenue. This pattern may be expected to continue and results of financial
operations within any fiscal year or fiscal quarter cannot be expected to be
representative.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The Company's financial instruments consist primarily of cash and cash
equivalents. As of December 31, 1998 and March 31, 1999, these financial
instruments carrying values approximated fair value. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents. The Company primarily invests its cash
in a money market fund with a highly rated financial institution. The Company
has not experienced any significant losses on its cash equivalents.
UNAUDITED PRO FORMA BALANCE SHEET
Upon the closing of the Company's initial public offering, such as the one
contemplated in the Registration Statement in which the accompanying financial
statements have been included, all of the outstanding shares of the preferred
stock will automatically convert into 9,454,722 shares of common stock. In
addition, the Company has elected to convert the accrued dividends on the Series
D into 6,145 shares of Series D which will convert into 153,620 shares of common
stock for a total conversion amount of 9,608,342 common shares. These
conversions have been reflected in the unaudited pro forma balance sheet as of
March 31, 1999.
NET LOSS PER SHARE
The Company computes basic and diluted net loss per share in accordance with
SFAS No. 128, "Earnings Per Share." Basic net loss per share is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding for the period. Diluted loss per
share does not differ from basic loss per share since potential common shares
from conversion of preferred stock, stock options and warrants are anti-dilutive
for all periods presented. The unaudited pro forma basic and diluted net loss
per share calculation assumes the conversion of all outstanding shares of
preferred stock and accrued preferred stock dividends into common shares, as if
the shares had converted immediately upon their issuance. As a result, dividends
to preferred stockholders are not included as an increase to net loss.
F-10
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic and diluted loss per share were calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
---------------------------------------------------- -------------------------------------
PRO FORMA PRO FORMA
1996 1997 1998 1998 1998 1999 1999
----------- ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Numerator:
Loss before extraordinary item... $(1,846,094) $(8,314,507) $(10,628,790) $(10,628,790) $(2,492,983) $(3,262,014) $(3,262,014)
Dividends on preferred stock..... 202,900 157,264 328,765 -- -- 285,713 --
----------- ----------- ------------ ------------ ----------- ----------- -----------
Loss attributable to common
stockholders before
extraordinary item............. (2,048,994) (8,471,771) (10,957,555) (10,628,790) (2,492,983) (3,547,727) (3,262,014)
Extraordinary item............... -- -- 744,418 744,418 -- -- --
----------- ----------- ------------ ------------ ----------- ----------- -----------
Net loss attributable to common
stockholders................... $(2,048,994) $(8,471,771) $(11,701,973) $(11,373,208) $(2,492,983) $(3,547,727) $(3,262,014)
----------- ----------- ------------ ------------ ----------- ----------- -----------
----------- ----------- ------------ ------------ ----------- ----------- -----------
Denominator:
Weighted average common shares
outstanding.................... 3,284,625 3,424,035 3,522,458 3,522,458 3,497,032 3,665,539 3,665,539
Weighted average assumed number
of shares upon conversion of
preferred stock................ -- -- -- 5,396,007 -- -- 9,572,628
----------- ----------- ------------ ------------ ----------- ----------- -----------
Total weighted average number of
shares........................... 3,284,625 3,424,035 3,522,458 8,918,465 3,497,032 3,665,539 13,238,167
----------- ----------- ------------ ------------ ----------- ----------- -----------
----------- ----------- ------------ ------------ ----------- ----------- -----------
Basic and diluted net loss per
common share:
Loss per common share before
extraordinary item............. $ (0.62) $ (2.47) $ (3.11) $ (1.19) $ (0.71) $ (0.97) $ (0.25)
Extraordinary item............... -- -- (0.21) (0.09) -- -- --
----------- ----------- ------------ ------------ ----------- ----------- -----------
Net loss per common share........ $ (0.62) $ (2.47) $ (3.32) $ (1.28) $ (0.71) $ (0.97) $ (0.25)
----------- ----------- ------------ ------------ ----------- ----------- -----------
----------- ----------- ------------ ------------ ----------- ----------- -----------
</TABLE>
Outstanding options of 450,500, 726,750, 593,000, 818,750 and 1,211,000 as
of December 31, 1996, 1997 and 1998, and March 31, 1998 and 1999, respectively,
were not included in the diluted loss per share computation because their effect
would be anti-dilutive. Outstanding warrants of 50,000, 435,714, 788,714,
491,714 and 788,714 as of December 31, 1996, 1997 and 1998 and March 31, 1998
and 1999, respectively, were not included in the diluted loss per share
calculation because their effect would be anti-dilutive.
In April 1999, the Company authorized the issuance of 250,000 options to
purchase common stock to the Chairman, President and Chief Executive Officer
upon the closing of the initial public offering contemplated in this
Registration Statement. The exercise price of these options shall be equal to
the price at which the Company sells common shares in the initial public
offering. In connection with a financing commitment received in April 1999, the
Company granted 75,000 warrants to purchase common stock at an exercise price of
$7.00 per share. These warrants expire in April 2002.
INTERIM FINANCIAL STATEMENTS
The financial statements of the Company as of March 31, 1999 and for the
quarters ended March 31, 1998 and 1999 and related footnote information are
unaudited. All adjustments consisting only of normal recurring adjustments, have
been made which, in the opinion of management, are necessary for a fair
presentation of the interim financial information. Results of operations for the
quarter ended March 31, 1999 are not necessarily indicative of the results that
may be expected for any future period.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting for Comprehensive Income"
for the year ended December 31, 1998 which requires that changes in
comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The Company's comprehensive
loss is the same as the net loss presented for the years ended December 31,
1996, 1997 and 1998, and for the quarters ended March 31, 1998 and 1999.
F-11
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 provides guidance
on accounting for computer software developed or obtained for internal use
including the requirement to capitalize specified costs and amortization of such
costs. SoP 98-1 is effective for the Company's fiscal 1999 financial statements
and the Company does not expect the adoption of this standard to have a material
effect on their current capitalization policy.
In April 1998, AcSEC issued SoP 98-5, "Reporting on the Costs of Start-Up
Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SoP 98-5, the cost of start-up activities should be expensed as incurred.
SoP 98-5 is effective for the Company's fiscal 1999 financial statements and the
Company does not expect the adoption of this standard to have a material effect
on their current capitalization policy.
3. SUBSIDIARY AND MINORITY INTEREST
The Company established Streamline Mid-Atlantic, Inc. ("Mid-Atlantic") as a
wholly-owned subsidiary in February 1997, receiving 2,200,000 common shares of
Mid-Atlantic in exchange for $22,000 cash.
In February 1997, Mid-Atlantic issued 800,000 shares of common stock in a
private offering to third parties, in exchange for net proceeds of $400,000.
Mid-Atlantic acquired substantially all of the assets and liabilities of
Shopping Alternatives, Inc., a provider of home grocery shopping services. In
the same month, stockholders of Shopping Alternatives received 970,000 shares of
Mid-Atlantic common stock plus warrants to purchase 30,000 shares of
Mid-Atlantic common stock. The value ascribed to the warrants was nominal. In
accordance with the purchase method of accounting, the purchase price of
approximately $855,000, which includes approximately $370,000 of liabilities
assumed, was allocated first to the fair value of the net assets acquired from
Shopping Alternatives. The excess of the purchase price over the fair value of
the acquired assets of approximately $794,000 was recorded by Mid-Atlantic as
acquired goodwill, in the absence of other intangibles, to be amortized on a
straight-line basis over a period of five years. The accompanying financial
statements for the year ended December 31, 1997 reflect the resultant change in
interest of the Company's ownership of Mid-Atlantic from 100% to approximately
55%.
In November 1998, the Company acquired the outstanding minority ownership
interest of Mid-Atlantic in a single transaction in which minority stockholders
of Mid-Atlantic received 126,424 shares of the Company's common stock, $0.01 par
value, having a fair value of approximately $506,000 at the date of acquisition.
In accordance with the purchase method of accounting, the Company allocated the
purchase price first to the fair value of the net assets of Mid-Atlantic as of
the date of the transaction. The resulting total goodwill associated with
Mid-Atlantic, representing the excess of the purchase price over the fair value
of the acquired assets of approximately $1,300,000 at December 31, 1998, is
being amortized on a straight-line basis over a period of five years. Unaudited
pro forma combined results as
F-12
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
3. SUBSIDIARY AND MINORITY INTEREST (CONTINUED)
if the acquisition had occurred at the beginning of either of the fiscal years
are not materially different than the results presented.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIVES --------------------------- MARCH 31,
IN YEARS 1997 1998 1999
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Computer equipment....................................... 3-5 $ 740,117 $ 821,695 $ 961,993
Equipment, furniture and fixtures........................ 5-10 1,407,258 2,070,683 2,386,251
Vehicles................................................. 5 264,626 589,168 863,349
Leasehold improvements................................... 5-10 1,673,029 1,631,510 1,705,826
------------ ------------- -------------
4,085,030 5,113,056 5,917,419
Accumulated depreciation and amortization................ (625,642) (1,449,575) (1,687,916)
------------ ------------- -------------
$ 3,459,388 $ 3,663,481 $ 4,229,503
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
At December 31, 1997 and 1998, and March 31, 1999, the costs of fixed assets
held under capital leases and included above amounted to approximately $714,000
and $1,029,000, $1,352,000, respectively, and accumulated amortization related
to such assets amounted to approximately $150,000 and $338,000 and $312,000,
respectively.
5. DEBT
In April 1998, the Company received proceeds of $7,000,000 in connection
with the issuance of Senior Discount Notes ("Discount Notes"). The Company
issued 777 units each consisting of a $10,000 aggregate principal amount of
Discount Notes and 546.88 warrants to purchase common stock. The $7,770,000 face
amount of the Discount Notes is due April 15, 2001. The Discount Notes bear
interest initially in the form of accretion in the principal amount outstanding
up to the face amount at the rate of 11% per annum until April 15, 1999.
Thereafter, the Discount Notes bear interest on the face amount at the rate of
12% per annum with interest payable semi-annually until maturity.
In conjunction with the issuance of the Discount Notes, the Company also
issued warrants for the purchase of up to a total of 425,000 shares of the
Company's common stock. Warrants to purchase 225,000 shares of common stock at
$7.00 per share vested immediately. The remaining 200,000 warrants vest
periodically at varying exercises prices until 2001 based upon the Company
obtaining certain amounts of financing. All of these warrants expire upon the
earlier of April 15, 2005 or five years after a public offering by the Company
raising at least $25,000,000. The Company recorded approximately $525,000 of
additional paid-in capital for the fair value of the warrants on the issuance
date as an additional discount associated with the Discount Notes.
On September 18, 1998, the Company redeemed all of the Discount Notes at a
price of $7,000,000 plus approximately $334,000 of interest and $257,000 for a
call premium with the proceeds from the issuance of the Company's Series D
Preferred Stock (Note 7). In addition, the Company modified the terms of the
warrants issued in connection with this debt such that the remaining unvested
warrants to purchase 200,000 shares of the common stock expired immediately in
exchange for the issuance of 5,000 shares of common stock for $100. The
redemption resulted in the Company recording an
F-13
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
5. DEBT (CONTINUED)
extraordinary loss on the extinguishment of debt of approximately $744,000
including approximately $257,000 for the call premium, approximately $452,000
for the unamortized discount value associated with the warrants and
approximately $35,000 for the issuance of the common shares and the remaining
deferred financing costs.
6. RELATED PARTY TRANSACTIONS
During 1996, the Company redeemed notes payable in the principal amounts of
approximately $176,000 from its Chairman, President and Chief Executive Officer
and $122,000 from several other stockholders of the Company. These notes payable
were redeemed at par plus accrued interest.
During 1997, the Company paid consulting fees under an agreement with a
marketing firm, the Chief Executive Officer of which is a director of the
Company. Total fees paid under this agreement during 1997 were approximately
$338,000. Additionally during 1997, the Company issued warrants valued at
$25,000 to this firm for the purchase of 50,000 shares of the Company's common
stock at an exercise price of $2.04 per share with an expiration date in 2001.
During 1997, the Company repurchased 11,500 shares of its common stock from
its Chairman and Chief Executive Officer at a purchase price of $7.00 per share,
which the Company's Board of Directors determined to be the fair value of those
shares at the date of repurchase.
During 1997 and 1998, the Company paid fees for technology development and
consulting under an agreement with a firm, the Chief Executive Officer of which
is a current director and former officer of the Company. Fees paid by the
Company under this agreement totaled approximately $1,250,000 in 1997,
$1,676,000 in 1998 and $375,000 and $450,000 for the quarters ended March 31,
1998 and 1999, respectively. In addition during 1997, the Company issued
warrants valued at approximately $330,000 to this firm for the purchase of
50,000 shares of the Company's common stock at an exercise price of $2.04 per
share with an expiration date in 2007. During 1998, the Company issued
additional warrants valued at approximately $447,000 to this firm for the
purchase of 100,000 shares of its common stock at an exercise price of $4.00 per
share with an expiration date in 2003. Costs associated with these transactions
have been recorded as additions to capitalized software of approximately
$595,000 and $683,000 for the years ended December 31, 1997 and 1998 and
$214,000 for the quarter ended March 31, 1999, respectively and as technology
systems and development expense of $985,000 and $1,440,000 for the years ended
December 31, 1997 and 1998, and $236,000 for each of the quarters ended March
31, 1998 and 1999, respectively.
During 1998, the Company issued convertible subordinated notes payable in
the amount of $200,000 to two directors of the Company, and $400,000 to five
stockholders of the Company, which were redeemed during 1998 at par value plus
accrued interest.
The Company has capital equipment lease arrangements with one of its
stockholders and affiliated entities. The Company paid approximately $33,000,
$69,000, $198,000, $22,000 and $67,000 in the years ended December 31, 1996,
1997 and 1998 and the quarters ended March 31, 1998 and 1999, respectively under
these capital lease arrangements. As of December 31, 1997 and 1998 and March 31,
1999, amounts due to these related parties are $392,000, $458,000, and $640,000,
respectively and have been included as capital lease obligations on the balance
sheet.
F-14
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
All warrant activity described in Note 10 during the years ended December
31, 1997 and 1998 was with stockholders of the Company.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The following table reflects redeemable convertible preferred stock activity
from December 31, 1995 through March 31, 1999:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D TOTAL
------------------ ------------------ ------------------ -------------------- -------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares of Series A issued..... 50,000 $5,000,000 50,000
Accrual of Series A
dividends................... -- 202,900 --
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
Balance at December 31,
1996........................ 50,000 5,202,900 50,000
Shares of Series B issued..... -- -- 80,000 $8,000,000 80,000
Shares of Series C issued..... -- -- -- -- 10,000 $1,000,000 10,000
Accrual of Series A
dividends................... -- 157,264 -- -- -- -- --
Payment of Series A
dividends................... -- (360,164) -- -- -- -- --
------ ---------- ------ ---------- ------ ---------- -------
Balance at December 31,
1997........................ 50,000 5,000,000 80,000 8,000,000 10,000 1,000,000 140,000
Shares of Series D issued..... -- -- -- -- -- -- 228,570 $22,857,000 228,570
Accrual of Series D
dividends................... -- -- -- -- -- -- -- 328,765 --
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
Balance at December 31,
1998........................ 50,000 5,000,000 80,000 8,000,000 10,000 1,000,000 228,570 23,185,765 368,570
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
Accrual of Series D
dividends................... -- -- -- -- -- -- -- 285,713 --
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
Balance at
March 31, 1999.............. 50,000 $5,000,000 80,000 $8,000,000 10,000 $1,000,000 228,570 $23,471,478 368,570
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
------ ---------- ------ ---------- ------ ---------- ------- ----------- -------
<CAPTION>
AMOUNT
-----------
<S> <C>
Shares of Series A issued..... $ 5,000,000
Accrual of Series A
dividends................... 202,900
-----------
Balance at December 31,
1996........................ 5,202,900
Shares of Series B issued..... 8,000,000
Shares of Series C issued..... 1,000,000
Accrual of Series A
dividends................... 157,264
Payment of Series A
dividends................... (360,164)
-----------
Balance at December 31,
1997........................ 14,000,000
Shares of Series D issued..... 22,857,000
Accrual of Series D
dividends................... 328,765
-----------
Balance at December 31,
1998........................ 37,185,765
-----------
-----------
Accrual of Series D
dividends................... 285,713
-----------
Balance at
March 31, 1999.............. $37,471,478
-----------
-----------
</TABLE>
At December 31, 1996, the Company had issued and outstanding 50,000 shares
of Series A redeemable cumulative convertible preferred stock, $1.00 par value,
(the "Series A") which entitled its holders to cumulative dividend rights
payable in either cash, shares of Series A or shares of common stock.
During 1997, the Company amended its certificate of incorporation to amend
the rights of the Series A and to create two new series of redeemable
convertible preferred stock, designated as Series B (the "Series B") and Series
C (the "Series C"). The Company is authorized to issue up to 100,000 shares of
each of these series of preferred stock, and each series has a par value of
$1.00 per share. These series of preferred stock are not cumulative as to
dividends. In connection with the amendment, the Company made a cash payment of
approximately $360,000 representing the total accrued dividends
F-15
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
due to the holders of the Series A, of which $203,000 and $157,000 of dividends
were accrued during the years ended December 31, 1996 and 1997, respectively. In
addition, the Company issued 80,000 and 10,000 shares of Series B and Series C,
respectively, for gross proceeds of $8,000,000 and $1,000,000, respectively.
During 1998, the Company amended its certificate of incorporation to amend
certain terms of Series A, Series B and Series C and authorize the issuance of
up to 380,000 shares of preferred stock designated as Series D. In September
1998, the Company issued 228,570 shares of Series D at $100 per share resulting
in gross proceeds of $22,857,000.
The significant characteristics of the Company's Series A, Series B, Series
C and Series D are summarized as follows:
REDEMPTION
The Company is required to redeem each series of preferred stock in the
amount of $100 per share plus accumulated and unpaid dividends in two equal
annual installments commencing on the fifth anniversary upon request by holders
of at least two-thirds of such series of preferred stock. Each holder of
preferred stock may elect immediate redemption upon the sale of substantially
all of the Company's capital stock or assets to a third party. Additionally, a
holder of Series D may elect redemption if the Company has violated certain
covenants. However, a stockholder is not entitled to elect redemption if that
holder or a Director nominated by the holder voted its shares in favor of the
sale. As of December 31, 1998, future redemption requirements for the preferred
stock are $2,500,000, $7,000,000, $16,093,000, and $11,593,000 in the years
ended December 31, 2001, 2002, 2003 and 2004 respectively, plus additional
accrued dividends.
LIQUIDATION
In the event of any liquidation, dissolution, or winding-up of the Company,
the holders of the Series D are entitled to a liquidation preference of up to
$100 per share plus all accrued but unpaid dividends before any payments are
made to the holders of the Series A, Series B or Series C. After payments to the
Series D stockholders, the holders of the Series A, Series B or Series C shall
be entitled to receive a liquidation payment of $100 per share and any
accumulated and unpaid dividends. Any assets remaining after such liquidation
payment to the preferred stockholders will be available for distribution ratably
to common stockholders.
DIVIDENDS
The holders of Series D are entitled to cumulative dividend rights at a rate
of 5% per annum of the Series D liquidation preference. The dividend rights may
be payable in cash, as an addition to the liquidation preference or an issuance
of Series D shares at the discretion of the Company or any combination of the
foregoing. Series D accumulated dividends must be paid before dividends or
distributions are made to the holders of the Series A, Series B or Series C. The
Company must pay a dividend or distribution on the same terms and at the same or
equivalent rate on each share of Series A, Series B, Series C and Series D
whenever a dividend or distribution is declared or paid on
F-16
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
any shares of the common stock. At December 31, 1998 and March 31, 1999, Series
D stockholders are entitled to cumulative dividends in arrears of approximately
$329,000 and $614,000, respectively. The Company expects to pay the dividends in
arrears in the form of additional Series D shares and as a result has included
the accrued dividends in the redeemable convertible preferred stock.
CONVERSION
The number of shares of common stock into which the Series A, Series B,
Series C and Series D may be convertible is determined by multiplying each share
by the quotient of $100 divided by the conversion price as follows: Series A -
approximately $2.04 per share; Series B and C - $7.00 per share; Series D -
$4.00 share. All unpaid dividends must be paid upon conversion.
Each share of Series A, Series B and Series C is convertible into the
Company's common stock at the option of the holder at any time prior to
redemption, or will be automatically converted upon the closing of a public
offering of the Company's common stock resulting in a price of at least $8.00
per share and gross proceeds of at least $25,000,000, subject to anti-dilution
provisions.
Each share of Series D is convertible into the Company's common stock at the
option of the holder at any time after the earlier of a conversion event or
March 18, 2000. A conversion event includes any transaction that would be deemed
a liquidation, Mr. DeMello's ceasing to be an officer, director or consultant of
the Company, certain actions by the Company without a prior affirmative vote by
a majority of the Series D stockholders, a change in persons constituting the
majority of the board of directors or a material adverse change in the Company's
business. Each Series D share will be automatically converted upon the closing
of the first sale of a public offering resulting in at least $25,000,000 of
gross proceeds for at least $8.00 per share, or upon a sale of the Company's
assets to a third party provided that an investment banker delivers an opinion
that deems the conversion is necessary to facilitate a successful public
offering.
VOTING
Holders of Series A, Series B, Series C and Series D do not have voting
rights but holders of Series A and Series C, voting together, and holders of
Series B, voting separately, have the right to elect one director of the
Company, or in lieu thereof, one individual as an observer at all meetings of
the Company's board of directors. Holders of Series D have the right to elect
one director of the Company and one individual as an observer at all meetings of
the Company's board of directors. The Company is required to request the consent
of the Series D stockholders before engaging in certain activities such as the
modification of the rights of the Series D stockholders, a merger or
acquisition, the declaration of dividends for all capital stock and the issuance
of common stock at a price less than $7.00 per share and more than $4.00 per
share.
8. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
The holders of common stock are entitled to one vote for each share held at
all meetings of the stockholders. Dividends on common stock may be paid out of
lawfully available funds as and when
F-17
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
8. STOCKHOLDERS' EQUITY (CONTINUED)
determined by the board of directors, subject to any preferential dividend
rights of preferred shareholders. In April 1999, the Company's board of
directors adopted and the stockholders approved effective upon the closing of an
initial public offering, the authorized capital stock of the Company will
consist of 50,000,000 shares of common stock and 5,000,000 shares of preferred
stock, each having a par value of $0.01 per share. The board of directors is
authorized, without further stockholder approval, to fix or alter the relative
rights, preferences, qualifications, limitations or restrictions thereof,
including any dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series.
TREASURY STOCK
During 1997, the Company repurchased 29,000 shares of its common stock from
certain employees and directors of the Company for a total of approximately
$203,000. During 1998, the Company received 5,000 shares of common stock as
consideration for payment of a $35,000 employee note receivable.
STOCK SPLIT
On April 8, 1999, the board of directors declared a 1-for-2 reverse stock
split of common stock. All common shares and per share amounts in the
consolidated financial statements and related footnotes have been restated to
reflect the effect of the reverse stock split for all periods presented.
9. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN
STOCK OPTION PLANS
On June 10, 1993, the Company adopted two stock option plans. The 1993
Employee Option Plan ("Employee Plan") initially allowed for the granting of
202,750 shares of either statutory or non-statutory options as defined by
Section 422 of the Internal Revenue Code. As of December 31, 1998, the Company
has authorized 1,500,000 shares to be issued in connection with the Employee
Plan. As of December 31, 1998 and March 31, 1999, there were approximately
882,500 and 264,500 shares available for future grants under the Employee Plan,
respectively. In April 1999, the Company increased the number of authorized
shares to be issued under this plan to 2,500,000.
The Director Option Plan ("Director Option Plan") allows for the granting of
shares of non-statutory options and are not intended to meet the requirements of
Internal Revenue Code Section 422. An aggregate of 125,000 shares of common
stock have been reserved for issuance upon the exercise of options available
under the Director Option Plan. As of December 31, 1998 and March 31, 1999,
there were approximately 37,500 shares available for future grants under the
Director Option Plan. In April 1999, the Company increased the number of
authorized shares to be issued under this plan to 250,000.
Options are generally granted at a price established by the board of
directors to be not less than the fair market value of the stock on the date of
grant. The options vest at various rates over periods
F-18
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
9. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
up to three years and expire up to ten years from the grant date for the
Employee Option Plan and five years from the grant date for the Director Option
Plan.
The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for stock options granted
at or above fair value. Had compensation cost been determined based on the fair
value at the grant dates for awards in 1996, 1997 and 1998 consistent with the
provisions of SFAS No. 123, the Company's pro forma net loss attributable to
common stockholders and pro forma basic and diluted net loss per common share
for fiscal 1996, 1997 and 1998 would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Net loss attributable to common
stockholders
As reported...................... $(2,048,994) $ (8,471,771) $(11,701,973)
Pro forma........................ (2,105,094) (8,553,803) (11,782,638)
Basic and diluted net loss per
common share
As reported...................... $(0.62) $(2.47) $(3.32)
Pro forma........................ (0.64) (2.50) (3.35)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model to apply the minimum value method with
the following assumptions for grants in 1996, 1997 and 1998: no dividend yield;
no volatility; risk-free interest rates of 6.1% in 1996, 5.6% for 1997, 5.3% for
1998, and expected lives of five years for the Employee Plan and three years for
the Directors Plan. The weighted average fair value of options granted was
$0.31, $0.45, and $0.14 per share for the years ended December 31, 1996, 1997
and 1998, respectively. All options granted during the years ended December 31,
1996, 1997 and 1998 were issued at exercise prices in excess of the fair market
value of the common stock.
Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants may be made each
year, future effects on reported pro forma net income or net loss may differ
from the above pro forma disclosures.
F-19
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
9. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
The following table summarizes the activity in the Company's option plans at
December 31, 1996, 1997 and 1998 and March 31, 1999, and changes during the
periods then ended:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------- MARCH 31,
1996 1997 1998 1999
------------------------ ------------------------ ------------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES
--------- ------------- --------- ------------- --------- ------------- ---------
Outstanding at beginning of period...... 273,500 $ 1.60 450,500 $ 1.76 726,750 $ 2.84 593,000
Granted............................... 180,000 2.00 398,750 3.62 119,750 6.76 618,000
Exercised............................. -- -- (77,550) 1.16 (34,583) 1.80 --
Forfeited............................. (3,000) 1.80 (44,950) 1.80 (218,917) 2.30 --
--------- ----- --------- ----- --------- ----- ---------
Outstanding at end of period............ 450,500 $ 1.76 726,750 $ 2.84 593,000 $ 3.88 1,211,000
--------- ----- --------- ----- --------- ----- ---------
--------- ----- --------- ----- --------- ----- ---------
Options exercisable at end of
period.............................. 151,000 $ 1.44 162,250 $ 1.84 307,415 $ 2.80 408,408
--------- ----- --------- ----- --------- ----- ---------
--------- ----- --------- ----- --------- ----- ---------
<CAPTION>
<S> <C>
WEIGHTED
AVERAGE
EXERCISE
PRICE
-------------
Outstanding at beginning of period...... $ 3.88
Granted............................... 7.74
Exercised............................. --
Forfeited............................. --
-----
Outstanding at end of period............ $ 5.85
-----
-----
Options exercisable at end of
period.............................. $ 3.45
-----
-----
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
TOTAL NUMBER WEIGHTED AVERAGE NUMBER OF
OF OPTIONS REMAINING OPTIONS
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- ------------------------------------------------------ ------------- ---------------- -----------
<S> <C> <C> <C>
$1.50................................................. 12,500 4.5 12,500
$1.80................................................. 142,000 6.2 129,500
$2.04................................................. 212,500 7.7 110,583
$4.00................................................. 2,000 9.8 666
$7.00................................................. 224,000 9.0 54,166
$10.00................................................ -- -- --
------------- -------- -----------
593,000 7.8 years 307,415
------------- -------- -----------
------------- -------- -----------
</TABLE>
In April 1999, the Company authorized the issuance of 250,000 options to
purchase common stock to the Chairman, President and Chief Executive Officer
upon the closing of the initial public offering contemplated in this
Registration Statement. The exercise price of these options shall be equal to
the price at which the Company sells common shares in the initial public
offering.
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the Company's board of directors and stockholders approved
the 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"). The Company
has reserved 250,000 shares of common stock for issuance under the 1999 Purchase
Plan.
F-20
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
10. COMMON STOCK WARRANTS
The following table summarizes the activity related to warrants at December
31, 1996, 1997 and 1998, and March 31, 1999 and changes during the periods then
ended:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------
MARCH 31,
1996 1997 1998 1999
-------------------------- ------------------------ ------------------------ ---------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES
----------- ------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period....... 22,500 $ 1.80 50,000 $ 1.93 435,714 $ 5.28 788,714
Granted................................ 27,500 2.04 385,714 5.72 553,000 6.46 --
Cancelled.............................. -- -- -- -- (200,000) 7.00 --
----------- --------- --------- ---------
----------- --------- --------- ---------
Outstanding at end of period........... 50,000 $ 1.93 435,714 $ 5.28 788,714 $ 5.67 788,714
----------- --------- --------- ---------
----------- --------- --------- ---------
Warrants exercisable at end of
period............................... 22,500 $ 1.80 193,929 $ 3.84 681,571 $ 5.46 681,571
----------- --------- --------- ---------
----------- --------- --------- ---------
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
-------------
<S> <C>
Outstanding at beginning of period....... $ 5.67
Granted................................ --
Cancelled.............................. --
Outstanding at end of period........... $ 5.67
Warrants exercisable at end of
period............................... $ 5.46
</TABLE>
The weighted average fair value of warrants granted in 1996 were based upon
an estimated value of $2.04. The weighted average fair value of warrants granted
during 1997 and 1998 estimated on the date of grant using the Black-Scholes
option pricing model was $2.74 and $1.82, respectively. The fair value was
estimated using an expected volatility of 50% in 1997 and 80% in 1998, risk free
rates of 5.8% to 6.3% in 1997 and 4.1% to 5.5% in 1998 and the contractual term
of the warrant.
The following table summarizes information about warrants outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
TOTAL AVERAGE
NUMBER REMAINING NUMBER OF
OF WARRANTS CONTRACTUAL WARRANTS
EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE
- ---------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
$1.80..................................................... 22,500 2.0 22,500
2.04..................................................... 127,500 4.7 127,500
4.00..................................................... 100,000 5.0 100,000
7.00..................................................... 538,714 4.1 431,572
------------- ----------- -----------
788,714 4.2 years 681,572
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
During 1996, the Company issued warrants for the purchase of a total of
27,500 shares of common stock at an exercise price of $2.04 per share with an
expiration date of 2001 in exchange for services provided to the Company. The
Company recorded the fair value of these warrants as consulting expense.
During 1997, the Company issued warrants for the purchase of a total of
385,714 shares of its common stock at exercise prices ranging from $2.04 - $7.00
per share and expiration dates from 2001 through 2007. These warrants were
principally issued in lieu of cash consideration for services provided to the
Company. Certain of these warrants were issued with immediate vesting while some
of the warrants had vesting that was contingent on additional services being
provided. In 1997, in connection with the issuance of these warrants, the
Company recorded $330,000 of technology systems and development costs, $281,000
of capitalized software and $77,000 of deferred financing costs based upon
F-21
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
10. COMMON STOCK WARRANTS (CONTINUED)
the appraised value of the warrants at the date of grant. As of December 31,
1997, approximately 214,500 of these warrants were subject to vesting upon
certain conditions and are subject to adjustment until the measurement date is
reached. In 1998, the remeasurement of these warrants resulted in the Company
reducing capitalized software recorded in 1997 by approximately $67,000. As of
December 31, 1998 and March 31, 1999, 107,143 warrants granted in 1997 were
subject to vesting upon certain future events and no significant value has been
ascribed to these unvested warrants.
During 1998, the Company issued warrants for the purchase of a total of
553,000 shares of its common stock at exercise prices ranging from $4.00 - $7.00
per shares as described below.
Warrants for the purchase of 425,000 common shares were issued in connection
with the Discount Notes at an exercise price of $7.00 per share. These warrants
expire upon the earlier of April 15, 2005 or five years after a public offering
by the Company raising at least $25,000,000. In connection with the repayment of
the Discount Notes, the Company modified the terms of the warrants issued in
association with this debt such that the remaining unvested warrants to purchase
200,000 shares of the common stock expired immediately in exchange for the
issuance 5,000 shares of common stock for $100. (See Note 5).
In addition, the Company issued warrants for the purchase of a total of
100,000 shares of its common stock at an exercise price of $4.00 per share with
an expiration date in 2003 in exchange for services provided to the Company.
(See Note 6.)
The Company issued warrants for the purchase of 28,000 shares of common
stock at an exercise price of $7.00 per share which are all vested as of
December 31, 1998. These warrants expire in 2001. These warrants were
principally issued in lieu of cash consideration for services provided to the
Company. The Company recorded approximately $33,000 to capitalized software for
the fair value of the warrants.
F-22
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
11. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company leases its facilities and certain equipment under noncancellable
leases. Future minimum lease obligations at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
- -------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
1999................................................................ $ 924,000 $ 294,000
2000................................................................ 799,000 221,000
2001................................................................ 483,000 115,000
2002................................................................ 495,000 80,000
2003................................................................ 508,000 12,000
Thereafter.......................................................... 2,068,000 --
------------ ----------
Total future payments............................................... $ 5,277,000 722,000
------------ ----------
------------ ----------
Less: amount representing interest.................................. 105,000
----------
Present value of capital leases..................................... $ 617,000
----------
----------
</TABLE>
All capital lease obligations are fully collateralized by the equipment and
are at interest rates ranging from 7% to 18%.
Total rent expense for the years ended December 31, 1996, 1997 and 1998 and
the quarters ended March 31, 1998 and 1999 was approximately $299,000, $639,000
and $948,000 and $178,000 and $267,000, respectively.
12. INCOME TAXES
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ------------- -------------
Deferred provision
Federal.......................................... $ (628,000) $ (2,827,000) $ (3,867,000)
State............................................ (116,000) (521,000) (713,000)
Change in valuation allowance.................... 744,000 3,348,000 4,396,000
Other............................................ -- -- 184,000
----------- ------------- -------------
Total provision................................ $ -- $ -- $ --
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets are
approximately $4,809,000 and $9,205,000 as of December 31, 1997 and 1998,
respectively, which are primarily related to net operating losses. Realization
of total deferred tax assets is contingent upon the generation of future taxable
income. Due to the uncertainty of
F-23
<PAGE>
STREAMLINE.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 has not been audited)
12. INCOME TAXES (CONTINUED)
realization of these tax benefits, the Company has provided a valuation
allowance for the full amount of its deferred tax assets.
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $22,600,000 and state net operating losses
of approximately $22,400,000. The federal and state net operating loss
carryforwards begin to expire in 2008 and 1999, respectively.
Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may have limited, or may limit in the future,
the amount of net operating loss carryforwards which could be utilized annually
to offset future taxable income and income tax liability. The amount of any
annual limitation is determined based upon the Company's value prior to an
ownership change.
13. RETIREMENT SAVINGS PLAN
In 1997, the Company adopted the Streamline 401(k) Plan (the "Plan") for its
employees, which has been qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees are permitted to contribute to the Plan through payroll
deductions within statutory limitations and subject to any limitations included
in the Plan. To date, the Company has made no contributions to the Plan.
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 Shares
[LOGO]
-------------------
Prospectus
, 1999
-------------------
Banc of America Securities LLC
PaineWebber Incorporated
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
INTERNET DISTRIBUTION BY
E*TRADE Securities
Until , 1999, all dealers that buy, sell or trade our common
stock may be required to deliver a prospectus, regardless of whether they are
participating in this offering. This is in addition to the obligation of dealers
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than the underwriting discount, are
estimated as follows:
<TABLE>
<CAPTION>
TOTAL
------------
<S> <C>
SEC Registration Fee............................................................ $ 20,781
NASD Fees....................................................................... 7,400
Nasdaq Listing Fees............................................................. 95,000
Printing and Engraving Expenses................................................. 120,000
Legal Fees and Expenses......................................................... 400,000
Accountants' Fees and Expenses.................................................. 400,000
Expenses of Qualification Under State Securities Laws, Including Attorneys'
Fees.......................................................................... 7,500
Transfer Agent and Registrar's Fees............................................. 10,000
Miscellaneous Costs............................................................. 39,319
------------
Total....................................................................... $ 1,100,000
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 145 of the Delaware General Corporation law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein.
The Amended and Restated Certificate of Incorporation of Streamline and the
Amended and Restated By-laws of the Registrant, copies of which are filed as
Exhibits 3.1 and 3.2, provide for indemnification of officers and directors of
the Registrant and certain other persons against liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated
conditions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From its inception April 1993 to March 1999, the Registrant has entered into
stock option agreements with certain employees, officers and consultants to the
Registrant pursuant to the Registrant's 1993 Employee Option Plan and 1993
Director Option Plan, each as amended, covering approximately 1,838,570 shares
of its common stock, of which 112,133 shares of common stock have been issued by
the Registrant upon exercise of such options. The purchase price under the
options is $1.50 to $10.00 based on the fair market value of the common stock on
the date of grant. These grants and sales were made in reliance upon Rule 701
promulgated under the Securities Act and are deemed to be exempt transaction as
sales of an issuer's securities pursuant to a written plan or contract relating
to the compensation of such individuals and upon Section 4(2) of the Securities
Act as transactions not involving any public offering.
In May and June 1996, the Registrant issued and sold a total of 50,000
shares of the Registrant's Series A cumulative convertible preferred stock (each
share of which is convertible into approximately 50 shares of common stock) at a
purchase price of $100 per share (approximately $2.04 per share on an
as-converted basis) to Reliance Insurance Company. The issuance and sales of
such shares of Series A cumulative convertible preferred stock were made in
reliance upon Rule 506 of Regulation D promulgated under the Securities Act and
Section 4(2) of the Securities Act.
II-1
<PAGE>
In March through November 1997, the Registrant sold an aggregate of 163,857
shares of common stock at a purchase price of $7.00 per share to a group of new
and existing individual investors. The issuance and sale of such shares of
common stock were made in reliance on Rule 506 of Regulation D promulgated under
the Securities Act and Section 4(2).
On March 7, 1997, in connection with Streamline's entering into a
development agreement with Elm Square Technologies, Inc., Streamline issued Elm
Square a warrant to purchase 50,000 shares of common stock at a purchase price
of $2.04 per share. The issuance and sale of the warrant was made in reliance
upon Rule 506 of Regulation D promulgated under the Securities Act and Section
4(2) of the Securities Act.
In June and September 1997, the Registrant issued and sold an aggregate of
80,000 shares of the Registrant Series B Convertible Preferred Stock and 10,000
shares of the Registrant Series C convertible preferred stock to several
corporate investors (in each case, each share of which is convertible into
approximately 15 shares of common stock) for an aggregate of $9 million. The
issuance and sale of such shares of Series B and Series C convertible preferred
stock were made in reliance upon Rule 506 of Regulation D promulgated under the
Securities Act and Section 4(2) of the Securities Act.
On June 13, 1997, Streamline issued one of its corporate investors warrants
for up to 142,857 shares of common stock, exercisable at $7.00 per share, in
connection with a development agreement, and issued an additional 28,000
warrants, exercisable at $7.00 per share, in March 1998 in connection with
ongoing development efforts. The issuance and sale of such warrants were made in
reliance upon Rule 506 of Regulation D promulgated under the Securities Act and
Section 4(2) of the Securities Act.
In September 1997, Streamline issued General Electric Capital Corporation
warrants to purchase up to 142,857 shares of common stock, 25% of which are
vested and exercisable at $7.00 per share and 75% of which vest in the event GE
Capital provides a certain level of future debt financing to Streamline by
September 23, 1999 and are exercisable at greater than or equal to $4.20 per
share. The issuance and sale of such warrants were made in reliance upon Rule
506 of Regulation D promulgated under the Securities Act and Section 4(2) of the
Securities Act.
In April 1998, two institutional investors, DDJ Canadian High Yield Fund and
Mellon Bank, N.A., solely in its capacity as Trustee for General Motors
Employees Domestic Group Pension Trust, purchased senior discount notes and
warrants of the Registrant in 777 attached units. The Registrant also issued an
aggregate of 7,500 shares of common stock to these purchasers in connection with
the financing. The aggregate principal amount of the senior discount notes was
$7,770,000 and the warrants have an exercise price of $7.00 per share and were
exercisable for up to 425,000 shares of common stock in the aggregate, 225,000
of which were vested and 200,000 of which were subject to vesting. In September
1998, in connection with the Series D Preferred Stock financing, the Registrant
and the holders of the senior discount notes amended their warrant agreement to
fix the total number of shares issuable upon exercise of the warrants to 225,000
and the Registrant sold these parties a total of 5,000 additional shares of
common stock for nominal cash consideration. The issuance and sales of the
foregoing securities were made in reliance upon Rule 506 of Regulation D
promulgated under the Securities Act and Section 4(2) of the Securities Act.
In September 1998, the Registrant issued and sold 228,570 shares of Series D
convertible preferred stock (each share of which is convertible into 25 shares
of common stock) at a purchase price of $100 per share ($4.00 per share on an
as-converted basis) to Nordstrom, Inc. The issuance and sales of such shares of
Series D convertible preferred stock and Series C convertible preferred stock
were made in reliance upon Rule 506 of Regulation D promulgated under the
Securities Act and Section 4(2) of the Securities Act.
II-2
<PAGE>
In February 1997, the Registrant issued BrainReserve, Inc. a warrant to
purchase 50,000 shares of common stock at a purchase price of $2.04 per share in
connection with a commercial transaction between the Registrant and
BrainReserve. The issuance and sale of the warrant was made in reliance upon
Rule 506 of Regulation D promulgated under the Securities Act and Section 4(2)
of the Securities Act.
In November 1998, in connection with an acquisition of minority interests in
Streamline Mid-Atlantic, Inc., a subsidiary of the Registrant, the Registrant
issued and sold 128,571 shares of common stock to the minority stockholders of
Mid-Atlantic. Each share of common stock of Mid-Atlantic issued and outstanding
immediately before the merger, other than shares owned by the Registrant were
converted and became 1/7(th) of one share of common stock of the Registrant. The
issuance and sales of such shares of common stock were made in reliance upon
Rule 504 of Regulation D promulgated under the Securities Act and Section 4(2)
of the Securities Act.
In December 1998, Streamline issued Elm Square a warrant to purchase an
additional 100,000 shares of common stock at a purchase price of $4.00 per share
in connection with ongoing services provided by Elm Square. The issuance and
sale of the warrant was made in reliance upon Rule 506 of Regulation D
promulgated under the Securities Act and Section 4(2) of the Securities Act.
In April 1999, Streamline issued Nordstrom a warrant to purchase 75,000
shares of common stock at a purchase price of $7.00 per share in connection with
Nordstrom's committing to provide financing of up to $10 million to Streamline.
The issuance and sale of the warrant was made in reliance upon Rule 506 of
Regulation D promulgated under the Securities Act and Section 4(2) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed as a part of this registration
statement:
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
**1.1 Proposed Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Specimen Certificate for shares of the Registrant's common stock.
5.1 Opinion of Bingham Dana LLP, counsel to the Registrant, regarding the legality of the shares of common
stock.
10.1 Amended and Restated 1993 Employee Option Plan.
10.2 Amended and Restated 1993 Director Option Plan.
*10.3 Series A Preferred Stock Purchase Agreement, dated as of May 15, 1996, by and among the Registrant and
the other parties thereto.
*10.4 Stock Purchase Agreement, dated as of June 13, 1997, by and among the Registrant and the other parties
thereto.
*10.5 Registration Rights Agreement, dated as of June 13, 1997, by and among the Registrant and the other
parties thereto, including instruments of adherence thereto.
+10.6 Development Agreement, dated as of June 13, 1997, by and between the Registrant and Intel Corporation,
as amended.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*10.7 Warrant to purchase shares of the Registrant's common stock, issued to Intel Corporation, dated June
13, 1997.
*10.8 Warrant to purchase shares of the Registrant's common stock, issued to Intel Corporation, dated as of
January 21, 1998.
*10.9 Waiver and Modification Agreement, dated as of September 23, 1997, by and among the Registrant and the
other parties thereto.
*10.10 Warrant to Purchase shares of the Registrant's common stock issued to General Electric Capital
Corporation, dated as of September 23, 1997.
*10.11 Form of Non-Negotiable Convertible Promissory Notes of the Registrant due October 1, 1998, dated as of
April 15, 1998, issued in the aggregate face amount of $600,000, issued by the Registrant.
*10.12 Securities Purchase Agreement, dated as of April 15, 1998, by and among the Registrant and the other
parties thereto.
*10.13 Warrant Agreement, dated as of April 15, 1998, by and among the Registrant and the other parties
thereto.
*10.14 Registration Rights and Co-Sale Agreement, dated as of April 15, 1998, by and among the Registrant and
the other parties thereto.
*10.15 Form of Senior Discount Subordinated Notes, dated as of April 15, 1998, in an aggregate face amount of
$7,770,000, issued by the Registrant.
*10.16 Stock Purchase Agreement, dated as of September 18, 1998, by and between the Registrant and Nordstrom,
Inc.
*10.17 Registration Rights Agreement, dated as of September 18, 1998, by and among the Registrant and
Nordstrom, Inc.
*10.18 Letter agreement regarding registration rights, dated as of September 18, 1998, by and among the
Registrant and the other parties thereto.
*10.19 Shareholders Agreement, dated as of September 18, 1998, by and among the Registrant, Nordstrom, Inc.
and certain officers of the Registrant.
*10.20 Waiver and Modification Agreement, dated as of September 18, 1998, by and among the Registrant and the
other parties thereto.
*10.21 Warrant Modification Agreement, dated as of September 18, 1998, by and among the Registrant and the
other parties thereto.
*10.22 Letter Agreement, dated March 7, 1997, by and between the Registrant and Elm Square Technologies.
*10.23 Warrant to purchase shares of the Registrant's common stock, issued to Elm Square Technologies, Inc.,
dated as of December 15, 1998.
*10.24 Employment Agreement, dated as of July 1, 1996, by and between the Registrant and Frank F. Britt.
*10.25 Letter Agreement, dated as of April 30, 1997, by and between the Registrant and BrainReserve, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*10.26 Form of Streamline Consumer Learning Center Membership Agreement and Mutual Non-Disclosure Agreement.
*10.27 Letter Agreement, dated as of January 30, 1997, by Welty-Leger Corporation.
*10.28 Agreement and Plan of Merger and Reorganization, dated as of November 2, 1998, by and among the
Registrant and the other parties thereto.
*10.29 Westwood lease, dated as of August 18, 1995, as amended, by and between the Registrant and Mortimer B.
Zuckerman.
10.30 Gaithersburg, Maryland lease, dated as of June 30, 1997, as amended, by and between the Registrant and
Manor Care, Inc.
10.31 Form of Invention and Non-Disclosure Agreement between the Registrant and its executives and key
employees.
10.32 Form of Non-Competition and Non-Solicitation Agreement between the Registrant and its executives and
key employees.
*10.33 Employment Agreement, dated April 9, 1999, by and between the Registrant and Timothy A. DeMello.
*10.34 Letter Agreement, dated as of April 13, 1999, by and between the Registrant and Nordstrom, Inc.
10.35 Warrant to purchase shares of the Registrant's common stock, issued to Nordstrom, Inc., dated as of
April 12, 1999.
10.36 1999 Employee Stock Purchase Plan
+10.37 Agreement, dated as of May 6, 1999, by and between the Registrant and Genco I, Inc.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
23.2 Consent of Bingham Dana LLP, counsel to the Registrant (included in Exhibit 5.1).
*24.1 Power of Attorney (included in signature page to Registration Statement).
27.1 Financial Data Schedule (12/31/98).
27.2 Financial Data Schedule (3/31/99).
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
SCHEDULES
Schedules have been omitted because either they are not required, are not
applicable or the information is otherwise set forth in the Consolidated
Financial Statements and notes thereto.
ITEM 17. UNDERTAKINGS
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 in
II-5
<PAGE>
Item 14 hereof, 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.
The undersigned Registrant hereby undertakes:
(1) To provide the Underwriter at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser.
(2) That 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.
(3) That 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 this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) Upon receipt of a request by any investor or his or her representative,
until such time as the prospectus contained herein is no longer required by law
to be delivered in connection with sales by an Underwriter or dealer, the
Registrant shall transmit or cause to be transmitted promptly, without charge, a
paper copy of such prospectus.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant, Streamline.com, Inc., certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-1 and has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Westwood, Commonwealth of Massachusetts, on this 19th day of May, 1999.
<TABLE>
<S> <C> <C>
STREAMLINE.COM, INC.
By: /s/ TIMOTHY A. DEMELLO
-----------------------------------------
Timothy A. DeMello
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman, President, Chief
/s/ TIMOTHY A. DEMELLO Executive Officer and
- ------------------------------ Director (Principal May 19, 1999
Timothy A. DeMello Executive Officer)
/s/ TERENCE W. TORAN* Chief Financial Officer,
- ------------------------------ (Principal Financial and May 19, 1999
Terence W. Toran Accounting Officer)
/s/ MARK A. COHN*
- ------------------------------ Director May 19, 1999
Mark A. Cohn
/s/ THOMAS A. CROWLEY*
- ------------------------------ Director May 19, 1999
Thomas A. Crowley
/s/ JOHN P. FITZSIMONS*
- ------------------------------ Director May 19, 1999
John P. Fitzsimons
/s/ THOMAS O. JONES*
- ------------------------------ Director May 19, 1999
Thomas O. Jones
/s/ J. DANIEL NORDSTROM*
- ------------------------------ Director May 19, 1999
J. Daniel Nordstrom
/s/ FAITH B. POPCORN*
- ------------------------------ Director May 19, 1999
Faith B. Popcorn
*By: /s/ TIMOTHY A.
DEMELLO
- ------------------------------
Timothy A. DeMello
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
**1.1 Proposed Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Specimen Certificate for shares of the Registrant's common stock.
5.1 Opinion of Bingham Dana LLP, counsel to the Registrant, regarding the legality of the shares of common
stock.
10.1 Amended and Restated 1993 Employee Option Plan.
10.2 Amended and Restated 1993 Director Option Plan.
*10.3 Series A Preferred Stock Purchase Agreement, dated as of May 15, 1996, by and among the Registrant and
the other parties thereto.
*10.4 Stock Purchase Agreement, dated as of June 13, 1997, by and among the Registrant and the other parties
thereto.
*10.5 Registration Rights Agreement, dated as of June 13, 1997, by and among the Registrant and the other
parties thereto, including instruments of adherence thereto.
+10.6 Development Agreement, dated as of June 13, 1997, by and between the Registrant and Intel Corporation,
as amended.
*10.7 Warrant to purchase shares of the Registrant's common stock, issued to Intel Corporation, dated June
13, 1997.
*10.8 Warrant to purchase shares of the Registrant's common stock, issued to Intel Corporation, dated as of
January 21, 1998.
*10.9 Waiver and Modification Agreement, dated as of September 23, 1997, by and among the Registrant and the
other parties thereto.
*10.10 Warrant to Purchase shares of the Registrant's common stock issued to General Electric Capital
Corporation, dated as of September 23, 1997.
*10.11 Form of Non-Negotiable Convertible Promissory Notes of the Registrant due October 1, 1998, dated as of
April 15, 1998, issued in the aggregate face amount of $600,000, issued by the Registrant.
*10.12 Securities Purchase Agreement, dated as of April 15, 1998, by and among the Registrant and the other
parties thereto.
*10.13 Warrant Agreement, dated as of April 15, 1998, by and among the Registrant and the other parties
thereto.
*10.14 Registration Rights and Co-Sale Agreement, dated as of April 15, 1998, by and among the Registrant and
the other parties thereto.
*10.15 Form of Senior Discount Subordinated Notes, dated as of April 15, 1998, in an aggregate face amount of
$7,770,000, issued by the Registrant.
*10.16 Stock Purchase Agreement, dated as of September 18, 1998, by and between the Registrant and Nordstrom,
Inc.
*10.17 Registration Rights Agreement, dated as of September 18, 1998, by and among the Registrant and
Nordstrom, Inc.
*10.18 Letter agreement regarding registration rights, dated as of September 18, 1998, by and among the
Registrant and the other parties thereto.
*10.19 Shareholders Agreement, dated as of September 18, 1998, by and among the Registrant, Nordstrom, Inc.
and certain officers of the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*10.20 Waiver and Modification Agreement, dated as of September 18, 1998, by and among the Registrant and the
other parties thereto.
*10.21 Warrant Modification Agreement, dated as of September 18, 1998, by and among the Registrant and the
other parties thereto.
*10.22 Letter Agreement, dated March 7, 1997, by and between the Registrant and Elm Square Technologies.
*10.23 Warrant to purchase shares of the Registrant's common stock, issued to Elm Square Technologies, Inc.,
dated as of December 15, 1998.
*10.24 Employment Agreement, dated as of July 1, 1996, by and between the Registrant and Frank F. Britt.
*10.25 Letter Agreement, dated as of April 30, 1997, by and between the Registrant and BrainReserve, Inc.
*10.26 Form of Streamline Consumer Learning Center Membership Agreement and Mutual Non-Disclosure Agreement.
*10.27 Letter Agreement, dated as of January 30, 1997, by Welty-Leger Corporation.
*10.28 Agreement and Plan of Merger and Reorganization, dated as of November 2, 1998, by and among the
Registrant and the other parties thereto.
*10.29 Westwood lease, dated as of August 18, 1995, as amended, by and between the Registrant and Mortimer B.
Zuckerman.
10.30 Gaithersburg, Maryland lease, dated as of June 30, 1997, as amended, by and between the Registrant and
Manor Care, Inc.
10.31 Form of Invention and Non-Disclosure Agreement between the Registrant and its executives and key
employees.
10.32 Form of Non-Competition and Non-Solicitation Agreement between the Registrant and its executives and
key employees.
*10.33 Employment Agreement, dated April 9, 1999, by and between the Registrant and Timothy A. DeMello.
*10.34 Letter Agreement, dated as of April 13, 1999, by and between the Registrant and Nordstrom, Inc.
10.35 Warrant to purchase shares of the Registrant's common stock, issued to Nordstrom, Inc., dated as of
April 12, 1999.
10.36 1999 Employee Stock Purchase Plan
+10.37 Agreement, dated as of May 6, 1999, by and between the Registrant and Genco I, Inc.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
23.2 Consent of Bingham Dana LLP, counsel to the Registrant (included in Exhibit 5.1).
*24.1 Power of Attorney (included in signature page to Registration Statement).
27.1 Financial Data Schedule (12/31/98).
27.2 Financial Data Schedule (3/31/99).
</TABLE>
- ------------------------
*Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STREAMLINE.COM, INC.
Incorporated pursuant to a Certificate of Incorporation initially filed
by Skyrock Services Corporation with the Secretary of State
of the State of Delaware on April 16, 1993
------------------------------------------
Streamline.com, Inc., a Delaware corporation, hereby certifies that
this Amended and Restated Certificate of Incorporation has been duly adopted
in accordance with the provisions of Sections 228, 242, and 245 of the
General Corporation Law of the State of Delaware, and notice thereof has been
given in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware:
FIRST. The name of the corporation (the "Corporation") is
Streamline.com, Inc.
SECOND. The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of its registered agent is
The Corporation Trust Corporation.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 46,080,000 shares, consisting
solely of:
45,400,000 shares of common stock, par value $.01 per share ("Common
Stock"); and
680,000 shares of preferred stock, par value $1.00 per share
("Preferred Stock"), of which
100,000 shares of Preferred Stock have been designated as
Series A Convertible Preferred Stock
("Series A Preferred Stock"), formerly known
as Series A Cumulative Convertible Preferred
Stock,
<PAGE>
100,000 shares of Preferred Stock have been designated as
Series B Convertible Preferred Stock
("Series B Preferred Stock");
100,000 shares of Preferred Stock have been designated as
Series C Convertible Preferred Stock ("Series C
Preferred Stock"); and
380,000 shares of Preferred Stock have been designated as
Series D Convertible Preferred Stock ("Series D
Preferred Stock").
Upon filing of this Amended and Restated Certificate of
Incorporation, each share of Common Stock issued and outstanding or held in
treasury immediately prior to such filing shall be combined into and
reclassified as, and shall become, one-half (1/2) of one fully paid and
non-assessable share of Common Stock, rounded down to the nearest whole
number. After giving effect to such combination and reclassification with
respect to the aggregate number of shares of Common Stock held by each
stockholder, any stockholder who (if not for the rounding described in the
immediately preceding sentence) would have held of record a fractional share
of Common Stock shall be entitled in lieu thereof to a cash payment equal to
value of such fractional share, such value to be based upon (i) if such cash
payment is demanded prior to the closing (the "IPO Closing") of the
Corporation's first public offering of shares of Common Stock registered
pursuant to the Securities Act of 1933, as amended (the "IPO"), the fair
market value of a share of Common Stock as determined by the Board of
Directors of the Corporation and (ii) if such cash payment is demanded on or
after the closing of the IPO, the price per share of Common Stock at which
the Corporation first sells shares of Common Stock to the underwriters of the
IPO at the IPO Closing (without accounting for underwriting discounts or
commissions). Until surrendered, the certificates formerly representing the
shares of Common Stock that have been combined and reclassified in accordance
with the foregoing shall cease to represent such combined and reclassified
shares of Common Stock and thereafter shall represent the shares of Common
Stock that they have been combined into and reclassified and the payment of
cash in lieu of any fractional share, all in accordance with the foregoing.
Effective immediately upon the IPO Closing, the total number of
shares of all classes of stock which the Corporation shall have authority to
issue shall be 55,000,000 shares, consisting solely of:
50,000,000 shares of Common Stock; and
5,000,000 shares of preferred stock, par value $.01 per share.
2
<PAGE>
Prior to the IPO Closing, upon the conversion of any share of Preferred
Stock, such share of Preferred Stock shall be canceled and shall not be
authorized thereafter for issuance.
Effective from and after the IPO Closing, shares of preferred stock may
be issued from time to time in one or more series, each of such series to have
such powers, designations, preferences, and relative, participating, optional,
or other special rights, if any, and such qualifications and restrictions, if
any, of such preferences and rights, as are stated or expressed in the
resolution or resolutions of the Board of Directors providing for such series of
preferred stock. Different series of preferred stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly so provided in such resolution or resolutions.
Effective from and after the IPO Closing, authority is hereby granted
to the Board of Directors from time to time to issue the preferred stock in one
or more series, and in connection with the creation of any such series, by
resolution or resolutions to determine and fix the powers, designations,
preferences, and relative, participating, optional, or other special rights, if
any, and the qualifications and restrictions, if any, of such preferences and
rights, including without limitation dividend rights, conversion rights, voting
rights (if any), redemption privileges, and liquidation preferences, of such
series of preferred stock (which need not be uniform among series), all to the
fullest extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolution or
resolutions providing for the creation or issuance of any series of preferred
stock may provide that such series shall be superior to, rank equally with, or
be junior to the preferred stock of any other series, all to the fullest extent
permitted by law. Effective from and after the IPO Closing, no resolution, vote,
or consent of the holders of the capital stock of the Corporation shall be
required in connection with the creation or issuance of any shares of any series
of preferred stock authorized by and complying with the conditions of this
Amended and Restated Certificate of Incorporation, the right to any such
resolution, vote, or consent being expressly waived by all present and future
holders of the capital stock of the Corporation.
Effective from and after the IPO Closing, at such time as no Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock are issued and outstanding, including without limitation because
all of such shares have been redeemed or converted into shares of Common Stock
or the right to receive the Redemption Amount therefor in accordance with this
Amended and Restated Certificate of Incorporation, all authorized shares of each
such class and series of Preferred Stock, automatically and without further
action, shall be reclassified as authorized but unissued shares of undesignated
preferred stock of no particular class or series, and any and all of such shares
3
<PAGE>
may thereafter be issued by the Board of Directors of the Corporation in one or
more series, and the terms of any such series may be determined by the Board of
Directors, as provided herein.
Effective from and after the IPO Closing: Any resolution or resolutions
adopted by the Board of Directors pursuant to the authority vested in them by
this Article Fourth shall be set forth in a certificate of designation along
with the number of shares of stock of such series as to which the resolution or
resolutions shall apply and such certificate shall be executed, acknowledged,
filed, recorded, and shall become effective, in accordance with ss.103 of the
General Corporation Law of the State of Delaware. Unless otherwise provided in
any such resolution or resolutions, the number of shares of stock of any such
series to which such resolution or resolutions apply may be increased (but not
above the total number of authorized shares of the class) or decreased (but not
below the number of shares thereof then outstanding) by a certificate likewise
executed, acknowledged, filed and recorded, setting forth a statement that a
specified increase or decrease therein has been authorized and directed by a
resolution or resolutions likewise adopted by the Board of Directors. In case
the number of such shares shall be decreased, the number of shares so specified
in the certificate shall resume the status which they had prior to the adoption
of the first resolution or resolutions. When no shares of any such class or
series are outstanding, either because none were issued or because none remain
outstanding, a certificate setting forth a resolution or resolutions adopted by
the Board of Directors that none of the authorized shares of such class or
series are outstanding, and that none will be issued subject to the certificate
of designations previously filed with respect to such class or series, may be
executed, acknowledged, filed and recorded in the same manner as previously
described and it shall have the effect of eliminating from the certificate of
incorporation all matters set forth in the certificate of designations with
respect to such class or series of stock. If no shares of any such class or
series established by a resolution or resolutions adopted by the Board of
Directors have been issued, the voting powers, designations, preferences and
relative, participating, optional or other rights, if any, with the
qualifications, limitations or restrictions thereof, may be amended by a
resolution or resolutions adopted by the Board of Directors. In the even of any
such amendment, a certificate which (i) states that no shares of such class or
series have been issued, (ii) sets forth the copy of the amending resolution or
resolutions and (iii) if the designation of such class or series is being
changed, indicates the original designation and the new designation, shall be
executed, acknowledged, filed, recorded, and shall become effective, in
accordance with ss.103 of the General Corporation Law of the State of Delaware.
The following is a statement of the powers, designations, preferences,
privileges, and relative rights in respect of each class of capital stock of the
Corporation.
4
<PAGE>
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the
holders of Common Stock are subject to and qualified by the rights of the
holders of Preferred Stock.
2. VOTING. The holders of Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor if, as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then
outstanding shares of Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding shares
of Preferred Stock.
B. PREFERRED STOCK.
1. DEFINITIONS. The following terms shall have the respective
meanings provided therefor below:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares (including
treasury shares) of Common Stock issued (or, pursuant to Section B.3.3.3 or
B.3.3.4, deemed to be issued) by the Corporation after the Series D Preferred
Stock Purchase Date, whether or not subsequently reacquired or retired by the
Corporation, other than shares of Common Stock issued or issuable:
(i) (A) with respect to the Series A Preferred Stock, to
employees, officers and directors of, and consultants to the Corporation,
pursuant to stock option plans or stock purchase plans of the Corporation prior
to February 8, 1996, in an amount not to exceed 750,000 shares of Common Stock;
(B) with respect to the Series B Preferred Stock and the
Series C Preferred Stock, to employees, officers and directors of, and
consultants to the Corporation, pursuant to arrangements approved by the
Corporation's Board of Directors, in an amount not to exceed fifteen percent
(15%), in the aggregate, of the number of shares of the Corporation's capital
stock, on a Fully-Diluted Basis, as of the Series D Preferred Stock Purchase
Date;
5
<PAGE>
(C) with respect the Series D Preferred Stock to
employees, officers and directors of, and consultants to the Corporation,
pursuant to arrangements approved by the Corporation's Board of Directors, in an
amount not to exceed ten percent (10%), in the aggregate, of the number of
shares of the Corporation's capital stock, on a Fully-Diluted Basis, as of the
Series D Preferred Stock Purchase Date;
(ii) (A) with respect to the Series A Preferred Stock,
upon exercise of warrants outstanding immediately prior to the Series D
Preferred Stock Purchase Date to purchase an aggregate of 330,714 shares of
Common Stock;
(B) with respect to the Series B Preferred Stock and
the Series C Preferred Stock, upon exercise of warrants outstanding immediately
prior to the Series D Purchase Date to purchase an aggregate of 1,477,428 shares
of Common Stock;
(iii) upon the conversion of shares of Series D Preferred
Stock outstanding from time to time;
(iv) pursuant to that certain Warrant Modification Agreement,
dated on or about the Series D Preferred Stock Purchase Date, (the "Warrant
Modification Agreement") relating to the issuance of up to an aggregate of
10,000 shares of Common Stock to holders of warrants to purchase shares of
Common Stock issued or subject to issuances by the Corporation on 12% Senior
Discount Notes, Due 2001, of the Corporation, on or about April 15, 1998, in
consideration of the modification thereof;
(v) by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock that is covered by Section B.3.3 below.
"CONVERSION PRICE" shall mean, initially, (i) with respect to the
Series A Preferred Stock, $1.01843, (ii) with respect to the Series B Preferred
Stock and the Series C Preferred Stock $ 3.50 and with respect to the Series D
Preferred Stock, $2.00.
"CONVERSION TRIGGER DATE" shall mean the date which is the earliest of
(i) the date on which occurs any transaction which shall be
deemed a Liquidation pursuant to the last paragraph of Section B.4.1(d) hereof;
(ii) the date on which Timothy A. DeMello is no longer an
employee, director or consultant of the Corporation,
(iii) the date on which occurs any material adverse change in
the financial condition or business of the Corporation,
6
<PAGE>
(iv) the date on which persons serving as directors of the
Corporation as of the date immediately following the Series D Purchase Date
cease to constitute a majority of the Board of Directors of the Corporation, or
(v) the date on which a Disapproval Event occurs.
"CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness,
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Common Stock, but not including
Options.
"CURRENT MARKET PRICE" shall mean, with respect to any one share of
Common Stock on any given date, as follows:
(i) If the Common Stock is listed or admitted for trading on a
national securities exchange or the Nasdaq Stock Market, then the closing price
for each day shall be the last reported sales price regular way or, in case no
such reported sales took place on such day, the average of the last reported bid
and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or on the Nasdaq Stock Market, as the case may be.
(ii) If the Common Stock is not listed or admitted for trading
on a national securities exchange or the NASDAQ Stock Market and is not listed
or admitted for trading on a national securities exchange or the Nasdaq Stock
Market and is not at the time listed or admitted for trading on any such
national securities exchange or on the Nasdaq Stock Market, then such price as
shall be equal to the last reported sale price, or if there is no such sale
price, the average of the last reported bid and asked prices, as reported by the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
on such day.
(iii) If the Common Stock is not listed or admitted for
trading on a national securities exchange or The Nasdaq Stock Market and is not
at the time quoted on NASDAQ, then such price shall be equal to the last
reported bid and asked prices on such day as reported by the National Quotation
Bureau, Inc., or any similar reputable quotation and reporting service, if such
quotation is not reported by the National Quotation Bureau, Inc.
(iv) If the Common Stock is not traded in such manner that the
quotations referred to above are available for the period required hereunder,
then the Current Market Price shall be the fair market value of such share, as
determined in good faith by a majority of the entire Board of Directors.
7
<PAGE>
"DESIGNATED PREFERRED STOCK" shall mean the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock.
"FULLY-DILUTED BASIS" gives effect, without duplication, to (i) all
shares of Common Stock outstanding at the time of determination plus (ii) all
shares of Common Stock issuable upon conversion of then outstanding shares of
Designated Preferred Stock or any other Convertible Securities or the exercise
of any Option (whether or not then exercisable), as if such Designated Preferred
Stock or other Convertible Securities had been so converted or such Option had
been so exercised.
"JUNIOR PREFERRED STOCK" shall mean the Series A Preferred Stock, the
Series B Preferred Stock, and the Series C Preferred Stock.
"LIQUIDATION AMOUNT" shall mean $100.00 in the case of each of the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock.
"OPTIONS" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire Common Stock or Convertible Securities.
"OTHER STOCK" shall mean any shares of any class or series of capital
stock of the Corporation other than Designated Preferred Stock, including,
without limitation, the Common Stock.
"PURCHASE DATE" shall mean (i) in the case of the Series A Preferred
Stock, May 15, 1996, (ii) in the case of the Series B Preferred Stock, June 13,
1997, (iii) in the case of the Series C Preferred Stock, June 13, 1997 and (iv)
in the case of the Series D Preferred Stock the date on which a share of Series
D Preferred Stock was first issued.
"REDEMPTION AMOUNT" shall mean $100.00 in the case of each of the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock and the Series D Preferred Stock.
2. DIVIDENDS. (a) The holders of shares of Series D Preferred
Stock shall be entitled to receive dividends on each outstanding share of Series
D Preferred Stock which shall accrue cumulatively on a daily basis at a rate
equal to 5% per annum of the Series D Liquidation Preference (as defined in
Section B.4.1(a) hereof). Such dividends shall be payable on the last day of
each fiscal year, or if any such day is not a business day, then on the next
succeeding business day; and if not so paid, shall automatically be added to the
Series D Liquidation Preference on the first business day after the date on
which such dividends are payable (and, in any event, any such dividends accrued
but not yet payable in respect of any share of Series D Preferred Stock shall be
added to the Series D Liquidation Preference of such share immediately before
any payment of such Series D Liquidation
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Preference) and thereafter shall be part thereof until paid in full. The
Corporation from time to time shall duly and promptly take any such action,
including without limitation to effect any upward revaluation of the assets and
properties of the Corporation that may lawfully be effected so as to eliminate
or reduce any legal constraint on the payment of dividends and other
distributions.
(ii) Dividends on each share of Series D Preferred Stock shall
accrue from and including the date of issuance thereof by the Corporation to and
including the date on which the Series D Liquidation Preference of such share is
paid in full (in accordance with Section B.2(a)(v) hereof), regardless of
whether there are profits, surplus, or the funds of the Corporation legally
available for the payment of dividends.
(iii) Notwithstanding the foregoing or any other provision
hereof, no dividends shall be paid to the extent that such payment would violate
the terms of any credit agreement or instrument to which the Corporation from
time to time may be a party and that was duly approved by the Corporation's
board of directors; PROVIDED, that to the extent that any dividend payment is
not made as otherwise required hereunder because of the limitation set forth in
this Section B.2(a)(iii), such dividend payment shall be made as promptly as is
practicable following the earliest time at which such dividend payment would no
longer violate this limitation.
(iv) If at any time the Corporation pays less than the total
amount of dividends then accrued in respect of all of the outstanding shares of
Series D Preferred Stock, pursuant to this Section B.2(a), such payment shall be
distributed ratably among the holders of such shares in proportion to the
respective aggregate amounts of accrued but unpaid dividends on their shares of
Series D Preferred Stock and any amount of such accrued dividends remaining
unpaid shall be declared and paid as soon as possible thereafter.
(v) All dividends payable on the Series D Preferred Stock
pursuant to this Section B.2(a) shall be paid, at the option of the Corporation,
(A) in cash in immediately available funds, (B) by accruing such dividend
amounts and adding such dividend amounts to the Series D Liquidation Preference
(as defined in Section B.4.1(a) hereof), (C) by the issuance of shares (each a
"PIK Share") of Series D Preferred Stock (for such purpose, each share being
deemed to have a value equal to the Series D Liquidation Preference then
applicable to a share of Series D Preferred Stock without including in such
amount the value of the dividend then being paid), or (D) a combination of the
foregoing; PROVIDED that, in connection with the payment of dividends at any
time, each payment of dividends with respect to each share of Series D Preferred
Stock shall be made in the same form (or combination of forms) of consideration.
Each PIK Share, when issued in accordance with this Section B.2(v), shall
thereupon be duly authorized, validly issued, fully paid and nonassessable.
Dividends with respect to each PIK Share shall accrue at the rates
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and be due and payable on the dates and in accordance with other terms set forth
in this Section B.2.
(vi) No dividends or other distributions may be declared,
paid, or set aside in respect of shares of Junior Preferred Stock or Common
Stock unless the Corporation shall first pay, or simultaneously therewith
declare and set aside a sum sufficient for the payment of all of the accrued and
unpaid dividends owing with respect to each of the then outstanding shares of
Series D Preferred Stock.
(b) Subject to the limitations of Section B.2(a)
(vi) herein, the holders of shares of Designated Preferred Stock shall be
entitled to receive, on a PARI PASSU basis, dividends and distributions (whether
in cash, property or securities of the Corporation, including subscription or
other rights to acquire securities of the Corporation) with respect to any
shares of such series of Designated Preferred Stock held by them, only if, when
and as declared by the Board of Directors out of funds legally available for
that purpose. Whenever any dividend or distribution (whether in cash, property
or securities of the Corporation, including subscription or other rights to
acquire securities of the Corporation) is declared or paid on any shares of any
given series of Designated Preferred Stock, the Board of Directors of the
Corporation shall also declare and pay a dividend or distribution, as the case
may be, on the same terms, at the same or equivalent rate (calculated as
provided in Section B.2(c) below) and in like kind upon (i) each other share
then outstanding of such series of Designated Preferred Stock and (ii) each
share then outstanding of all other series of Designated Preferred Stock, so
that all outstanding shares of Designated Preferred Stock participate in such
dividend ratably (after giving effect to the provisions of Section B.2(c)
below). Whenever any dividend or distribution (whether in cash, property or
securities of the Corporation, including subscription or other rights to acquire
securities of the Corporation) is declared or paid on any shares of Other Stock,
the Board of Directors of the Corporation shall also declare and pay a dividend
or distribution, as the case may be, on the same terms, at the same or
equivalent rate (calculated as provided in Section B.2(c) below) and in like
kind upon each share then outstanding of Designated Preferred Stock, so that all
outstanding shares of Designated Preferred Stock participate in such dividend
ratably (after giving effect to the provisions of Section B.2(c) below) with
such shares of Other Stock.
(c) For purposes of Section B.2(b) above, the amount
of any dividend or distribution (whether in cash, property or securities of the
Corporation, including subscription or other rights to acquire securities of the
Corporation) payable with respect to each outstanding share of Designated
Preferred Stock shall be determined ratably based on (i) the number of shares of
Common Stock into which such share of Designated Preferred Stock is then
convertible, (ii) the number of shares of Common Stock into which each other
outstanding share of Designated Preferred Stock is then convertible, (iii) if
and to the extent applicable for purposes of Section B.2(b), the number of
shares of Common Stock issuable upon conversion
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of each outstanding share of Other Stock (other than Common Stock) with respect
to which a dividend or distribution (whether in cash, property or securities of
the Corporation, including subscription or other rights to acquire securities of
the Corporation) is declared or paid, and (iv) if and to the extent applicable
for purposes of Section B.2(b), the number of shares of Common Stock with
respect to which a dividend or distribution (whether in cash, property or
securities of the Corporation, including subscription or other rights to acquire
securities of the Corporation) is declared or paid; PROVIDED, HOWEVER, that,
notwithstanding the foregoing provisions of this Section B.2(c), if a dividend
or distribution (whether in cash, property or securities of the Corporation,
including subscription or other rights to acquire securities of the Corporation)
is to be paid on any shares of Other Stock (other than Common Stock) and such
shares of Other Stock are not convertible into Common Stock, then the amount of
any dividend or distribution payable with respect to each outstanding share of
Designated Preferred Stock shall be determined ratably based on the original
issuance price per share (subject to appropriate and equitable adjustment upon
any stock split, stock dividend, other subdivision, combination, reverse stock
split and other similar events) of each outstanding share of Designated
Preferred Stock and of each outstanding share of Other Stock with respect to
which a dividend or distribution is then being declared or paid.
(d) No fractional shares of capital stock shall be
issued as a dividend or distribution pursuant to the provisions of Section
B.2(a) or Section B.2(b) hereof. In the event that any dividend or distribution
pursuant to Section B.2(a) or Section B.2(b) hereof is in the form of capital
stock and in the event that such dividend or distribution would, but for the
provisions of this Section B.2(d), result in the payment of a fractional share
of capital stock to any holder of Designated Preferred Stock, the Corporation
shall reduce the amount of such dividend or distribution payable to such holder
by rounding down to the nearest whole number of shares.
3. CONVERSION RIGHTS.
3.1 GENERAL; CONVERSION PRICE. (a) At any time or from time to
time prior to the close of business on the Conversion Termination Date (as
hereinafter defined), each holder of any share of Designated Preferred Stock
may, without the payment of additional consideration by such holder, convert any
or all of its shares of Designated Preferred Stock into fully paid and
nonassessable shares of Common Stock pursuant to, and in accordance with, the
provisions of this Section B.3, PROVIDED HOWEVER, no holder of any share of
Series D Preferred Stock may convert any or all of its shares of Designated
Preferred Stock into shares of Common Stock prior to the date which is the
earlier of (i) the date which is 18 months after the Series D Preferred Stock
Purchase Date, or (ii) the Conversion Trigger Date. The number of fully paid and
nonassessable shares of Common Stock into which each share of any series of
Designated Preferred Stock shall convert pursuant to this Section B.3, shall be
equal to the quotient obtained by dividing 100 by the
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Conversion Price, as last adjusted and then in effect pursuant to Section B.3.3
hereof (if applicable), of such share's series of Designated Preferred Stock,
rounded down to the nearest whole share; PROVIDED, HOWEVER, that cash shall be
paid in lieu of the issuance of fractional shares of Common Stock, as provided
in Section B.3.1 hereof. Subject to Section B.3.2(d) the "Conversion Termination
Date" with respect to a given share of any series of Designated Preferred Stock
means the close of business on the date fixed for redemption (pursuant to any
provision of Section B.5), unless the Corporation shall default in the payment
of the redemption price therefor, in which case the Conversion Termination Date
shall not occur until such redemption price has been paid in full.
(b) Each holder of any share of Designated Preferred
Stock who exercises the right to convert any of such shares into shares of
Common Stock pursuant to this Section B.3, shall be entitled to payment of all
declared but unpaid dividends payable up to and including the applicable
Conversion Date (as defined in Section B.2.1(c) hereof) with respect to such
shares of Designated Preferred Stock then being converted.
(c) Any holder of outstanding shares of Designated
Preferred Stock may exercise the right to convert any or all of its shares of
Designated Preferred Stock into Common Stock pursuant to this Section B.2 by
delivering to the Corporation during regular business hours, at the office of
the Corporation or any transfer agent of the Corporation or at such other place
as may be designated by the Corporation, the certificate or certificates for the
shares to be converted (each a "Preferred Stock Certificate"), duly endorsed or
assigned in blank to the Corporation (if required by it), accompanied by written
notice stating the number of shares represented by such Preferred Stock
Certificate or Preferred Stock Certificates that such holder elects to convert
and stating the name or names (with addresses) in which the certificate or
certificates for the shares of Common Stock are to be issued. Such conversion
shall be deemed to have been effected on the date when such delivery is made,
and such date is referred to herein, in each instance, as the "Conversion Date."
As promptly as practicable thereafter, the Corporation shall issue and deliver
to or upon the written order of such holder, at the place designated by such
holder, (i) a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled, (ii) a check or cash in respect
of any fractional interest in any share of Common Stock, as provided in Section
B.3.1(e) hereof, issuable with respect to the shares of Designated Preferred
Stock so converted and (iii) a check or cash in payment of all dividends
declared but unpaid up to and including the applicable Conversion Date, if any,
with respect to the shares of Designated Preferred Stock so converted. The
person in whose name the certificate or certificates for Common Stock are to be
issued shall be deemed to have become a holder of record of Common Stock on the
applicable Conversion Date, unless the transfer books of the Corporation are
closed on such Conversion Date, in which event the holder shall be deemed to
have become the stockholder of record on the next succeeding date on which the
transfer books are open, PROVIDED that the
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Conversion Price with respect to the shares of any given series of Designated
Preferred Stock converted shall be that in effect on the applicable Conversion
Date. Upon conversion of only a portion of the number of shares covered by a
Preferred Stock Certificate surrendered for conversion, the Corporation shall
issue and deliver to or upon the written order of the holder of such Preferred
Stock Certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of the Designated
Preferred Stock representing the unconverted number of shares of Designated
Preferred Stock represented by such Preferred Stock Certificate, which new
certificate shall entitle the holder thereof to all the rights, powers and
privileges of a holder of such shares.
(d) If a holder of shares of any series of Designated
Preferred Stock shall surrender more than one share of such series of Designated
Preferred Stock for conversion at any one time, then 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 such series of Designated Preferred Stock
so surrendered.
(e) No fractional shares of Common Stock shall be
issued upon conversion of shares of Designated Preferred Stock. The Corporation
shall pay a cash adjustment for any such fractional interest in an amount equal
to the Current Market Price thereof on the applicable Conversion Date, as
determined in accordance with Section B.3.3.8 hereof. Fractional interests shall
not be entitled to dividends, and the holders of fractional interests shall not
be entitled to any rights as stockholders of the Corporation in respect of such
fractional interest.
3.2 COVENANTS. (a) The Corporation will at all times reserve
and keep available out of its authorized but unissued shares of Common Stock or
its shares of Common Stock in its treasury, or otherwise, solely for issuance
upon the conversion of Designated Preferred Stock as provided in this Section
B.3, such number of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of each series of Designated Preferred
Stock. The Corporation covenants that all shares of Common Stock which shall be
so issuable shall, when issued, be duly and validly issued and fully paid and
nonassessable.
(b) The Corporation will not take any action which
results in any adjustment of the number of shares of Common Stock acquirable
upon conversion of shares of Designated Preferred Stock then outstanding if the
total number of shares of Common Stock issuable after such action upon
conversion of the shares of Designated Preferred Stock then outstanding,
together with the total number of shares of Common Stock, Options and
Convertible Securities then outstanding, would exceed the total number of shares
of Common Stock then authorized under this Article FOURTH of the Corporation's
Certificate of Incorporation, as amended.
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(c) The Corporation will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Common Stock acquirable upon any conversion of shares of Designated
Preferred Stock is at all times equal to or less than the Conversion Price then
in effect.
(d) If any shares of Common Stock required to be
reserved for purposes of issuance upon conversion of any shares of Designated
Preferred Stock hereunder require, as a result of any change in law or
regulation after any applicable Purchase Date, registration with or approval of
any governmental authority under any federal or state law (other than any
registration under the Securities Act of 1933, as then in effect, or any similar
federal statute then in force, or any state securities law, required by reason
of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Corporation will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved for listing or
listed on such domestic securities exchange, as the case may be. In no event
shall the Conversion Termination Date occur until at least 10 business days
after the Corporation has notified the holder or holders of shares of each
series Designated Preferred Stock that all actions required under this Section
B.3.2(d) have been completed; PROVIDED that, such notice may be included in any
call for redemption in the event no further actions are required under this
Section B.3.2(d).
(e) The issuance of certificates for shares of Common
Stock upon conversion of shares of Designated Preferred Stock shall be made
without charge to the holders of such shares for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Common Stock; PROVIDED, that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the holder of the converted shares of Designated
Preferred Stock.
(f) The Corporation will not close its books
against the transfer of any shares of any series of Designated Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion
in any manner which interferes with the timely conversion of such shares.
3.3. ADJUSTMENT OF CONVERSION PRICE.
3.3.1 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
In case the Corporation at any time or from time to time after any applicable
Purchase Date shall issue or sell Additional Shares of Common Stock (including
Additional Shares deemed to be issued pursuant to Section B.3.3.3 or B.3.3.4)
without consideration or for consideration per share less than the applicable
Conversion Price in effect immediately prior to such issue, then and in such
event, such
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Conversion Price shall be reduced, concurrently with such issue or sale, to a
price (calculated to the nearest cent) determined by multiplying such Conversion
Price by a fraction of which:
(a) the numerator shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issue or sale,
(ii) the number of options and warrants set forth under clauses (i) and (ii) of
the definition of "Additional Shares of Common Stock" under clause (a) of
Section B.1 hereof and (iii) the number of shares of Common Stock which the
aggregate consideration received or to be received by the Corporation for the
total number of Additional Shares of Common Stock so issued or sold would
purchase at such Conversion Price; and
(b) the denominator shall be the sum of (i) the
number of shares of Common Stock outstanding immediately prior to such issue,
(ii) the number of options and warrants set forth under clauses (i) and (ii) of
the definition of "Additional Shares of Common Stock" under clause (a) of
Section B.1 hereof and (iii) the number of such Additional Shares of Common
Stock so issued;
PROVIDED, that, for the purpose of this Section B.3.3.1, (x) immediately after
any Additional Shares of Common Stock are deemed to have been issued pursuant to
Section B.3.3.3 or B.3.3.4, such Additional Shares shall be deemed to be
outstanding and (y) treasury shares shall not be deemed to be outstanding.
3.3.2 EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. (a)
In case the Corporation at any time or from time to time after any applicable
Purchase Date shall pay or make, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, the Conversion Price in effect at
the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying the Conversion Price by a fraction
of which the numerator shall be the total number of shares of Common Stock
issued and outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or distribution, such
reduction to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the purposes of this
Section B.3.3.2(a), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Corporation but shall
include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. Such adjustment shall be made successively
whenever any event specified above shall occur. The Corporation will not pay any
dividend or make any distribution on shares of Common Stock held in the treasury
of the Corporation.
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(b) In case the Corporation at any time or from time
to time after any applicable Purchase Date shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Corporation other
than shares of Common Stock, the holders of then outstanding shares of each
series of Designated Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that such holders would have received
had such shares of Designated Preferred Stock been converted into Common Stock
on the date of such event and had they thereafter, during the period from the
date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
paragraph with respect to the respective rights of the holders of each series of
Designated Preferred Stock.
3.3.3 TREATMENT OF OPTIONS AND CONVERTIBLE
SECURITIES. If the Corporation at any time or from time to time after any
applicable Purchase Date shall issue, sell, grant or assume, or shall fix a
record date for the determination of holders of any class of securities entitled
to receive, any Options or Convertible Securities, then, and in each such case,
the maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the close
of business on such record date; PROVIDED, that Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section B.3.3.6 hereof) of such Additional Shares of
Common Stock would be less than the applicable Conversion Price in effect on the
date of and immediately prior to such issue, sale, grant or assumption or
immediately prior to the close of business on such record date, as the case may
be; and PROVIDED, FURTHER, that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(a) No further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(b) If such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue, sale, grant or
assumption thereof (or upon the
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occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed as to such Options or Convertible Securities
outstanding at the time of such increase or decrease as if such increase or
decrease had been in effect at the time such Options or Convertible Securities
were initially issued, sold, granted or assumed (or upon the occurrence of the
record date with respect thereto);
(c) Upon the expiration of any such Options or any
rights of conversion or exchange under any Convertible Securities which shall
not have been exercised (or upon purchase by the Corporation and cancellation or
retirement of any such Options or such Convertible Securities which shall not
have been exercised), the Conversion Price computed upon the original issue,
sale, grant or assumption thereof (or upon the occurrence of the record date
with respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration (or such cancellation or retirement, as the case may be) be
recomputed as if:
(i) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued or
sold were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue, sale, grant or assumption of
all such Options, whether or not exercised, plus the consideration actually
received by the Corporation upon such exercise, or for the issue or sale of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued or sold
upon the exercise thereof were issued at the time of the issue, sale, grant or
assumption of such Options, and the consideration received by the Corporation
for the Additional Shares of Common Stock deemed to have then been issued was
the consideration actually received by the Corporation for the issue, sale,
grant or assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation (pursuant to
Section B.3.3.6) upon the issue or sale of the Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to clause (b) or (c)
above shall have the effect of increasing the Conversion Price by an amount in
excess of the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities; and
(e) in the case of any Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Conversion Price shall be made until the
expiration or exercise of
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all such Options, whereupon such adjustment shall be made in the manner provided
in clause (c) above.
3.3.4 TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS,
ETC. In case the Corporation at any time or from time to time after any
applicable Purchase Date shall declare or pay any dividend on the Common Stock
payable in Common Stock, or shall effect a subdivision of the outstanding shares
of Common Stock into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
then, and in each such case, Additional Shares of Common Stock shall deemed to
have been issued (a) in the case of any such dividend, immediately after the
close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend or (b) in the case of any
such subdivision, at the close of business on the day immediately prior to the
day upon which such corporate action becomes effective.
3.3.5 ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF
ASSETS, REORGANIZATION, ETC. In case the Corporation, after any applicable
Purchase Date, (a) shall consolidate with or merge into any other person and
shall not be the continuing or surviving corporation of such consolidation or
merger, or (b) shall permit any other person to consolidate with or merge into
the Corporation and the Corporation shall be the continuing or surviving person
but, in connection with such consolidation or merger, the Common Stock shall be
changed into or exchanged for stock or other securities of any other person or
cash or any other property, or (c) shall transfer all or substantially all of
the assets or property of the Corporation to any other person, or (d) shall
effect a capital reorganization or reclassification of the Common Stock (other
than a capital reorganization or reclassification resulting in the issue of
Additional Shares of Common Stock for which adjustment in the Conversion Price
is provided in Section B.3.3.1 or B.3.3.2), then, and in each such case, proper
provision shall be made so that, upon the basis and the terms and in the manner
provided in this Section B.3, each holder of shares of any series of Designated
Preferred Stock, upon the conversion thereof at any time after the consummation
of such consolidation, merger, transfer, reorganization or reclassification,
shall be entitled to receive (at the Conversion Price in effect at the time of
such consummation) the kind and amount of shares of stock and other securities,
cash and property receivable upon such consolidation, merger, transfer,
reorganization or reclassification by a holder of the number of shares of Common
Stock into which such shares of Designated Preferred Stock so converted might
have been converted immediately prior to such consolidation, merger, transfer,
reorganization or reclassification, subject to adjustments, which, for events
subsequent to the effective date of such consolidation, merger, transfer,
reorganization or reclassification, shall be as nearly equivalent as possible to
the adjustments provided for in Section B.3. The above provisions of this
Section B.3.3.5 shall similarly apply to successive consolidations, mergers,
transfers, reorganizations or reclassifications.
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3.3.6 COMPUTATION OF CONSIDERATION. (a) For purposes
of this Section B.3, the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall, irrespective of the accounting
treatment of such consideration, be computed as follows:
(i) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation, excluding
amounts paid or payable (A) for accrued interest, (B) for accrued but unpaid
dividends or (C) relating to any commissions or compensations paid or
concessions or discounts allowed to underwriters, dealers or others performing
similar services in connection with such issue or sale;
(ii) insofar as it consists of property
(including securities and services rendered) other than cash, be computed at the
fair market value thereof at the time of such issue or sale, as determined in
good faith by the Board of Directors; PROVIDED, that no value shall be ascribed
to any goodwill associated with the acquisition of assets or business; and
(iii) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other assets
of the Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (i) and (ii)
above, allocable to such Additional Shares of Common Stock, all as determined in
good faith by the Board of Directors.
(b) The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to Section B.3.3.3, relating to Options and Convertible Securities,
shall be determined by dividing:
(i) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration to protect against dilution) payable to the Corporation upon the
exercise of such options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise
of such options for Convertible Securities and the conversion or exchange of
such Convertible Securities, in each case computing such consideration as
provided in the foregoing subparagraph (a),
by:
(ii) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision
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contained therein for a subsequent adjustment of such number to protect against
dilution) issuable upon the exercise of such options or the conversion or
exchange of such Convertible Securities.
(c) Additional Shares of Common Stock deemed to have
been issued pursuant to Section B.3.3.4, relating to stock dividends, stock
splits, etc., shall be deemed to have been issued for no consideration.
3.3.7 DISCRETIONARY ADJUSTMENTS. The Corporation may
make such reduction in the Conversion Price, in addition to those required by
this Section B.3, as it considers to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
shall not be taxable to the recipients. In case any event shall occur as to
which the provisions of Section B.3 are not strictly applicable but the failure
to make any adjustment would not fairly protect the conversion rights of the
holders of shares of any series of Designated Preferred Stock in accordance with
the essential intent and principles of this Section B.3, then, in each such
case, the Board of Directors of the Corporation shall by resolution give their
opinion upon the adjustment, if any, on a basis consistent with the essential
intent and principles established in this Section B.3, necessary to preserve,
without dilution, the conversion rights represented herein. The Corporation will
promptly make the adjustments described therein.
3.3.8 MINIMUM ADJUSTMENT OF CONVERSION PRICE. No
adjustment in the Conversion Price pursuant to this Section 3 shall be required
unless such adjustment would require an increase or decrease of at least 1% in
such price; PROVIDED, however, that any adjustments which by reason of this
Section B.3.3.8 are not required to be made shall be carried forward and
adjustment with respect thereto shall be made at the time of and together with
any subsequent adjustment which, together with such amount and any other amount
or amounts so carried forward, shall aggregate at least 1% of such Conversion
Price. All calculations under this Section B.3 shall be made to the nearest cent
or to the nearest one-hundredth of a share, as the case may be.
3.3.9 NOTICES OF ADJUSTMENT. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this Section
B.3:
(a) the Corporation at its sole expense shall
promptly compute the adjusted Conversion Price or other adjustment in accordance
with the terms hereof and shall prepare a report, which shall be certified by an
officer of the Corporation, setting forth the adjusted Conversion Price or other
adjustment and showing in reasonable detail the facts upon which all such
adjustments are based, and copies of such report shall forthwith be delivered to
the duly appointed transfer agent then acting as such with respect to each
series of Designated Preferred Stock, and shall be kept at the office of such
transfer agent, or, if there is no such transfer agent then acting as such, at
the Corporation's principal office, and the Corporation
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shall cause the same to be sent to each holder of then outstanding shares of
each series of Designated Preferred Stock and to be available for inspection at
such office during normal business hours by any holder of shares of any series
of Designated Preferred Stock or any prospective holder of shares of any series
of Designated Preferred Stock designated by any holder thereof; and
(b) a notice setting forth such adjusted Conversion
Price or a description of such other adjustment shall forthwith be required, and
as soon as practicable after it is required, such notice shall be mailed by the
Corporation to the holders of record of shares of each series of Designated
Preferred Stock, at their last addresses as they shall appear upon the books of
the Corporation; PROVIDED, however, that if within 10 days after the completion
of mailing of such a notice an additional notice is required, such additional
notice shall be deemed to be required pursuant to this clause (b) as of the
opening of business on the tenth day after such completion of mailing and shall
set forth the adjustment as at such opening of business and, upon the completion
of mailing of such additional notice, no other notice need be given of any such
adjustments occurring at or prior to such opening of business and after the time
that the next preceding notice given by mail became required.
3.4 NOTICES OF ACTIONS. In the event:
(a) that the Corporation declares a dividend (or any
other distribution) payable otherwise than in cash out of its earned surplus; or
(b) the Corporation shall authorize the granting to
holders of Common Stock of rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(c) of any reclassification of the Common Stock of
the Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution thereon), or of
any consolidation or merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of the Corporation; or
(d) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
the Corporation shall as promptly as practicable cause to be filed at its
principal office or at the office of the transfer agent, if any, of each series
of Designated Preferred Stock and cause to be mailed to the holders of
outstanding shares of each series of Preferred Stock at their last addresses as
shown on the records of the Corporation or such transfer agent, at least 30 days
prior (or 20 days in any case specified in clause (a) or (b) above) prior to the
record date hereinafter specified, a notice stating:
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(i) the record date of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, rights or warrants are to be determined; or
(ii) the date on which such
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, dissolution or winding up.
3.5 MANDATORY CONVERSION OF JUNIOR PREFERRED STOCK. (a) Upon
the closing of the first sale of shares of Common Stock, at a price of at least
$4.00 per share, (subject to appropriate adjustments for stock splits, stock
dividends, combinations and other similar recapitalizations affecting such
shares), underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, resulting in at least
$25,000,000 of gross to the Corporation (the "Mandatory Conversion Date"), (i)
all outstanding shares of Junior Preferred Stock shall automatically be
converted into shares of Common Stock in accordance with the provisions of
Section B.3.1 hereof and (ii) the number of shares of Preferred Stock that had
been designated as each applicable series of Junior Preferred Stock, and all
provisions included under the caption "Preferred Stock", and all references to
each such series of Junior Preferred Stock, shall be deleted and shall be of no
further force or effect.
(b) All holders of record of shares of each series of
Junior Preferred Stock shall be given at least five business days' written
notice of the Mandatory Conversion Date and the place designated for mandatory
conversion of all such shares of Junior Preferred Stock pursuant to this Section
B.3.5. Such notice shall be sent by (i) overnight delivery by a nationally
recognized courier service, in the case of any holder of at least 5% of the then
outstanding shares of each series of Junior Preferred Stock or (ii) first class
or registered mail, postage prepaid, to each other record holder of shares of
each series of Junior Preferred Stock at such holder's address last shown on the
records of the transfer agent for such series of Junior Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of each series of Junior Preferred
Stock shall surrender his or its certificate or certificates for all such shares
to the Corporation (or a statement of lost certificate(s) together with an
agreement of indemnification by such holder) at the place designated in such
notice, and shall thereafter receive certificates for the number of shares of
Common Stock to which such holder is entitled pursuant to this Section B.3.5. On
the Mandatory Conversion Date, all rights with respect to each series of Junior
Preferred Stock so converted, including the rights, if any, to receive notices
and vote
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(other than as a holder of Common Stock) will terminate, except only the rights
of the holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such shares of each such series of Junior Preferred Stock have been
converted, and the right to payment of any accrued but unpaid dividends thereon.
As soon as practicable after the Mandatory Conversion Date and the surrender of
the certificate or certificates for Junior Preferred Stock, the Corporation
shall cause to be issued and delivered to such holder, or on his or its written
order, a certificate or certificates for the number of full shares of Common
Stock issuable on such conversion in accordance with the provisions hereof and
cash as provided in Section B.3.1(e) in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of each series
of Junior Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and canceled and the shares of
Junior Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the number of authorized shares of each
such series of Junior Preferred Stock accordingly.
3.6 MANDATORY CONVERSION OF SERIES D PREFERRED STOCK. (a) Upon
(i) the closing of the first sale of shares of Common Stock, in an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $25,000,000 of gross
proceeds to the Corporation, or (ii) the sale of all or substantially all of the
Corporation's assets to a third party; at a price of at least $4.00 per share,
(subject to appropriate adjustments for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares),
PROVIDED that the Corporation shall have obtained a written opinion from an
investment banker mutually agreeable to Corporation and majority of the holders
of the Series D Preferred Stock to the effect that the conversion of the Series
D Preferred Stock is necessary to facilitate a successful public offering or
such sale (the "Series D Conversion Date"), (A) all outstanding shares of Series
D Preferred Stock shall automatically be converted into shares of Common Stock
in accordance with the provisions of Section B.3.1 hereof and (B) the number of
shares of Series D Preferred Stock that had been designated as Series D
Preferred Stock, and all provisions included under the caption "Series D
Preferred Stock", and all references to Series D Preferred Stock, shall be
deleted and shall be of no further force or effect.
(b) All holders of record of shares of Series D
Preferred Stock shall be given at least five business days' written notice of
the Series D Conversion
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Date and the place designated for conversion of all such shares of Series D
Preferred Stock pursuant to this Section B.3.6. Such notice shall be sent by (i)
overnight delivery by a nationally recognized courier service, in the case of
any holder of at least 5% of the then outstanding shares of each series of
Series D Preferred Stock or (ii) first class or registered mail, postage
prepaid, to each other record holder of shares of Series D Preferred Stock at
such holder's address last shown on the records of the transfer agent for Series
D Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent). Upon receipt of such notice, each holder of shares of Series D
Preferred Stock shall surrender his or its certificate or certificates for all
such shares to the Corporation (or a statement of lost certificate(s) together
with an agreement of indemnification by such holder) at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Section B.3.5.
On the Series D Conversion Date, all rights with respect to Series D Preferred
Stock so converted, including the rights, if any, to receive notices and vote
(other than as a holder of Common Stock) will terminate, except only the rights
of the holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such shares of each such series of Series D Preferred Stock have been
converted, and the right to payment of any accrued but unpaid dividends thereon.
As soon as practicable after the Series D Conversion Date and the surrender of
the certificate or certificates for Series D Preferred Stock, the Corporation
shall cause to be issued and delivered to such holder, or on his or its written
order, a certificate or certificates for the number of full shares of Common
Stock issuable on such conversion in accordance with the provisions hereof and
cash as provided in Section B.3.1(e) in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of each series
of Series D Preferred Stock which are required to be surrendered for conversion
in accordance with the provisions hereof shall, from and after the Series D
Conversion Date, be deemed to have been retired and canceled and the shares of
Series D Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the number of authorized shares of Series
D Preferred Stock accordingly.
4. LIQUIDATION RIGHTS.
4.1 VOLUNTARY OR INVOLUNTARY LIQUIDATIONS, ETC. (a) Upon
any voluntary or involuntary liquidation, dissolution, or winding-up of the
Corporation (each such event being hereafter referred to as a "Liquidation"),
the holders of outstanding shares of Series D Preferred Stock shall be entitled
to receive out of the assets of the Corporation available for distribution to
shareholders, before any
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payment shall be made to the holders of Junior Preferred Stock or Common Stock,
liquidating distributions in an amount per share of Series D Preferred Stock
equal to the sum of (i) $100 (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or division of shares, or other
similar recapitalization affecting the Series D Preferred Stock), plus (ii) an
amount, without duplication, equal to the aggregate amount of all accrued and
unpaid dividends on such share that have been added to the Series D Liquidation
Preference pursuant to Section B.2 hereof through the date fixed for such
distribution (such sum, from time to time, the "Series D Liquidation
Preference"). After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Series D Preferred Stock
will not be entitled to any further participation in any distribution of assets
by the Corporation. If upon such Liquidation, the Corporation's assets available
for distribution to such holders are insufficient to pay them the full amount to
which they are entitled hereunder, then all of such assets shall be distributed
to them ratably in proportion to the relative sums owing to each of them in
respect of their shares of Series D Preferred Stock.
(b) Subject to the prior and superior rights of the holders of Series D
Preferred Stock, upon any Liquidation, after payment to the holders of shares of
Series D Preferred Stock of the full amount of the Series D Liquidation
Preference, the holders of then outstanding shares of each series of Junior
Preferred Stock shall be entitled, on a PARI PASSU basis, to receive out of the
remaining assets of the Corporation available for distribution to shareholders,
before any distribution of assets is made to holders of Common Stock,
liquidating distributions in an amount equal to the applicable Liquidation
Amount per share of each series of Junior Preferred Stock plus an amount equal
to all accumulated and unpaid dividends on each such share through the date
fixed for such distribution. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of each series of
Junior Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Corporation. If upon such Liquidation, the
Corporation's assets available for distribution to such holders are insufficient
to pay them the full amount to which they are entitled hereunder, then all of
such assets as are available shall be paid out pro rata among the outstanding
shares of each series of Junior Preferred Stock in proportion to the respective
amounts that would be payable in respect of such shares if the Liquidation
Amount owed to the holders of the outstanding shares of each series of Junior
Preferred Stock were paid in full.
(c) For purposes of this Section B.4.1, a Liquidation shall include (i)
any consolidation or merger of the Corporation with or into any other
corporation (other than a consolidation or merger in which the holders of
capital stock of the Corporation immediately prior to such consolidation or
merger directly or indirectly beneficially own a majority of the capital stock
of the surviving corporation immediately after such consolidation or merger),
(ii) any dissolution, liquidation, winding up or reorganization of the
Corporation immediately followed by
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reincorporation of another corporation or (iii) a sale or other disposition of
all or substantially all of the Corporation's assets to another party.
4.2 PROHIBITION AGAINST CERTAIN LIQUIDATIONS BY THE
CORPORATION. The Corporation may not liquidate, dissolve or wind up if the
assets of the Corporation then available for distribution to its stockholders
shall be insufficient to pay the holders of shares of each series of Designated
Preferred Stock the full amount to which they shall be entitled upon such
liquidation, dissolution or winding up under this Section B.4, without the prior
written approval of the holders of a majority of the then outstanding shares of
each series of Designated Preferred Stock.
5. REDEMPTION.
5.1 OPTIONAL REDEMPTION. (a) Subject to the limitations of
this Section B.5, with respect to each series of Designated Preferred Stock,
commencing on the fifth anniversary of the applicable Purchase Date, the
Corporation shall, upon the written demand by the holders of at least 66-2/3% of
the issued and outstanding shares of such series of Designated Preferred Stock,
redeem, in accordance with the terms of such demand, all outstanding shares of
such series of Designated Preferred Stock in two equal annual installments, upon
payment (in respect of each share of such series of Designated Preferred Stock
redeemed) of the applicable Redemption Amount per share of such series of
Designated Preferred Stock plus accumulated and unpaid dividends with respect to
such series of Designated Preferred Stock to the date fixed for redemption (the
"Shareholder Redemption Price").
(b) Upon the sale of all or substantially all of the
Corporation's capital stock or assets to a third party, each holder of shares of
any series of Designated Preferred Stock may elect to cause the Corporation to
redeem all of its shares of such series of Designated Preferred Stock upon
payment (in respect of each share of such series of Designated Preferred Stock
redeemed) of the applicable Shareholder Redemption Price; PROVIDED, however,
that such holder of shares of any series of Designated Preferred Stock shall not
have the foregoing right if (i) such holder voted its shares in favor of such
sale or (ii) all of the then outstanding shares of such series of Designated
Preferred Stock is held by one entity and its affiliates and any director of the
Corporation nominated by the holders of such shares pursuant to any contractual
agreement granting the holders of such shares the right to nominate such
director voted to approve such sale.
(c) Upon the occurrence of a Disapproval Event (as
defined in Section 6.4 herein), each holder of shares of Series D Preferred
Stock may elect to cause the Corporation to redeem all of its shares of Series D
Preferred Stock upon payment (in respect of each share of Series D Preferred
Stock redeemed) of the applicable Shareholder Redemption Price; PROVIDED,
however, that such holder of shares of Series D Preferred Stock shall not have
the foregoing right if (i) such
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holder voted its shares in favor of such Disapproval Event or (ii) all of the
then outstanding shares of Series D Preferred Stock is held by one entity and
its affiliates and any director of the Corporation nominated by the holders of
such shares pursuant to any contractual agreement granting the holders of such
shares the right to nominate such director voted to approve such sale.
(d) In the event any holder of Series D Preferred
Stock maintains a controlling interest in Beacon Home Direct, Inc. or any
affiliate thereof ("Beacon") and the Corporation directly competes with
Beacon in any county of the United States (except the counties of Page, Will,
Lake Cook and McHenry in Illinois) by providing the same goods or services in
such county resulting in gross revenues for the Corporation exceeding
$25,000,000 in any rolling twelve monthly period, the Corporation shall have
the right, exercisable at its option, to redeem each then outstanding share
of Series D Preferred Stock upon payment to the holder thereof (in respect of
each shares of Series D Preferred Stock redeemed) of an amount equal to the
greater of (i) the Series D Preferred Liquidation Preference (as defined in
Section B 4.1(a) hereof), or (ii) the Current Market Price,. or (iii) the
fair market value thereof (as determined in good faith by the Board of
Directors of the Corporation) (such greater amount, the "Redemption Price").
For the purposes of this Section 5.1(d), a "controlling interest" shall mean
any equity interest (either common stock or any security convertible,
exercisable or exchangeable into common stock) exceeding 50% of the
outstanding voting stock of Beacon.
5.2 MECHANICS OF REDEMPTION. (a) The Corporation shall provide
notice of any redemption of shares of any series of Designated Preferred Stock
(the "Redemption Notice"), specifying the time and place of redemption, by first
class or registered mail, postage prepaid, to each holder of record of shares of
such series of Designated Preferred Stock at the address for such holder last
shown on the records of the transfer agent for the Corporation (or the records
of the Corporation, if it serves as its own transfer agent), not more than 60
nor less than 30 days prior to the date on which such redemption is to be made.
(b) At least three business days prior to the
redemption date, the Corporation shall irrevocably (subject to the last
paragraph of this clause (b) of Section B.5.2) deposit with a bank or trust
company in New York, New York having a capital and surplus of at least
$500,000,000, in a trust to be applied to the redemption of the shares of each
series of Designated Preferred Stock so called for redemption, the funds
necessary for such redemption. From and after the close of business on the
redemption date all rights of the holders of the shares of such series of
Designated Preferred Stock so called for redemption shall cease and terminate,
excepting only the right to receive the redemption price therefor, without
interest. The Corporation may direct the bank or trust company to invest the
funds deposited in trust to be applied to the redemption of shares of such
series of Designated Preferred Stock so called for redemption into one or more
of the following obligations or securities:
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(i) direct obligations of, and obligations
fully guaranteed by, the United States of America, or any agency thereof, the
obligations of which are backed by the full faith and credit of the United
States Government;
(ii) certificates of deposit, time deposits,
commercial paper, and bankers' acceptances issued by any bank (or its holding
company) whose senior unsecured debt has the highest rating given by Standard &
Poor's Corporation, a New York corporation, or any successor thereto by merger,
consolidation, sale of substantially all of its assets or otherwise; and
(iii) deposits which are fully insured by
the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation; PROVIDED, that prior to the redemption date, such
investments shall be made in such manner as to mature by their terms not later
than the day preceding the redemption
(c) On or after the redemption date, each holder of
shares of each series of Designated Stock to be redeemed shall present and
surrender its certificate or certificates for such shares to the Corporation at
the place designated in the Redemption Notice and thereupon the Redemption Price
of such shares shall be paid to or on the order of the person or entity whose
name appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. If less than all shares of such
series of Designated Preferred Stock represented by a certificate is redeemed, a
new certificate will be issued representing the unredeemed shares of such series
of Designated Preferred Stock in the name of the holder without cost to the
holder thereof.
(d) In case the holders of shares of each series of
Designated Preferred Stock which have been called for redemption shall not,
within two years after the date fixed for redemption, claim the amount deposited
with respect to the redemption thereof, any such bank or trust company shall,
upon demand, pay over to the Corporation such unclaimed amounts and thereupon
such bank or trust company shall be relieved of all responsibility in respect
thereof to such holder and such holder shall look only to the Corporation for
the payment of the redemption price. Any interest accrued on funds so deposited
shall be paid to the Corporation at such times as the Corporation may request.
(e) If a Redemption Notice has been given pursuant to
this Section B.5 and any holder of shares of each series of Designated Preferred
Stock to which such Redemption Notice relates shall, prior to the close of
business on the redemption date, give written notice to the Corporation pursuant
to Section B.3.1(b) hereof of the conversion of any or all of the shares to be
redeemed held by such holder (accompanied by a certificate or certificates for
such shares), then such redemption shall not become effective as to such shares
to be converted, such
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conversion shall become effective as provided in Section B.3 hereof and any
moneys set aside by the Corporation for the redemption of such shares of
converted Designated Preferred Stock shall revert to the general funds of the
Corporation.
5.3 POST-REDEMPTION RIGHTS OF HOLDERS. If the Corporation
shall have complied with clause (b) of Section B.5.2, after a redemption date,
notwithstanding that any certificate representing shares of any series of
Designated Preferred Stock so called for redemption shall not have been
surrendered for cancellation or conversion, the shares of such series of
Designated Preferred Stock represented thereby shall no longer be deemed
outstanding, and the holder of such certificate or certificates shall have (with
respect to the Corporation) no right other than the right to receive the
Redemption Price, without interest, upon the surrender of such certificate or
the shares of Common Stock under Section B.3.1, and such shares of such series
of Designated Preferred Stock shall not be transferable on the books of the
Corporation except to the Corporation.
5.4 SHARES TO BE CANCELED. Shares of any series of Designated
Preferred Stock which have been redeemed pursuant to this Section B.5 or
converted pursuant to Section B.3 hereof shall be canceled and will not under
any circumstances be reissued, sold or transferred and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
authorized number of shares of such series of Designated Preferred Stock
accordingly.
6. VOTING RIGHTS.
6.1 VOTES PER SHARE. Except as provided by law or by the
provisions of Sections B.6.2 through B.6.4, each series of Designated Preferred
Stock shall be non-voting capital stock of the Corporation.
6.2 RIGHT TO ELECT ONE DIRECTOR. (a) Notwithstanding anything
to the contrary in Section B.6.1, a majority of the holders of record of the
outstanding shares of Series A Preferred Stock and the holders of record of the
outstanding shares of Series C Preferred Stock, voting together as a single
class (on an as-converted basis), shall be entitled to elect one director of the
Corporation. In lieu of exercising such right, such holders, shall be entitled
to designate any one individual as an observer of any meetings of or actions to
be taken by the Board of Directors and any committee thereof, such observer to
receive copies of all notices, correspondence and other materials sent by the
Corporation to its directors (at the same time and in the same manner that such
directors receive such items) and to be permitted to attend (in person or
telephonically, at the option of such observer) all meetings of the Board of
Directors and any committee thereof.
(b) Notwithstanding anything to the contrary in
Section B.6.1, a majority of the holders of record of the outstanding Series B
Preferred Stock shall be entitled to elect one director of the Corporation. In
lieu of exercising such
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right, such holders shall be entitled to designate any one individual as an
observer of any meetings of or actions to be taken by the Board of Directors and
any committee thereof, such observer to receive copies of all notices,
correspondence and other materials sent by the Corporation to its directors (at
the same time and in the same manner that such directors receive such items) and
to be permitted to attend (in person or telephonically, at the option of such
observer) all meetings of the Board of Directors and any committee thereof.
(c) Notwithstanding anything to the contrary in
Section B.6.1, a majority of the holders of record of the outstanding shares of
Series D Preferred Stock shall be entitled to elect one director of the
Corporation. Such holders shall also be entitled to designate any one individual
as an observer of any meetings of or actions to be taken by the Board of
Directors and any committee thereof, such observer to receive copies of all
notices, correspondence and other materials sent by the Corporation to its
directors (at the same time and in the same manner that such directors receive
such items) and to be permitted to attend (in person or telephonically, at the
option of such observer) all meetings of the Board of Directors and any
committee thereof. Any director elected pursuant to Section B.6.2(a), (b) or (c)
shall hereinafter be referred to as a "Preferred Director" and any observer
designated pursuant to Section B.6.2(a), (b) or (c) shall hereinafter be
referred to as an "Observer."
(d) The holders of record of the shares of Common
Stock, exclusively and as a separate class, shall be entitled to elect the
remaining directors of the Corporation.
6.3 REMOVAL; VACANCY; MEETINGS. (a) Any Preferred Director or
Observer who shall have been elected or designated, as the case may be, pursuant
to Section B.6.2 may be removed at any time, either for or without cause, by,
and only by, the holders of record of shares of such series of Preferred Stock
as initially elected or designated, as the case may be, such Preferred Director
or Observer, acting at a special meeting of such shareholders called for such
purpose, and any vacancy created by such removal may also be filled at such
meeting. A meeting for the removal of a Preferred Director or Observer elected
or designated, as the case may be, and the filling of any vacancy created
thereby shall be called by the Secretary of the Corporation within 10 days after
receipt of a written request signed by the holders of record of at least 10% of
the aggregate outstanding shares of the applicable series of Preferred Stock by
sending, in each case, written notice of such meeting to each holder of record
of outstanding shares of each such series of Preferred Stock at such holder's
registered address on the books of the Corporation. Such meeting shall be held
at the earliest practicable date thereafter. Such notice shall state the purpose
of the meeting and the place and time for the meeting. The giving of such notice
shall constitute the only obligation of the Corporation pursuant to this Section
B.6.3(a).
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(b) Any vacancy caused by the death or resignation of
a Preferred Director or Observer elected or designated, as the case may be,
pursuant to Section B.6.2 may be filled only by the holders of record of shares
of such series of Preferred Stock at a meeting called for such purpose. Such a
meeting shall be called by the Secretary of the Corporation at the earliest
practicable date after any such death or resignation and in any event within 10
days after receipt of a written request signed by the holders of record of at
least 10% of the aggregate outstanding shares of the applicable series of
Preferred Stock, by sending, in each case, written notice of such meeting to
each holder of record of each such series of Preferred Stock at such holder's
registered address on the books of the Corporation. Such notice shall state the
purpose of the meeting and the place and time for the meeting. The giving of
such notice shall constitute the only obligation of the Corporation pursuant to
this Section B.6.3(b).
(c) If any meeting of the holders of record of shares
of any series of Preferred Stock required by this Section B.6 to be called shall
not have been called within 10 days after personal service of a written request
therefor upon the Secretary of the Corporation, or within 15 days after mailing
the same within the United States of America by registered mail addressed to the
Secretary of the Corporation at its principal office, then the holders of record
of at least 10% of the aggregate outstanding shares of such series of Preferred
Stock may designate in writing one of their number to give notice of such
meeting at the expense of the Corporation and such meeting may be called by such
person so designated upon the notice required for annual meetings of
shareholders. Any holder of record of shares of any such series of Preferred
Stock so designated shall have access to the stock books of the Corporation for
the purpose of causing meetings of shareholders to be called pursuant to these
provisions.
(d) Any meeting of the holders of record of shares of
any series of Preferred Stock held for the election or removal of a Preferred
Director (or the designation or removal of an Observer) shall be held in Boston,
Massachusetts, at a place suitable for such meeting of shareholders, or if such
action is taken in conjunction with an annual shareholders' meeting, at the
location of such annual shareholders' meeting. The Corporation shall pay all
expenses associated with such meeting (including, without limitation, expenses
relating to proxy statements and proxy solicitations and the travel expenses of
one meeting attendee per each holder of record of at least 10% of the aggregate
outstanding shares of each applicable series of Preferred Stock). At such
meeting, the presence in person or by proxy of the holders of a majority in
interest of the shares of each series of Preferred Stock entitled to vote at
such meeting shall be required to constitute a quorum; in the absence of a
quorum, a majority of the holders present in person or by proxy shall have the
power to adjourn the meeting from time to time without notice, other than
announcement at the meeting, until the quorum shall be present.
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6.4 NEGATIVE COVENANTS. So long as any shares of Series D
Preferred Stock are outstanding, the Corporation shall not, without first
requesting the written consent or the affirmative vote at a meeting called for
that purpose of holders of at least a majority of the shares of Series D
Preferred Stock then outstanding, in any manner, whether by amendment to the
Certificate of Incorporation or By-Laws of the Corporation, by merger (whether
or not the Corporation is a surviving corporation in such merger), by
consolidation, or otherwise:
(a) amend, modify or affect the designations, powers,
preferences and relative and other special rights or the limitations of any
series of series of Designated Preferred Stock so as to affect Series D
Preferred Stock adversely;
(b) authorize or issue:
(i) any security, including any
indebtedness, of the Corporation (including any reclassification of Common
Stock) or any obligations of the Corporation convertible into or exchangeable
for, or having rights to purchase, any security of the Corporation, which ranks
senior to or on parity with any series of Series D Preferred Stock as to
dividends or liquidation rights,
(ii) any Common Stock of the Corporation at
a price less than $3.50 per share and more than $2.00 per share, or
(iii) any Preferred Stock;
(c) merge or consolidate into or with any other
corporation or entity, or sell all or substantially all of the Corporation's
assets or capital stock;
(d) declare, pay or set aside any dividends or other
distributions in respect of shares of Junior Preferred Stock or Common Stock;
(e) reserve for issuance under any stock option plan
pursuant to which stock options may be granted to employees, directors or
consultants of the Corporation, in excess of 3,000,000 shares of Common Stock;
(f) make (or permit any subsidiary of the Corporation
to make) any loan or advance to, or purchase any stock or other securities of,
any subsidiary of the Corporation or other person unless it is wholly owned by
the Corporation;
(g) make any loan or advance to any person,
including, without limitation, any shareholder, employee, officer or director of
the Corporation or any subsidiary of the Corporation, except advances and
similar expenditures in
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the ordinary course of business or under the terms of an employee stock or
option plan approved by the Board of Directors;
(h) guarantee directly or indirectly, any
indebtedness except for trade accounts of any subsidiary of the Corporation
arising in the ordinary course of business;
(i) Enter into any transaction with any director,
officer, employee or holder of more than 10% of the outstanding Common Stock on
a Fully Diluted Basis, member of the family of such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of such person, is a director, officer, trustee, partner or holder of
more than 10% of the outstanding capital stock thereof, EXCEPT for (A)
transactions approved by a majority of the disinterested members of the Board of
Directors and (B) transactions approved by the Board of Directors (including,
but not limited to, the purchase and sale of securities of the Corporation) in
which such person's participation is substantially identical to that of other
persons not bearing such relationship to the Corporation;
PROVIDED, HOWEVER, that if the Corporation shall not have received such written
consent or evidence of such affirmative vote within 10 business days, then (i)
the Corporation shall nonetheless be entitled to take such action and (ii) a
"Disapproval Event" shall be deemed to have occurred.
6.5 CONSENT IN LIEU OF MEETING. Notwithstanding anything
contained herein to the contrary, any action required or permitted to be taken
by the holders of shares of any series of Designated Preferred Stock (whether
such action is to be taken by such holders acting as a separate class or
together with one or more other series or classes) at any annual or special
meeting of shareholders may be taken without a meeting, at any time, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares of such
series of Designated Preferred 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 of such series of Designated Preferred Stock entitled to vote
thereon were present and voted. Prompt notice of the taking of corporate action
without a meeting by less than unanimous written consent shall be given, at
their registered addresses on the books of the Corporation, to those holders of
such series of Designated Preferred Stock who have not consented thereto in
writing.
7. SHARES HELD BY THE CORPORATION.
In determining whether the holders of the requisite aggregate number of
shares of any series of Designated Preferred Stock have concurred in any vote,
consent, waiver or other action hereunder, shares of such series of Designated
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Preferred Stock which are owned by the Corporation or any subsidiary of the
Corporation shall be disregarded and deemed not to be outstanding for such
purpose.
8. PRE-EMPTIVE RIGHTS. (a) If the Corporation shall determine to issue
any shares of capital stock (excluding (i) shares of capital stock not to
exceed, in the aggregate, fifteen percent (15%) (ten percent (10%) in the case
of Series D Preferred) of the number of shares of the Corporation's capital
stock (on a Fully-Diluted Basis as of the Series D Preferred Stock Purchase
Date) issued to employees or directors of, or consultants to, the Corporation
upon the exercise of stock options granted pursuant to arrangements approved by
the Board of Directors, (ii) shares of capital stock issued in connection with
the acquisition by the Corporation of, or substantially all of the assets of,
another corporation or entity or other reorganization or in a transaction
governed by Rule 145 under the Securities Exchange Act of 1934, as amended,
(iii) shares of capital stock offered by the Corporation to the public in an
underwritten public offering, at a price per share of at least $4.00 (subject to
appropriate adjustments for stock splits, stock dividends, combinations, and
other similar recapitalizations affecting such shares), resulting in at least
$25,000,000 of gross proceeds to the Corporation, (iv) shares of Common Stock
issued upon the exercise of warrants outstanding on the Series D Purchase Date
to purchase an aggregate of 1,777,428 shares of Common Stock, (v) shares of
capital stock issued pursuant to any rights or agreements, including without
limitation Convertible Securities and Options, provided that the preemptive
rights established by this Section 8(a) shall apply with respect to the initial
sale or grant by the Corporation of such rights or agreements, (vi) stock issued
in connection with any stock split, stock dividend or recapitalization by the
Corporation, (vii) shares of capital stock issued or issuable upon conversion of
Non-Negotiable Convertible Notes of the Corporation (the "Replacement
Convertible Notes") having an aggregate principal face value of $600,000 issued
by the Corporation on or about April 15, 1998 in exchange for the return of
Non-Negotiable Convertible Notes of the Corporation outstanding issued prior to
such date and (viii) shares of capital stock not to exceed in the aggregate
10,000 shares issued in accordance with the Warrant Modification Agreement), the
Corporation shall first give written notice of the proposed issuance (by (x)
overnight delivery by a nationally recognized courier service, in the case of
any holder of record at least 5% of the then outstanding shares of any series of
Designated Preferred Stock, or (y) registered or certified mail, return receipt
requested, in the case of all other holders of record of shares of any series of
Designated Preferred Stock) to the holders of shares of each series of
Designated Preferred Stock (the "Pre-emptive Rights Notice"). The Pre-emptive
Rights Notice shall state the number of offered shares (the "Offered Shares"),
the price per share and all other material terms and conditions of the proposed
issuance.
(b) Each holder of shares of any series of Designated
Preferred Stock shall have the option to purchase all or any lesser portion of
its pro rata amount of
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the Offered Shares (the "Pro Rata Amount"), such Pro Rata Amount to be
determined by dividing (i) the sum of the (A) aggregate number of shares of
Common Stock held by such holder, (B) the aggregate number of shares of Common
Stock issuable upon conversion of the shares of Designated Preferred Stock held
by such holder, and (C) the aggregate number of shares of Common Stock issuable
upon exercise of the warrants held by such holder of Designated Preferred Stock
by (ii) the aggregate number of shares of Common Stock issued and outstanding on
an as-converted. In the event that a holder of shares of any series of
Designated Preferred Stock elects to purchase all or a portion of its Pro Rata
Amount, such holder shall give written notice of its election to the Corporation
within 30 days of its receipt of the Pre-emptive Rights Notice (receipt being
deemed upon personal delivery or two business days after deposit in the mail
(provided that the date of deposit is verifiable in the records of the
Corporation)); such written notice shall state the number of shares of its Pro
Rata Amount which such holder will purchase and the number of additional shares
such holder desires to purchase if any other holder elects not to purchase all
of its Pro Rata Amount. If a holder of shares of any series of Designated
Preferred Stock fails to respond in writing within this 30-day period to the
notice given by the Corporation, the right of such holder to acquire its Pro
Rata Amount shall terminate.
(c) If a holder of shares of any series of Designated
Preferred Stock elects not to, or fails to give timely notice of its election
to, purchase any or all of its Pro Rata Amount, each other holder of shares of
any series of Designated Preferred Stock shall be entitled to purchase, on the
terms and conditions contained in the Transfer Notice, that proportion of the
unpurchased amount of the Pro Rata Amount as the aggregate number of shares of
Designated Preferred Stock owned by each such holder bears to the total number
of shares of Designated Preferred Stock then outstanding. If the holders of
shares of Designated Preferred Stock do not purchase the entire unpurchased
amount of the Pro Rata Amount, the Corporation may transfer the number of shares
comprising the balance of the unpurchased amount of the Pro Rata Amount to
another transferee within 90 days of the date of the Pre-emptive Rights Notice;
PROVIDED, that such sale shall not be on terms and conditions more favorable to
such transferee than those contained in the Transfer Notice.
(d) Notwithstanding anything to the contrary in the By-Laws of
the Corporation, the provisions set forth in this Section B.8 may only be
waived, amended or repealed after the Corporation first obtains the affirmative
vote or written consent of the holders of a majority of the aggregate number of
then outstanding shares of Designated Preferred Stock. Any sale or transfer, or
purported sale or transfer, of securities of the Corporation shall be null and
void unless the terms, conditions and provisions of this Section B.8 are
strictly observed and followed.
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FIFTH. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for defining
and regulating the powers of the Corporation and its directors and stockholders
and are in furtherance and not in limitation of the powers conferred upon the
Corporation by statute:
(a) Prior to the IPO Closing, the number of directors
comprising the Board of Directors shall be determined by resolution of
the stockholders or the Board of Directors, but in no event shall be
less than one. In case of any vacancy on the Board of Directors,
subject to Section B.6 of Article Fourth hereof, the vacancies shall be
filled by the directors or by the stockholders at the time having
voting power, as may be prescribed herein and in the By-Laws. Directors
need not be stockholders of the Corporation. Elections of directors of
the Corporation need not be by written ballot unless the By-Laws of the
Corporation shall so provide.
(b) From and after the IPO Closing, the Board of Directors
shall be divided into three classes of directors, such classes to be as
nearly equal in number of directors as possible, having staggered
three-year terms of office, the term of office of the directors of the
first such class to expire as of the first annual meeting of the
Corporation's stockholders following the IPO Closing, those of the
second class to expire as of the second annual meeting of the
Corporation's stockholders following the IPO Closing, and those of the
third class as of the third annual meeting of the Corporation's
stockholders following the IPO Closing, such that at each annual
meeting of stockholders after such closing, nominees will stand for
election to succeed those directors whose terms are to expire as of
such meeting. Any director serving as such pursuant to this paragraph
(b) of Article FIFTH may be removed only for cause and only by the vote
of the holders of a majority of the shares of the Corporation's stock
entitled to vote for the election of directors.
(c) The Board of Directors shall have the power and authority:
(i) to adopt, amend or repeal By-Laws of the Corporation, subject only
to such limitations, if any, as may be from time to time imposed by
other provisions of this Certificate, by law, or by the By-Laws; and
(ii) to the full extent permitted or not prohibited by law, and without
the consent of or other action by the stockholders, to authorize or
create mortgage, pledges or other liens or encumbrances upon any or all
of the assets, real, personal or mixed, and franchises of the
Corporation, including after-acquired property, and to exercise all of
the powers of the Corporation in connection therewith.
SIXTH. No director of the Corporation shall be personally liable to the
Corporation or to any of its stockholders for monetary damages for breach of
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fiduciary duty as a director, notwithstanding any provision of law imposing such
liability; PROVIDED, HOWEVER, that to the extent required from time to time by
applicable law, this Article Sixth shall not eliminate or limit the liability of
a director, to the extent such liability is provided 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 of
Title 8 of the Delaware Code, or (iv) for any transactions from which the
director derived an improper personal benefit. No amendment to or repeal of this
Article Sixth 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 the effective date of such amendment or repeal.
SEVENTH. The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as amended from time to
time, indemnify each person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgements, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article Seventh, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of
Directors.
The indemnification rights provided in this Article Seventh (i) shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and
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administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article Seventh.
EIGHTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
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 the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of ss.391 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of ss.279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such a manner as the said court directs. If a majority of the
number representing three-fourths (3/4ths) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the 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 creditors or class of creditors, and/or stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
NINTH. The Board of Directors, when considering a tender offer or
merger or acquisition proposal, may take into account factors in addition to
potential economic benefits to stockholders, including without limitation (i)
comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the Corporation's capital stock,
the estimated current value of the Corporation in a freely negotiated
transaction, and the estimated future value of the Corporation as an independent
entity and (ii) the impact of such a transaction on the employees, suppliers,
and customers of the Corporation and its effect on the communities in which the
Corporation operates.
TENTH. Effective from and after the IPO Closing, any action required or
permitted to be taken by the stockholders of the Corporation may be taken only
at a duly called annual or special meeting of the stockholders, and not by
written consent in lieu of such a meeting, and special meetings of stockholders
may be called only by the Chairman of the Board of Directors, the President, or
a majority of the Board of Directors.
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ELEVENTH. Effective from and after the IPO Closing, the affirmative
vote of the holders of at least 67% of the outstanding voting stock of the
Corporation (in addition to any separate class vote that may in the future be
required pursuant to the terms of any outstanding Preferred Stock) shall be
required to amend or repeal the provisions of Articles Fourth (to the extent it
relates to the authority of the Board of Directors to issue shares of Preferred
Stock in one or more series, the terms of which may be determined by the Board
of Directors), Fifth, Seventh, Ninth, Tenth, or Eleventh of this Amended and
Restated Certificate of Incorporation or to reduce the numbers of authorized
shares of Common Stock or Preferred Stock.
Executed on May 6, 1999.
STREAMLINE.COM, INC.
By: /s/ TIMOTHY A. DEMELLO
-------------------------------
Timothy A. DeMello
President
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Exhibit 3.2
STREAMLINE.COM, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE I. - GENERAL.
1.1. OFFICES. The registered office of Streamline.com, Inc. (the
"Company") shall be in the City of Wilmington, County of New Castle, State of
Delaware. The Company may also have offices at such other places both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Company may require.
1.2. SEAL. The seal, if any, of the Company shall be in the form of a
circle and shall have inscribed thereon the name of the Company, the year of its
organization and the words "Corporate Seal, Delaware."
1.3. FISCAL YEAR. The fiscal year of the Company shall be the period
from January 1 through December 31.
ARTICLE II. - STOCKHOLDERS.
2.1. PLACE OF MEETINGS. Each meeting of the stockholders shall be held
upon notice as hereinafter provided, at such place as the Board of Directors
shall have determined and as shall be stated in such notice.
2.2. ANNUAL MEETING. The annual meeting of the stockholders shall be
held each year on such date and at such time as the Board of Directors may
determine. At each annual meeting the stockholders entitled to vote shall elect
such members of the Board of Directors as are standing for election, by
plurality vote by ballot, and they may transact such other corporate business as
may properly be brought before the meeting. At the annual meeting any business
may be transacted, irrespective of whether the notice calling such meeting shall
have contained a reference thereto, except where notice is required by law, the
Company's Certificate of Incorporation, or these by-laws.
2.3. QUORUM. At all meetings of the stockholders the holders of a
majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum requisite
for the transaction of business except as otherwise provided by law, the
Company's Certificate of Incorporation, or these by-laws. Whether or not such
there is such a quorum at any meeting, the chairman of the meeting or the
stockholders entitled to vote thereat, present in person or by proxy, by a
majority vote, may adjourn the meeting from time to time without notice other
than announcement at the meeting. If the adjournment is for more than thirty
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(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At such adjourned
meeting, at which the requisite amount of voting stock shall be represented, any
business may be transacted that might have been transacted if the meeting had
been held as originally called. The stockholders present in person or by proxy
at a duly called meeting at which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.4. RIGHT TO VOTE; PROXIES. Subject to the provisions of the Company's
Certificate of Incorporation, each holder of a share or shares of capital stock
of the Company having the right to vote at any meeting shall be entitled to one
vote for each such share of stock held by him. Any stockholder entitled to vote
at any meeting of stockholders may vote either in person or by proxy, but no
proxy that is dated more than three years prior to the meeting at which it is
offered shall confer the right to vote thereat unless the proxy provides that it
shall be effective for a longer period. A proxy may be granted by a writing
executed by the stockholder or his authorized agent or by transmission or
authorization of transmission of a telegram, cablegram, or other means of
electronic transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization, or like agent
duly authorized by the person who will be the holder of the proxy to receive
such transmission, subject to the conditions set forth in Section 212 of the
Delaware General Corporation Law, as it may be amended from time to time (the
"DGCL").
2.5. VOTING. At all meetings of stockholders, except as otherwise
expressly provided for by statute, the Company's Certificate of Incorporation,
or these by-laws, (i) in all matters other than the election of directors, the
affirmative vote of a majority of shares present in person or represented by
proxy at the meeting and entitled to vote on such matter shall be the act of the
stockholders and (ii) directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors.
2.6. NOTICE OF ANNUAL MEETINGS. Written notice of the annual meeting of
the stockholders shall be mailed to each stockholder entitled to vote thereat at
such address as appears on the stock books of the Company at least ten (10) days
(and not more than sixty (60) days) prior to the meeting. The Board of Directors
may postpone any annual meeting of the stockholders at its discretion, even
after notice thereof has been mailed. It shall be the duty of every stockholder
to furnish to the Secretary of the Company or to the transfer agent, if any, of
the class of stock owned by him and his post-office address, and to notify the
Secretary of any change therein. Notice need not be given to any
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stockholder who submits a written waiver of notice signed by him before or
after the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
2.7. STOCKHOLDERS' LIST. A complete list of the stockholders entitled
to vote at any meeting of stockholders, arranged in alphabetical order and
showing the address of each stockholder, and the number of shares registered in
the name of each stockholder, shall be prepared by the Secretary and filed
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, at least ten days before such meeting,
and shall at all times during the usual hours for business, and during the whole
time of said election, be open to the examination of any stockholder for a
purpose germane to the meeting.
2.8. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes, unless otherwise provided by statute, may be called only by
the Chairman of the Board of Directors, the President, or a majority of the
Board of Directors. Any such person or persons may postpone any special meeting
of the stockholders at its or their discretion, even after notice thereof has
been mailed.
2.9. NOTICE OF SPECIAL MEETINGS. Written notice of a special meeting of
stockholders, stating the time and place and object thereof shall be mailed,
postage prepaid, not less than ten (10) nor more than sixty (60) days before
such meeting, to each stockholder entitled to vote thereat, at such address as
appears on the books of the Company. No business may be transacted at such
meeting except that referred to in said notice, or in a supplemental notice
given also in compliance with the provisions hereof, or such other business as
may be germane or supplementary to that stated in said notice or notices. Notice
need not be given to any stockholder who submits a written waiver of notice
signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
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2.10. INSPECTORS.
1. One or more inspectors may be appointed by the Board of
Directors before or at any meeting of stockholders, or, if no such
appointment shall have been made, the presiding officer may make such
appointment at the meeting. At the meeting for which the inspector or
inspectors are appointed, he or they shall open and close the polls,
receive and take charge of the proxies and ballots, and decide all
questions touching on the qualifications of voters, the validity of
proxies, and the acceptance and rejection of votes. If any inspector
previously appointed shall fail to attend or refuse or be unable to
serve, the presiding officer shall appoint an inspector in his place.
2. At any time at which the Company has a class of voting
stock that is (i) listed on a national securities exchange, (ii)
authorized for quotation on an inter-dealer quotation system of a
registered national securities association, or (iii) held of record by
more than 2,000 stockholders, the provisions of Section 231 of the DGCL
with respect to inspectors of election and voting procedures shall
apply, in lieu of the provisions of paragraph 1 of this
Section 2.10.
2.11. STOCKHOLDERS' CONSENT IN LIEU OF MEETING. Unless otherwise
provided in the Company's Certificate of Incorporation:
(a) Prior to the closing of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offering and sale of capital stock of the Company (the
"IPO"): Any action required by law to be taken at any annual or special meeting
of stockholders of the Company, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent 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 Company by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Company having custody of the book in
which proceedings of meetings of stockholders are recorded. Delivery made to the
Company's registered office shall be 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
days of the earliest dated consent delivered in the manner required by this
Section 2.11 to the Company, written consents signed by a sufficient number of
stockholders to take action are delivered to the Company by delivery to its
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registered office in the State of Delaware, its principal place of business,
or an officer or agent of the Company having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Company's registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
(b) From and after the closing of the IPO, unless otherwise provided in
the Company's Certificate of Incorporation: Any action required to be taken at
any annual or special meeting of stockholders of the Company, or any action that
may be taken at any annual or special meeting of such stockholders, may be taken
only at such a meeting, and not by written consent of stockholders.
2.12. PROCEDURES. For nominations for 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 written notice
thereof to the Secretary of the Company. To be timely, a notice of nominations
or other business to be brought before an annual meeting of stockholders must be
delivered to the Secretary not less than 120 nor more than 150 days prior to the
first anniversary of the date of the Company's proxy statement delivered to
stockholders in connection with the preceding year's annual meeting, or if the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary, or if no proxy statement was delivered to stockholders
by the Company in connection with the preceding year's annual meeting, such
notice must be delivered not earlier than 90 days prior to such annual meeting
and not later than the later of (i) 60 days prior to the annual meeting or (ii)
10 days following the date on which public announcement of the date of such
annual meeting is first made by the Company. With respect to special meetings of
stockholders, such notice must be delivered to the Secretary not more than 90
days prior to such meeting and not later than the later of (i) 60 days prior to
such meeting or (ii) 10 days following the date on which public announcement of
the date of such meeting is first made by the Company. Such notice must contain
the name and address of the stockholder delivering the notice and a statement
with respect to the amount of the Company's stock beneficially and/or legally
owned by such stockholder, the nature of any such beneficial ownership of such
stock, the beneficial ownership of any such stock legally held by such
stockholder but beneficially owned by one or more others, and the length of time
for which all such stock has been beneficially and/or legally owned by such
stockholder, and information about each nominee for election as a director
substantially equivalent to that which would be required in a proxy statement
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder,
and/or a description of the proposed business to be brought before the meeting,
as the case may be.
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ARTICLE III. - DIRECTORS.
3.1. NUMBER OF DIRECTORS.
(a) Except as otherwise provided by law, the Company's Certificate of
Incorporation, or these by-laws, the property and business of the Company shall
be managed by or under the direction of a board of directors. Directors need not
be stockholders, residents of Delaware, or citizens of the United States. The
use of the phrase "whole board" herein refers to the total number of directors
which the Company would have if there were no vacancies.
(b) (i) Until the closing of the IPO: The Board of Directors shall
consist of such number of directors as shall be determined by resolution of the
stockholders or the Board of Directors, but in no event shall be less than one.
The Board of Directors shall hold office until the annual meeting of
stockholders and until their successors are elected and qualified or until their
earlier resignation or removal. Except as the DGCL or the Company's Certificate
of Incorporation may otherwise require, in the interim between annual meetings
of stockholders or of special meetings of stockholders called for the election
of directors and/or for the removal of one or more directors and for the filling
of any vacancy in that connection, any vacancies in the Board of Directors,
including unfilled vacancies resulting from the removal of directors for cause
or without cause, may be filled by the vote of a majority of the remaining
directors then in office, although less than a quorum, or by the sole remaining
director.
(ii) Effective from and after the closing of the IPO: The
number of directors constituting the full Board of Directors shall be seven (or
such other number as the Board of Directors from time to time may determine).
The Board of Directors shall be divided into three classes of directors, such
classes to be as nearly equal in number of directors as possible, having
staggered three-year terms of office, the term of office of the directors of the
first such class to expire as of the first annual meeting of the Company's
stockholders following the closing of the IPO, those of the second class to
expire as of the second annual meeting of the Company's stockholders following
such closing, and those of the third class as of the third annual meeting of the
Company's stockholders following such closing, such that at each annual meeting
of stockholders after such closing, nominees will stand for election to succeed
those directors whose terms are to expire as of such meeting. Members of the
Board of Directors shall hold office until the annual meeting of stockholders at
which their respective successors are elected and qualified or until their
earlier death, incapacity, resignation, or removal. Except as the DGCL or the
Company's Certificate of Incorporation may otherwise require, in the interim
between annual meetings of stockholders or special meetings of stockholders
called for the election of
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directors and/or for the removal of one or more directors and for the filling
of any vacancy in that connection, any vacancies in the Board of Directors,
including unfilled vacancies resulting from the removal of directors for
cause, may be filled by the vote of a majority of the remaining directors
then in office, although less than a quorum, or by the sole remaining
director.
(c) If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal, failure to elect, or otherwise, the
remaining directors, although more or less than a quorum, by a majority vote of
such remaining directors may elect a successor or successors who shall hold
office for the unexpired term.
3.2. RESIGNATION. Any director of the Company may resign at any time by
giving written notice to the Chairman of the Board, the President, or the
Secretary of the Company. Such resignation shall take effect at the time
specified therein, at the time of receipt if no time is specified therein and at
the time of acceptance if the effectiveness of such resignation is conditioned
upon its acceptance. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.3. REMOVAL. Except as may otherwise be provided by the DGCL or the
Company's Certificate of Incorporation, prior to the closing of the IPO, any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote for the
election of directors. Effective from and after the closing of the IPO, any
director or the entire Board of Directors may be removed only for cause and only
by the vote of the holders of a majority of the shares of the Company's stock
entitled to vote for the election of directors.
3.4. PLACE OF MEETINGS AND BOOKS. The Board of Directors may hold their
meetings and keep the books of the Company outside the State of Delaware, at
such places as they may from time to time determine.
3.5. GENERAL POWERS. In addition to the powers and authority expressly
conferred upon them by these by-laws, the board may exercise all such powers of
the Company and do all such lawful acts and things as are not by statute or by
the Company's Certificate of Incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
3.6. OTHER COMMITTEES. The Board of Directors may designate one or
more committees, by resolution or resolutions passed by a majority of the
whole board; such committee or committees shall consist of one or more
directors of the Company, and to the extent provided in the resolution or
resolutions designating them, shall have and may exercise specific powers of
the Board of Directors in the management of the business and affairs of the
Company to the extent permitted by statute and shall have power to authorize
the seal of the Company
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to be affixed to all papers that may require it. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
3.7. POWERS DENIED TO COMMITTEES. Committees of the Board of Directors
shall not, in any event, have any power or authority to amend the Company's
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
adopted by the Board of Directors as provided in Section 151(a) of the DGCL, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or classes
of stock of the Company or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopt an
agreement of merger or consolidation, recommend to the stockholders the sale,
lease, or exchange of all or substantially all of the Company's property and
assets, recommend to the stockholders a dissolution of the Company or a
revocation of a dissolution, or to amend the by-laws of the Company. Further, no
committee of the Board of Directors shall have the power or authority to declare
a dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the DGCL, unless the resolution
or resolutions designating such committee expressly so provides.
3.8. SUBSTITUTE COMMITTEE MEMBER. In the absence or on the
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. Any committee shall keep regular minutes of its proceedings and report
the same to the board as may be required by the board.
3.9. COMPENSATION OF DIRECTORS. The Board of Directors shall have the
power to fix the compensation of directors and members of committees of the
Board. The directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Company in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
3.10. REGULAR MEETINGS. No notice shall be required for regular
meetings of the Board of Directors for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special
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meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director who submits a written
waiver of notice signed by him before or after the time stated therein.
Attendance of any such person at a meeting shall constitute a waiver of
notice of such meeting, except when he attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the directors need be specified in any written waiver of notice.
3.11. SPECIAL MEETINGS. Special meetings of the board may be called by
the Chairman of the Board, if any, or the President, on two (2) days notice to
each director, or such shorter period of time before the meeting as will
nonetheless be sufficient for the convenient assembly of the directors so
notified; special meetings shall be called by the Secretary in like manner and
on like notice, on the written request of two or more directors.
3.12. QUORUM. At all meetings of the Board of Directors, a majority of
the whole board shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically permitted or provided by
statute, or by the Company's Certificate of Incorporation, or by these by-laws.
If at any meeting of the board there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need be given other than by
announcement at said meeting that shall be so adjourned.
3.13. TELEPHONIC PARTICIPATION IN MEETINGS. Members of the Board of
Directors or any committee designated by such board may participate in a meeting
of the 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 participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
3.14. ACTION BY CONSENT. Unless otherwise restricted by the Company's
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 written consent thereto is signed by all
members of the board or of such committee as the case may be and such written
consent is filed with the minutes of proceedings of the board or committee.
ARTICLE IV. - OFFICERS.
4.1. SELECTION; STATUTORY OFFICERS. The officers of the Company shall
be chosen by the Board of Directors. There shall be a President, a Secretary,
and a
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Treasurer, and there may be a Chairman of the Board of Directors, one or more
Vice Presidents, one or more Assistant Secretaries, and one or more Assistant
Treasurers, as the Board of Directors may elect. Any number of offices may be
held by the same person, except that the offices of President and Secretary
shall not be held by the same person simultaneously.
4.2. TIME OF ELECTION. The officers above named shall be chosen by the
Board of Directors at its first meeting after each annual meeting of
stockholders. None of said officers need be a director.
4.3. ADDITIONAL OFFICERS. The board may appoint such other officers and
agents as it shall deem necessary, who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
4.4. TERMS OF OFFICE. Each officer of the Company shall hold office
until his successor is chosen and qualified, or until his earlier resignation or
removal. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board of Directors.
4.5. COMPENSATION OF OFFICERS. The Board of Directors shall have power
to fix the compensation of all officers of the Company. It may authorize any
officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers.
4.6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors
shall preside at all meetings of the stockholders and directors, and shall have
such other duties as may be assigned to him from time to time by the Board of
Directors.
4.7. PRESIDENT. Unless the Board of Directors otherwise determines, the
President shall be the chief executive officer and head of the Company. Unless
there is a Chairman of the Board, the President shall preside at all meetings of
directors and stockholders. Under the supervision of the Board of Directors, the
President shall have the general control and management of its business and
affairs, subject, however, to the right of the Board of Directors to confer any
specific power, except such as may be by statute exclusively conferred on the
President, upon any other officer or officers of the Company. The President
shall perform and do all acts and things incident to the position of President
and such other duties as may be assigned to him from time to time by the Board
of Directors.
4.8. VICE-PRESIDENTS. The Vice-Presidents shall perform such of the
duties of the President on behalf of the Company as may be respectively assigned
to them from time to time by the Board of Directors or by the President. The
Board of Directors may designate one of the Vice-Presidents as
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the Executive Vice-President, and in the absence or inability of the
President to act, such Executive Vice-President shall have and possess all of
the powers and discharge all of the duties of the President, subject to the
control of the Board of Directors.
4.9. TREASURER. The Treasurer shall have the care and custody of all
the funds and securities of the Company that may come into his hands as
Treasurer, and the power and authority to endorse checks, drafts and other
instruments for the payment of money for deposit or collection when necessary or
proper and to deposit the same to the credit of the Company in such bank or
banks or depository as the Board of Directors, or the officers or agents to whom
the Board of Directors may delegate such authority, may designate, and he may
endorse all commercial documents requiring endorsements for or on behalf of the
Company. He may sign all receipts and vouchers for the payments made to the
Company. He shall render an account of his transactions to the Board of
Directors as often as the board or the committee shall require the same. He
shall enter regularly in the books to be kept by him for that purpose full and
adequate account of all moneys received and paid by him on account of the
Company. He shall perform all acts incident to the position of Treasurer,
subject to the control of the Board of Directors. He shall when requested,
pursuant to vote of the Board of Directors, give a bond to the Company
conditioned for the faithful performance of his duties, the expense of which
bond shall be borne by the Company.
4.10. SECRETARY. The Secretary shall keep the minutes of all meetings
of the Board of Directors and of the stockholders; he shall attend to the giving
and serving of all notices of the Company. Except as otherwise ordered by the
Board of Directors, he shall attest the seal of the Company upon all contracts
and instruments executed under such seal and shall affix the seal of the Company
thereto and to all certificates of shares of capital stock of the Company. He
shall have charge of the stock certificate book, transfer book and stock ledger,
and such other books and papers as the Board of Directors may direct. He shall,
in general, perform all the duties of Secretary, subject to the control of the
Board of Directors.
4.11. ASSISTANT SECRETARY. The Board of Directors or any two of the
officers of the Company acting jointly may appoint or remove one or more
Assistant Secretaries of the Company. Any Assistant Secretary upon his
appointment shall perform such duties of the Secretary, and also any and all
such other duties as the Board of Directors or the President or the Executive
Vice-President or the Treasurer or the Secretary may designate.
4.12. ASSISTANT TREASURER. The Board of Directors or any two of the
officers of the Company acting jointly may appoint or remove one or more
Assistant Treasurers of the Company. Any Assistant Treasurer upon his
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appointment shall perform such of the duties of the Treasurer, and also any
and all such other duties as the Board of Directors or the President or the
Executive Vice-President or the Treasurer or the Secretary may designate.
4.13. SUBORDINATE OFFICERS. The Board of Directors may select such
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority, and perform such duties as the
Board of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
ARTICLE V. - STOCK.
5.1. STOCK. Each stockholder shall be entitled to a certificate or
certificates of stock of the Company in such form as the Board of Directors may
from time to time prescribe. The certificates of stock of the Company shall be
numbered and shall be entered in the books of the Company as they are issued.
They shall certify the holder's name and number and class of shares and shall be
signed by both of (i) either the President or a Vice-President, and (ii) any one
of the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, and shall be sealed with the corporate seal of the Company. If such
certificate is countersigned (l) by a transfer agent other than the Company or
its employee, or, (2) by a registrar other than the Company or its employee, the
signature of the officers of the Company and the corporate seal may be
facsimiles. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such certificate
or certificates shall cease to be such officer or officers of the Company,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Company, such certificate or
certificates may nevertheless be adopted by the Company and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature shall have been used thereon had not
ceased to be such officer or officers of the Company.
5.2. FRACTIONAL SHARE INTERESTS. The Company may, but shall not be
required to, issue fractions of a share. If the Company does not issue fractions
of a share, it shall (i) arrange for the disposition of fractional interests by
those entitled thereto, (ii) pay in cash the fair value of fractions of a share
as of the time when those entitled to receive such fractions are determined, or
(iii) issue scrip or warrants in registered or bearer form that shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip or warrants aggregating a full share. A certificate for a fractional share
shall, but scrip or warrants shall not unless otherwise provided therein,
entitle the holder to exercise voting rights, to receive dividends thereon, and
to participate in any of the assets of the Company in the event of liquidation.
The Board of Directors
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may cause scrip or warrants to be issued subject to the conditions that they
shall become void if not exchanged for certificates representing full shares
before a specified date, or subject to the conditions that the shares for
which scrip or warrants are exchangeable may be sold by the Company and the
proceeds thereof distributed to the holders of scrip or warrants, or subject
to any other conditions that the Board of Directors may impose.
5.3. TRANSFERS OF STOCK. Subject to any transfer restrictions then in
force, the shares of stock of the Company shall be transferable only upon its
books by the holders thereof in person or by their duly authorized attorneys or
legal representatives and upon such transfer the old certificates shall be
surrendered to the Company by the delivery thereof to the person in charge of
the stock and transfer books and ledgers or to such other person as the
directors may designate by whom they shall be canceled and new certificates
shall thereupon be issued. The Company shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person whether or not it shall
have express or other notice thereof save as expressly provided by the laws of
Delaware.
5.4. RECORD DATE. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, that shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no such 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; the record date for determining stockholders entitled to express consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is expressed; and the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at any 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.
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5.5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint
one or more transfer agents or transfer clerks and one or more registrars and
may require all certificates of stock to bear the signature or signatures of any
of them.
5.6. DIVIDENDS.
1. POWER TO DECLARE. Dividends upon the capital stock of the
Company, subject to the provisions of the Company's Certificate of
Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid in
cash, in property, or in shares of the capital stock, subject to the
provisions of the Company's Certificate of Incorporation and the laws
of Delaware.
2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Company available for dividends such sum
or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Company, or for such other purpose as
the directors shall think conducive to the interest of the Company, and
the directors may modify or abolish any such reserve in the manner in
which it was created.
5.7. LOST, STOLEN, OR DESTROYED CERTIFICATES. No certificates for
shares of stock of the Company shall be issued in place of any certificate
alleged to have been lost, stolen, or destroyed, except upon production of such
evidence of the loss, theft, or destruction and upon indemnification of the
Company and its agents to such extent and in such manner as the Board of
Directors may from time to time prescribe.
5.8. INSPECTION OF BOOKS. The stockholders of the Company, by a
majority vote at any meeting of stockholders duly called, or in case the
stockholders shall fail to act, the Board of Directors shall have power from
time to time to determine whether and to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Company (other than the stock ledger) or any of them, shall be open to
inspection of stockholders; and no stockholder shall have any right to inspect
any account or book or document of the Company except as conferred by statute or
authorized by the Board of Directors or by a resolution of the stockholders.
ARTICLE VI. - MISCELLANEOUS MANAGEMENT PROVISIONS.
6.1. CHECKS, DRAFTS, AND NOTES. All checks, drafts, or orders for the
payment of money, and all notes and acceptances of the Company shall be
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signed by such officer or officers, or such agent or agents, as the Board of
Directors may designate.
6.2. NOTICES.
1. Notices to directors may, and notices to stockholders
shall, be in writing and delivered personally or mailed to the
directors or stockholders at their addresses appearing on the books of
the Company. Notice by mail shall be deemed to be given at the time
when the same shall be mailed. Notice to directors may also be given by
telegram, telecopy or orally, by telephone or in person.
2. Whenever any notice is required to be given under the
provisions of any applicable statute or of the Company's Certificate of
Incorporation or of these by-laws, a written waiver of notice, signed
by the person or persons entitled to said notice, whether before or
after the time stated therein or the meeting or action to which such
notice relates, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting
except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
6.3. CONFLICT OF INTEREST. No contract or transaction between the
Company and one or more of its directors or officers, or between the Company 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 of or committee thereof that authorized the contract or transaction,
or solely because his or their votes are counted for such purpose, if: (i) the
material facts as to his 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 vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders of the
Company entitled to vote thereon, and the contract or transaction as
specifically approved in good faith by vote of such stockholders; or (iii) the
contract or transaction is fair as to the Company as of the time it is
authorized, approved, or ratified, by the Board of Directors, a committee or the
stockholders. 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
that authorizes the contract or transaction.
-15-
<PAGE>
6.4. VOTING OF SECURITIES OWNED BY THE COMPANY. Subject always to the
specific directions of the Board of Directors, (i) any shares or other
securities issued by any other corporation and owned or controlled by the
Company may be voted in person at any meeting of security holders of such other
corporation by the President of the Company if he is present at such meeting, or
in his absence by the Treasurer of the Company if he is present at such meeting,
and (ii) whenever, in the judgment of the President, it is desirable for the
Company to execute a proxy or written consent in respect to any shares or other
securities issued by any other corporation and owned by the Company, such proxy
or consent shall be executed in the name of the Company by the President,
without the necessity of any authorization by the Board of Directors, affixation
of corporate seal or countersignature or attestation by another officer,
provided that if the President is unable to execute such proxy or consent by
reason of sickness, absence from the United States or other similar cause, the
Treasurer may execute such proxy or consent. Any person or persons designated in
the manner above stated as the proxy or proxies of the Company shall have full
right, power and authority to vote the shares or other securities issued by such
other corporation and owned by the Company the same as such shares or other
securities might be voted by the Company.
ARTICLE VII. - INDEMNIFICATION.
7.1. 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 in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of being or having been a director
or officer of the Company or serving or having served at the request of the
Company as a director, trustee, 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 (an "Indemnitee"),
whether the basis of such proceeding is alleged action or failure to act in
an official capacity as a director, trustee, officer, employee or agent or in
any other capacity while serving as a director, trustee, officer, employee or
agent, shall be indemnified and held harmless by the Company to the fullest
extent authorized by the DGCL, 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 Company to provide broader indemnification rights than
permitted prior thereto) (as used in this Article 7, the "Delaware Law"),
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 and such indemnification shall continue as to an Indemnitee who has
ceased to be a director, trustee, officer, employee, or agent and shall inure
to the benefit of the Indemnitee's heirs, executors, and administrators;
provided, however, that, except as provided in Section 7.2 hereof with
respect to Proceedings to enforce rights to indemnification, the Company
shall
-16-
<PAGE>
indemnify any such Indemnitee in connection with a Proceeding (or part
thereof) initiated by such Indemnitee only if such Proceeding (or part
thereof) was authorized by the Board of Directors of the Company. The right
to indemnification conferred in this Article 7 shall be a contract right and
shall include the right to be paid by the Company the expenses (including
attorneys' fees) incurred in defending any such Proceeding in advance of its
final disposition (an "Advancement of Expenses"); provided, however, that, if
the Delaware Law so requires, an Advancement of Expenses incurred by an
Indemnitee shall be made only upon delivery to the Company of an undertaking
(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 (a "Final Adjudication") that
such Indemnitee is not entitled to be indemnified for such expenses under
this Article 7 or otherwise.
7.2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 7.1
hereof is not paid in full by the Company within sixty days after a written
claim has been received by the Company, except in the case of a claim for an
Advancement of Expenses, in which case the applicable period shall be twenty
days, the Indemnitee may at any time thereafter bring suit against the
Company 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 Company to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the
Indemnitee shall be entitled to be paid also the expense 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 by the Company to recover an Advancement
of Expenses pursuant to the terms of an Undertaking the Company shall be
entitled to recover such expenses upon a Final Adjudication that, the
Indemnitee has not met the applicable standard of conduct set forth in the
Delaware Law. Neither the failure of the Company (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 Law, nor an
actual determination by the Company (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 by the Company to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the burden
of proving that the Indemnitee is not entitled to be indemnified, or to such
-17-
<PAGE>
Advancement of Expenses, under this Article 7 or otherwise shall be on the
Company.
7.3. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to
the Advancement of Expenses conferred in this Article 7 shall not be exclusive
of any other right that any person may have or hereafter acquire under any
statute, the Company's Certificate or Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
7.4. INSURANCE. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
this Article 7 or under the Delaware Law.
7.5. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE COMPANY. The
Company 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 Company to the fullest extent of the provisions
of this Article 7 with respect to the indemnification and Advancement of
Expenses of directors and officers of the Company.
ARTICLE VIII. - AMENDMENTS.
8.1. AMENDMENTS. Subject always to any limitations imposed by the
Company's Certificate of Incorporation, from and after the closing of the IPO,
these By-Laws may be altered, amended, or repealed, or new By-Laws may be
adopted, only by (i) the affirmative vote of the holders of at least a majority
of the outstanding voting stock of the Company, provided, that the affirmative
vote of the holders of at least 67% of the outstanding voting stock of the
Company shall be required for any such alteration, amendment, repeal, or
adoption that would affect or be inconsistent with the provisions of Sections
2.11, 2.12, and this Section 8.1 (in each case, in addition to any separate
class vote that may be required pursuant to the terms of any then outstanding
preferred stock of the Company), or (ii) by resolution of the Board of Directors
duly adopted by not less than a majority of the directors then constituting the
full Board of Directors.
-18-
<PAGE>
Exhibit 4.1
Number Shares
[STREAMLINE.COM, INC. LOGO]
STREAMLINE.COM, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK COMMON STOCK
Transferable in the City of Boston CUSIP 863239 10 9
or in the City of New York STOCK
This is to certify that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01, of
STREAMLINE.COM, INC. transferable on the books of the Corporation by the
holder hereof, in person or by a duly authorized attorney, upon the surrender
of this certificate properly endorsed. This certificate and the shares
represented hereby are subject to the laws of the State of Delaware and to
the Certificate of Incorporation and By-Laws of the Corporation, as now or
hereafter amended. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/Lauren A. Farrell [seal of Streamline.com, Inc.] /s/Timothy A. DeMello
Secretary Chairman
<PAGE>
-2-
STREAMLINE.COM, INC. (the "Corporation") will furnish without charge to each
stockholder who so requests from its Secretary the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions thereof.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNF GIFT MIN ACT -.....Custodian.....
TEN ENT - as tenants by the entireties (cust) (Minor)
JT TEN - as joint tenants with under Uniform Gifts
right of survivorship and to Minors
not as tenants in common Act................
(State)
Additional abbreviations may also be used though not in the above list.
For value received,________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________________________________________________
______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE.
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________________
______________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated, ______________________________
____________________________________________________
(The signature to this assignment must
correspond with the name as written upon the
face of this Certificate in every
particular, without alternation or
enlargement or any change whatever.)
Signature(s) Guaranteed:
____________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATION AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEED MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Tel: 617-951-8000
Fax: 617-951-8736
May 19, 1999
Streamline.com, Inc.
27 Dartmouth Street
Westwood, MA 02090
Re: Registration Statement on Form S-1
UNDER THE SECURITES ACT OF 1933, AS AMENDED
Ladies and Gentlemen:
We have acted as counsel for Streamline.com, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 5,750,000 shares (including
up to 650,000 shares that may be offered by the Company and 100,000 shares that
may be offered by a stockholder of the Company solely in order to cover
over-allotments, if any) of Common Stock, $.01 par value per share (the
"Shares"), pursuant to a Registration Statement on Form S-1, File No. 333-76383
(as amended from time to time, the "Registration Statement"), initially filed by
the Company with the Securities and Exchange Commission on April 15, 1999.
We have reviewed the corporate proceedings of the Company with respect
to the authorization of the issuance of the Shares. We have also examined and
relied upon originals or copies, certified or otherwise authenticated to our
satisfaction, of such corporate records, agreements, instruments, certificates,
and other documents as we have deemed necessary or appropriate as a basis for
the opinions hereinafter expressed, and we have further relied on the
presumption of regularity and continuity to the extent necessary to enable us to
render such opinions. In our examination, we have assumed the genuineness of all
signatures, the conformity to the originals of all documents reviewed by us as
copies, the authenticity and completeness of all original documents reviewed by
us in original or copy form, and the legal competence of each individual
executing any document.
We have also assumed that an Underwriting Agreement substantially in
the form of Exhibit 1.1 to the Registration Statement, by and among the
<PAGE>
Streamline.com, Inc.
Page 2
Company, a stockholder of the Company, and the underwriters named therein (the
"Underwriting Agreement"), will have been duly executed and delivered pursuant
to the authorizing resolutions of the Board of Directors of the Company and that
the Shares will be sold and transferred only upon the payment therefor as
provided in the Underwriting Agreement. We have further assumed that the
registration requirements of the Act and all applicable requirements of state
laws regulating the sale of securities will have been duly satisfied.
This opinion is limited solely to the General Corporation Law of the
State of Delaware as applied by courts located in Delaware.
Based upon and subject to the foregoing, we are of the opinion that the
Shares to be sold by the selling stockholder referred to above have been validly
issued, fully paid, and non-assessable, and the Shares to be sold by the
Company, when delivered and paid for in accordance with the provisions of the
Underwriting Agreement, will be validly issued, fully paid, and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the prospectus included in the Registration Statement.
Very truly yours,
/s/ Bingham Dana LLP
BINGHAM DANA LLP
<PAGE>
Exhibit 10.1
STREAMLINE.COM, INC.
AMENDED AND RESTATED
1993 EMPLOYEE OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for
Streamline.com, Inc. (the "Company") and its shareholders the benefits
arising from capital stock ownership by employees, Company and its parent and
subsidiary corporations who are expected to contribute to the Company's
future growth and success. Except where the context otherwise requires, the
term "Company" shall include the parent and all present and future
subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the
Internal Revenue Code of 1986, as amended or replaced from time to time (the
"Code"). Those provisions of the Plan which make express reference to Section
422 shall apply only to Incentive Stock Options (as that term is defined in
the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock
options ("Incentive Stock Options") meeting the requirements of Section 422
of the Code or non-statutory options which are not intended to meet the
requirements of Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms
and provisions of the Plan shall be final and conclusive. The Board of
Directors may in its sole discretion grant options to purchase shares of the
Company's Common Stock ("Common Stock") and issue shares upon exercise of
such options as provided in the Plan. The Board shall have authority, subject
to the express provisions of the Plan, to construe the respective option
agreements and the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of
the respective option agreements, which need not be identical, and to make
all other determinations in the judgment of the Board of Directors necessary
or desirable for the administration of the Plan. The Board of Directors may
correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any option agreement in the manner and to the extent it shall
<PAGE>
deem expedient to carry the Plan into effect and it shall be the sole and
final judge of such expediency. No director or person acting pursuant to
authority delegated by the Board of Directors shall be liable for any action
or determination under the Plan made in good faith. The Board of Directors
may, to the full extent permitted by or consistent with applicable laws or
regulations (including, without limitation, applicable state law and Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), or any successor rule ("Rule 16b-3")), delegate any or all of its
powers, and if the Committee is so appointed all references to the Board of
Directors in the Plan shall mean and relate to such Committee.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which
make express reference to Rule 16b-3 shall apply only to such persons as are
required to file reports under Section 16(a) of the Exchange Act (a
"Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time
of grant, employees, officers or directors of, or consultants or advisors to,
the Company; provided, that the class of employees to whom Incentive Stock
Options may be granted shall be limited to all employees of the Company. A
person who has been granted an option may, if he or she is otherwise
eligible, be granted additional options if the Board of Directors shall so
determine.
b) [deleted]
4. Stock Subject to Plan.
Effective as of the closing of the Company's initial public offering
of shares of Common Stock (the "IPO"), subject to adjustment as provided in
Section 15 below, the maximum number of shares of Common Stock of the Company
which may be issued and sold under the Plan is 2,500,000 (after giving effect
to the 1-for-2 reverse stock split to take effect prior to the IPO). If an
option granted under the Plan shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject to such
option shall again be available for subsequent option grants under the Plan.
If shares issued upon exercise of an option under the Plan are tendered to
the Company in payment of the exercise price of an option granted under the
Plan, such tendered shares shall again be available for subsequent option
grants under the Plan; provided, that in no event shall (i) the total number
of shares issued pursuant to the exercise of Incentive Stock Options under
the Plan, on a cumulative basis, exceed the maximum number of shares
authorized for issuance under the Plan exclusive of shares made available for
2
<PAGE>
issuance pursuant to this sentence or (ii) any person be granted, in any
year, stock options under the Plan to acquire in excess of 1,000,000 shares
of Common Stock (after giving effect to the above-referenced reverse stock
split).
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of an
option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable
upon the exercise of an option shall be determined by the Board of Directors,
provided, however, that in the case of an Incentive Stock Option, the
exercise price shall not be less than 100% of the fair market value of such
stock, as determined by the Board of Directors, at the time of grant of such
option, or less than 110% of such fair market value in the case of options
described in Section 11(b).
(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check
to the order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i)
by delivery to the Company of shares of Common Stock of the Company already
owned by the optionee having a fair market value equal in amount to the
exercise price of the options being exercised, (ii) by any other means
(including, without limitation, by delivery of a promissory note of the
optionee payable on such terms as are specified by the Board of Directors)
which the Board of Directors determines are consistent with the purpose of
the Plan and with applicable laws and regulations (including, without
limitation, the provisions of Rule 16b-3 and Regulation T promulgated by the
Federal Reserve Board) or (iii) by any combination of such methods of
payment. The fair market value of any shares of the Company's Common Stock or
other non-cash consideration which may be delivered upon exercise of an
option shall be determined by the Board of Directors.
7. Option Period.
Each option and all rights thereunder shall expire on such date as
shall be set forth in the applicable option agreement, except that, in the
case of an Incentive Stock Option, such date shall not be later than ten
years after the date on which the option is granted and, in all cases,
options shall be subject to earlier termination as provided in the Plan.
3
<PAGE>
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in
full or in installments at such time or times and during such period as shall
be set forth in the agreement evidencing such option, subject to the
provisions of the Plan.
9. Nontransferability of Options.
Incentive Stock Options, and all options granted to Reporting
Persons, shall not be assignable or transferable by the person to whom they
are granted, either voluntarily or by operation of law, except by will or the
laws of descent and distribution, and, during the life of the optionee, shall
be exercisable only by the optionee; provided, however, that non-statutory
options may be transferred pursuant to a qualified domestic relations order
(as defined in Rule 16b-3).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors
shall determine the period of time during which an optionee may exercise an
option following (i) the termination of the optionee's employment or other
relationship with the Company or (ii) the death or disability of the
optionee. Such periods shall be set forth in the agreement evidencing such
option.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be incentive
Stock Options shall be subject to the following additional terms and
conditions:
(a) Express Designation. All Incentive Stock Options granted under
the Plan shall, at the time of grant, be specifically designated as such in
the option agreement covering such Incentive Stock Options.
b) 10% Shareholder. If any employee to whom an Incentive Stock
Option is to be granted under the Plan is, at the time of the grant of
such option, the owner of stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company (after
taking into account the attribution of stock ownership rules of
Section 424(d) of the Code), then
4
<PAGE>
the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(i) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than 110% of the
fair market value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years
from the date of grant.
c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than
$100,000.
d) Termination of Employment, Death or Disability. No Incentive
Stock Option may be exercised unless, at the time of such exercise, the
optionee is, and has been continuously since the date of grant of his or her
option, employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an employee
of the Company (or within such lesser period as may be specified in the
applicable option agreement), provided, that the agreement with respect to
such option may designate a longer exercise period and that the exercise
after such three-month period shall be treated as the exercise of a
non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the
Company, or within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person to whom
it is transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period as
may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within the
period of one year after the date the optionee ceases to be such an employee
because of such disability (or within such lesser period as may be
5
<PAGE>
specified in the applicable option agreement). For all purposes of the Plan
and any option granted hereunder, "employment" shall be defined in accordance
with the provisions of Section 1.421-7(h) of the Income Tax Regulations (or
any successor regulations). Notwithstanding the foregoing provisions, no
Incentive Stock Option may be exercised after its expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make,
arrange for or guarantee loans or to transfer other property to optionees
upon exercise of options, or such other provisions as shall be determined by
the Board of Directors; provided that such additional provisions shall not be
inconsistent with any other term or condition of the Plan and such additional
provisions shall not cause any Incentive Stock Option granted under the Plan
to fail to qualify as an Incentive Stock Option within the meaning of Section
422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its
sole discretion, (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all, or any particular, option or options
granted under the Plan may be exercised; provided, however, that no such
extension shall be permitted if it would cause the Plan to fail to comply
with Section 422 of the Code or with Rule 16b-3.
13. General Restrictions.
(a) Investment Representations. The Company may require any person
to whom an option is granted, as a condition of exercising such option, to
give written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the
option for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws, or with covenants or
representations made by the Company in connection with any public offering of
its Common Stock.
b) Compliance With Securities Laws. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine
6
<PAGE>
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other
condition is necessary as a condition of, or in connection with, the issuance
or purchase of shares thereunder, such option may not be exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval, or satisfaction of such condition shall have been effected or
obtained on conditions acceptable to the Board of Directors. Nothing herein
shall be deemed to require the Company to apply for or to obtain such
listing, registration or qualification, or to satisfy such condition.
14. Rights as a Shareholder.
The holder of an option shall have no rights as a shareholder with
respect to any shares covered by the option (including, without limitation,
any rights to receive dividends or non-cash distributions with respect to
such shares) until the date of issue of a stock certificate to him or her for
such shares. No adjustment shall be made for dividends or other rights for
which the record date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) General. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar transaction, (i) the outstanding
shares of Common Stock are increased, decreased or exchanged for a different
number or kind of shares or other securities of the Company, 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 or other securities, an appropriate and proportionate
adjustment may be made in (x) the maximum number and kind of shares reserved
for issuance or that may be granted to any stockholder under the Plan, (y)
the number and kind of shares or other securities subject to any then
outstanding options under the Plan, and (z) the price for each share subject
to any then outstanding options under the Plan, without changing the
aggregate purchase price as to which such options remain exercisable.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 15 if such adjustment would cause the Plan to fail to comply with
Section 422 of the Code or with Rule 16b-3.
(b) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination
7
<PAGE>
as to what adjustments, if any, will be made and the extent thereof will be
final, binding and conclusive. No fractional shares will be issued under the
Plan on account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, Etc.
(a) General. In the event of a consolidation or merger or sale of
all or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property
of any other corporation or business entity or in the event of a liquidation
of the Company, the Board of Directors of the Company, or the board of
directors of any corporation assuming the obligations of the Company, may, in
its discretion, take any one or more of the following actions, as to
outstanding options: (i) provide that such options shall be assumed, or
equivalent options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such options
substituted for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, (ii) upon written notice to the optionees,
provide that all unexercised options will terminate immediately prior to the
consummation of such transaction unless exercised by the optionee within a
specified period following the date of such notice, (iii) in the event of a
merger under the terms of which holders of the Common Stock of the Company
will receive upon consummation thereof a cash payment for each share
surrendered in the merger (the "Merger Price"), make or provide for a cash
payment to the optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding options
in exchange for the termination of such options, and (iv) provide that all or
any outstanding options shall become exercisable in full immediately prior to
such event.
(b) Substitute Options. The Company may grant options under the Plan
in substitution for options held by employees of another corporation who
become employees of the Company, or a subsidiary of the Company, as the
result of a merger or consolidation of the employing corporation with the
Company or a subsidiary of the Company, or as a result of the acquisition by
the Company, or one of its subsidiaries, of property or stock of the
employing corporation. The Company may direct that substitute options be
granted on such terms and conditions as the Board of Directors considers
appropriate in the circumstances.
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17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment
by the Company or interfere in any way with the right of the Company at any
time to terminate such employment or to increase or decrease the compensation
of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares
received upon such exercise will not constitute compensation with respect to
which any other employee benefits of such employee are determined, including,
without limitation, benefits under any bonus, pension, profit-sharing, life
insurance or salary continuation plan, except as otherwise specifically
determined by the Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the
approval of the shareholders of the Company is required under Section 422 of
the Code or any successor provision with respect to Incentive Stock Options,
or under Rule 16b-3, the Board of Directors may not effect such modification
or amendment without such approval.
(b) The termination or any modification or amendment of the Plan
shall not, without the consent of an optionee, affect his or her rights under
an option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify (i) the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such 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 (ii) the
terms and provisions of the Plan and of any outstanding option to the extent
necessary to ensure the qualification of the Plan under Rule 16b-3.
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<PAGE>
20. Withholding.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so delivered
or withheld shall have a fair market value equal to such withholding
obligation. The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Company as of the date that
the amount of tax to be withheld is to be determined. An optionee who has
made an election pursuant to this Section 20(a) may only satisfy his or her
withholding obligation with shares of Common Stock which are not subject to
any repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting
Person, no election to use shares for the payment of withholding taxes shall
be effective unless made in compliance with any applicable requirements of
Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees, (i)
the cancellation of any or all outstanding options under the Plan and the
grant in substitution therefor of new options under the Plan covering the
same or different numbers of shares of Common Stock and having an option
exercise price per share which may be lower or higher than the exercise price
per share of the cancelled options or (ii) the amendment of the terms of any
and all outstanding options under the Plan to provide an option exercise
price per share which is higher or lower than the then-current exercise price
per share of such outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by
the Board of Directors, but no Incentive Stock Option granted under the Plan
shall become exercisable unless and until the Plan shall have been approved
by the Company's shareholders. If such shareholder approval is not obtained
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within twelve months after the date of the Board's adoption of the Plan, no
options previously granted under the Plan shall be deemed to be Incentive
Stock Options and no Incentive Stock Options shall be granted thereafter.
Amendments to the Plan not requiring shareholder approval shall become
effective when adopted by the Board of Directors; amendments requiring
shareholder approval (as provided in Section 19) shall become effective when
adopted by the Board of Directors, but no Incentive Stock Option granted
after the date of such amendment shall become exercisable (to the extent that
such amendment to the Plan was required to enable the Company to grant such
Incentive Stock Option to a particular optionee) unless and until such
amendment shall have been approved by the Company's shareholders. If such
shareholder approval is not obtained within twelve months of the Board's
adoption of such amendment, any Incentive Stock Options granted on or after
the date of such amendment shall terminate to the extent that such amendment
to the Plan was required to enable the Company to grant such option to a
particular optionee. Subject to this limitation, options may be granted under
the Plan at any time after the effective date and before the date fixed for
termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section
16, the Plan shall terminate, with respect to Incentive Stock Options, upon
the earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, or (ii)
the date on which all shares available for issuance under the Plan shall have
been issued pursuant to the exercise or cancellation of options granted under
the Plan. Unless sooner terminated in accordance with Section 16, the Plan
shall terminate with respect to options which are not Incentive Stock Options
on the date specified in (ii) above. If the date of termination is determined
under (i) above, then options outstanding on such date shall continue to have
force and effect in accordance with the provisions of the instruments
evidencing such options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards
or options granted to participants who are foreign nationals or employed
outside the United States to recognize differences in laws, rules,
regulations or customs of such foreign jurisdictions with respect to tax,
securities, currency, employee benefit or other matters.
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Exhibit 10.2
STREAMLINE.COM, INC.
Amended and Restated
1993 Director Option Plan
1. Purpose.
The purpose of this 1993 Director Option Plan (the "Plan") of
Streamline.com, Inc. (the "Company") is to promote the recruiting and
retention of highly qualified outside directors and to strengthen the
commonality of interest between directors and stockholders.
2. Administration.
The Plan will be administered by the Board of Directors of the
Company, whose construction and interpretation of the terms and provisions of
the Plan shall be final and conclusive. However, all questions of
interpretation of the Plan or of any options issued under it shall be
determined by the Board of Directors and such determination shall be final
and binding upon all persons having an interest in the Plan. No director
shall be liable for any action or determination under the Plan made in good
faith.
3. Participation in the Plan.
Directors of the Company who are not employees of the Company shall
be eligible to be granted options under the Plan.
4. Stock Subject to the Plan.
(a) Effective as of the closing of the Company's initial public
offering of shares of Common Stock (the "IPO"), subject to adjustment as
provided in Section 9 below, the maximum number of shares of the Company's
Common Stock, $.01 par value per share ("Common Stock") which may be issued
under the Plan shall be 250,000 (after giving effect to the 1-for-2 reverse
stock split to take effect prior to the IPO).
(b) If any outstanding option under the Plan for any reason expires
or is terminated without having been exercised in full, the shares allocable
to the unexercised portion of such option shall again become available for
grant pursuant to the Plan.
<PAGE>
(c) All options granted under the Plan shall be non-statutory
options which are not intended to meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
5. Terms, Conditions and Form of Options.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) OPTION GRANTS. Options shall be granted at the
discretion of the Board of Directors.
(b) OPTION EXERCISE PRICE. The option exercise price per
share for each option granted under the Plan shall equal the fair market
value of the Company's Common Stock on the date of grant (as determined in
good faith by the Board of Directors). At such time as the Common Stock is
listed or quoted on a national securities exchange or trading system, the
option exercise price per share for each option granted under the Plan shall
equal the last reported sale price per share of the Company's Common Stock on
the NASDAQ National Market System (or such other national securities exchange
or trading system of which the Common Stock may then be listed or quoted) on
the date of grant (or if no such price is reported on such date, such price
is reported on the nearest preceding date on which such price is quoted).
(c) OPTIONS NON-TRANSFERABLE. Each option granted under the
Plan by its terms shall not be transferable by the optionee otherwise than by
will or by the laws of descent and distribution, or pursuant to a qualified
domestic relations order (as defined in section 414(p) of the Code) and shall
be exercised during the lifetime of the optionee only by such optionee.
(d) EXERCISE PERIOD. Each option may be exercised at any
time and from time to time, in whole or in part, prior to the fifth
anniversary of the date of grant.
(e) EXERCISE PROCEDURE. Options may be exercised only by
written notice to the Company at its principal office accompanied by payment
of the full consideration for the shares as to which they are exercised.
(f) PAYMENT OF PURCHASE PRICE. Payment of the exercise price
may be made, at the election of the optionee, (i) by delivery of cash or a check
to the order of the Company in an amount equal to the exercise price, (ii) by
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delivery to the Company of shares of Common Stock of the Company already
owned and held by the optionee for at least twelve months and having a fair
market value equal in amount to the exercise price of the options being
exercised, or (iii) by any combination of such methods of payment. The fair
market value of any shares of Common Stock which may be delivered upon
exercise of an option shall be determined by the Company as of the date that
such shares are delivered.
(g) OPTION AGREEMENTS. As a condition to the grant of an
option under the Plan, each recipient of an option shall execute an option
agreement in such form not inconsistent with the Plan as may be approved by
the Board of Directors. Such option agreements may differ among recipients,
but each shall include restrictions on transfer and repurchase rights in
favor of the Company.
6. Assignments.
The rights and benefits under the Plan may not be assigned except as
provided in Section 5.
7. Time for Granting Options.
All options for shares subject to the Plan shall be granted, if at
all, not later than June 9, 2003.
8. Limitation of Rights.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain a director for any period of time.
(b) NO STOCKHOLDER RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by his or her
option until the date of the issuance to him or her of a stock certificate
therefor, and no adjustment will be made for dividends or other rights for
which the record date is prior to the date such certificate is issued.
9. Adjustment Provisions.
(a) RECAPITALIZATIONS. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
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Common Stock are increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company, 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 or other securities, an appropriate and proportionate
adjustment shall be made in (w) the maximum number and kind of shares
reserved for issuance under the Plan, (x) the number and kind of shares or
other securities subject to future option grants under the Plan, (y) the
number and kind of shares or other securities subject to then outstanding
options under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable, provided that no
adjustment shall be made pursuant to this Section 9 if such adjustment would
cause the Plan to fail to comply with Rule 16b-3 under the Exchange Act, or
any successor rule ("Rule 16b-3").
(b) MERGERS. In the event of a consolidation or merger in which
outstanding shares of Common Stock are exchanged for securities, cash or
other property of any other corporation or business entity or in the event of
a liquidation of the Company or sale of all or substantially all of the
assets of the Company, the Board of Directors of the Company, or the board of
directors of any corporation assuming the obligations of the Company, shall
take any one or more of the following actions, as to outstanding options: (i)
Provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (ii) upon written notice to the optionees, provide that all
unexercised options will terminate immediately prior to the consummation of
such transaction unless exercised by the optionee within a specified period
following the date of such notice, or (iii) in the event of a merger under
the terms of which holders of the Common Stock of the Company will receive
upon consummation thereof a cash payment for each share surrendered in the
merger (the "Merger Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Merger Price times the
number of shares of Common Stock subject to such outstanding options (to the
extent then exercisable at prices not in excess of the Merger Price) and (B)
the aggregate exercise price of all such outstanding options in exchange for
the termination of such options.
10. Amendment of the Plan.
(a) The provisions of Sections 3, 5(a) and 5(b) of the Plan shall
not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, or
the rules thereunder. Subject to the foregoing, the Board of Directors may at
any time, and from time to time, modify or amend the Plan in any respect,
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except that if at any time the approval of the stockholders of the Company is
required as to such modification or amendment under Rule 16b-3, the Board of
Directors may not effect such modification or amendment without such approval.
(b) The termination or any modification or amendment of the Plan
shall not, without the consent of the optionee, affect his or her rights
under an option previously granted to him or her. With the consent of the
optionees affected, the Board of Directors may amend outstanding option
agreements in a manner not inconsistent with the Plan. The Board of Directors
shall have the right to amend or modify the terms and provisions of the Plan
and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
11. Withholding.
The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so delivered
or withheld shall give a fair market value equal to such withholding
obligation. The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Company as of the date that
the amount of tax to be withheld is to be determined. An optionee who has
made an election pursuant to this Section 11 may only satisfy his or her
withholding obligation with shares of Common Stock which are not subject to
any repurchase, forfeiture, unfulfilled vesting or other similar
requirements. Notwithstanding the foregoing, no election to use shares for
the payment of withholding taxes shall be effective unless made in compliance
with any applicable requirements of Rule 16b-3.
12. Notice.
Any written notice to the Company required by any of the provisions
of the Plan shall be addressed to the Chief Executive Officer of the Company
and shall become effective when it is received.
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13. Effective Date and Duration of the Plan.
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by
the Board of Directors, but no option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, all options
granted under the Plan shall terminate and no further options shall be
granted under the Plan. Amendments to the Plan not requiring stockholder
approval shall become effective when adopted by the Board of Directors;
amendments requiring stockholder approval (as provided in Section 10(a))
shall become effective when adopted by the Board of Directors, but no option
issued after the date of such amendment shall become exercisable (to the
extent that such amendment of the Plan was required to enable the Company to
grant such option to a particular optionee) unless and until such amendment
shall have been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve months of the Board's adoption of such
amendment, any options granted on or after the date of such amendment shall
terminate to the extent that such amendment to the Plan was required to
enable the Company to grant such option to a particular optionee. Subject to
this limitation, options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
(b) TERMINATION. Unless earlier terminated pursuant to Section 9,
the Plan shall terminate upon the earlier of (i) June 9, 2003, or (ii) the
date on which all shares available for issuance under the Plan shall have
been issued pursuant to the exercise of options granted under the Plan. If
the date of termination is determined under (i) above, then options
outstanding on such date shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such options.
14. General Restrictions.
(a) INVESTMENT REPRESENTATIONS. The Company may require any person
to whom an option is granted, as a condition of exercising such option, to
give written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the
option for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws
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<PAGE>
(b) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other
condition is necessary as a condition of, or in connection with, the issuance
or purchase of shares thereunder, such option may not be exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval, or satisfaction of such other condition shall have been effected or
obtained on terms acceptable to the Board of Directors. Nothing herein shall
be deemed to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such other condition.
15. Governing Law.
The Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of the Commonwealth of Massachusetts.
7
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Exhibit 10.6
DEVELOPMENT AGREEMENT STREAMLINE-INTEL
- --------------------------------------------------------------------------------
This agreement ("Agreement") is entered into as of June 13, 1997, ("Effective
Date") by and between Intel Corporation, having a place of business at 2200
Mission College Blvd., Santa Clara, California, 95052 ("Intel") and Streamline,
Inc. ("Streamline") on behalf of themselves and their respective worldwide
subsidiaries.
BACKGROUND
A. Intel is developing technologies designed to encourage creation of
hybrid portal applications for Intel Architecture (IA) based PCs. Intel
plans to use in-house technology and industry technology components to
develop portal implementations for different market segments and to
deploy working implementations of portals for a variety of companies
who wish to lead with portal technology in their market segments.
B Streamline is developing an industry-leading, technology based consumer
direct business which Streamline intends to become a primary supplier
of grocery and related goods to time-starved consumers that fit a
certain marketing profile. The parties believe that the deployment of
Intel's hybrid portal concept would enhance the value of Streamline's
business by providing a superior shopping (consumer browsing and order
placement) interface that would ultimately help Streamline's goal of
providing superior consumer service, and provide a technology based
front end that would help in reducing overall costs in the order
acquisition process.
C. Intel wishes to assist Streamline in bringing certain products to
market by providing technical assistance to Streamline. Streamline is
willing to receive such assistance according to the terms of this
Agreement.
AGREEMENT
Intel and Streamline agree as follows:
1. GENERALLY
1. 1. THE CONSUMER GROCERY SEGMENT. The "Consumer Grocery" business
is the business of, in response to on-line computer-based
orders, providing direct delivery to home consumers of
groceries, household staples (i.e. home cleaners, health and
beauty aids), and similar products such as are found
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in a conventional grocery store. Besides Streamline, other
companies engaged in the Consumer Grocery business include
Peapod, Shopper's Express, Homeruns, and ShopLink.
1.2. THE GROCERY APPLICATION. The "Grocery Application" is the
grocery and related product-oriented, sales application to be
developed by Intel and based on Intel's hybrid portal
technology for IA PCs, and the "push" server technology which
drives it. It will be targeted at customers of Streamline's
Consumer Grocery business with sufficiently capable home PCs
and will function as the front end to a business product,
interacting with back end and, Streamline's business
infrastructure (collectively, the "Streamline System"). The
Grocery Application will be scalable so that it will be
usable, though less richly, by a class of PCs which are less
capable than top-end PCs, though there will be a level of
capability at which browser access will represent the level of
interactivity and richness available. The Grocery Application
is described with greater particularity in Attachment A
attached hereto.
1.3. THE PROJECT. The "Project" is the respective efforts of
Streamline and Intel to develop the Grocery Application and
deploy it in Streamline's business. Streamline will manage the
integration of the various components of the working product.
This will include appropriate testing, timely feedback, and
facilitating the interactions with Streamline's other
technology vendors.
1.4. PROGRAM REVIEW. Intel and Streamline shall meet at least
monthly to review the progress of the Project. Among other
things, Intel and Streamline shall work to agree on the scope,
interim milestones, and timing of their respective efforts
hereunder. By June 30, 1997, Intel and Streamline shall agree
on a set of interim milestones, including up to two major
milestones which the parties may identify as presumptive
indicators of timely performance of each party hereunder,
final milestones and specifications.
1.5. PROPRIETARY APPLETS. The parties shall, in good faith, work to
enable Streamline to incorporate up to four functional
features authored by and belonging to Streamline into the
Grocery Application. These may be incorporated either through
"plug-in"
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like interfaces or by incorporation into the code itself as
the parties may agree, and shall be identified by June 30,
1997. Such applets shall remain Streamline's property.
1.6. FURTHER EXTENSIONS. Intel shall have the right *on any *
with * for the purpose of * or * . Such right shall be
exercised, if at all by written notice given no more than
30 days after streamline provides INTEL with written notice
of all relevant terms of such proposed activities.
2. INTEL ASSISTANCE
2.1. PORTAL DEVELOPMENT. Intel will devote reasonable efforts and
resources to the development and delivery of the Grocery
Application. The Grocery Application is licensed as set out in
Section 3.1.
2.2. ADVICE AND CONSULTATION. During the course of the Project,
Intel will provide advice and consultation to Streamline
relating to the technical capabilities of the IA and as to
features or architectures which would optimize use of the
Grocery Application. This consultation may include advice
and/or suggestions on system integration. Intel will work with
Streamline's suppliers on the back end enterprise and commerce
systems to integrate the servers into the back end dataflow,
and may provide input regarding basic Web content to enable
scalability. Streamline remains solely responsible for the
Project and its management other than development of the
Grocery Application.
2.3. MOCKUPS AND DEMONSTRATIONS. In support of the goal of creating
a user preferred interface, during development of the user
interface Intel will supply certain technology demos and
mockups for consumer testing as mutually determined by Intel
and Streamline. These shall remain Intel's property.
2.4. TUNING. During the course of the Project, Intel may develop
and deliver performance tuning modifications ("Tune-Ups") to
Streamline's software applications other than the Grocery
Application. Tune-Ups are licensed as set forth in Section 4.2
below.
* Confidential treatment requested
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2.5. SOURCE. Intel will deliver the Grocery Application in both
source and object forms, subject to the terms hereof. Neither
party shall deliver or disclose Source Code received from the
other without the providing party's written consent.
3. TITLE AND LICENSES
3.1. GROCERY APPLICATION LICENSE. Effective on Intel's delivery and
Streamline's acceptance of the Gold Master of the Grocery
Application, Intel grants to Streamline a fully paid-up
license under Intel's copyrights, to use, reproduce, display,
and distribute (including distribution to Streamline
customers) the Grocery Application in object code form, and to
compile internally and modify the source code form thereof,
all subject to the following provisions:
3.1.1. This license shall only extend to use and
distribution of the Grocery Application in connection
with business transacted in the Consumer Grocery
market segment by Streamline or its franchisees,
including Streamline's subsidiary Regional Operating
Companies, under Streamline's service marks and for
which Streamline derives direct compensation.
3.1.2. The user interface of the Grocery Application shall
contain visible credits and acknowledgments of Intel
for its contributions in a manner to be agreed.
3.1.3. Streamline shall not remove Intel's proprietary
notices from the Grocery Application.
3.2. * STATUS. Until * following the * of the Grocery
Application from INTEL to StreamLine, INTEL shall not *
the Grocery Application to * for * and * in the *. After
such time period, any such * shall be subject to the
provisions of Section 3.4. Prior to the expiration of such
time period, INTEL shall not publicly announce or authorize
* to announce a * in the * for the purpose of using INTEL's
* in the Grocery Application.
3.3. INTEL ARCHITECTURE FOCUS. Streamline promises to (i) only
implement the portal concept for IA-based computers, (ii)
introduce new innovations in non-portal interfaces (browsers)
for IA at least as early as for any other platform and (iii)
develop
* Confidential treatment requested
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back end technology solutions on IA. All non-portal (browser)
features will be readily useable by IA and new features will
be optimized for IA or specially adapted to run on IA. The
focus described in this Section * of StreamLine's * or *
However, Streamline would retain the ability to develop other
technology solutions on their own, or with other parties, as
Streamline sees fit. Intel may provide input for these
efforts. This provision shall not survive termination of the
Agreement on account of breach or nonperformance by Intel.
3.4. TRADE DRESS. Notwithstanding Intel's ownership of the Grocery
Application, to the extent that the user interface of the
Grocery Application incorporates an appearance which consumers
may associate with Streamline as a source of goods and
services and not implied or required by underlying
functionality or the grocery metaphor, Streamline shall be the
owner of the trademark and trade dress rights in such
appearance for the Consumer Grocery market segment. By way of
example, the distinctive background of the interface may
constitute trade dress, while the concept of fulfilling an
ingredients list to a recipe would not.
3.5. NO OTHER LICENSES. Except for the licenses expressly provided
herein, no licenses are granted by either party, either
expressly or by implication, to any intellectual property of
the other. Notwithstanding Intel's ownership in the copyrights
in any specific Intel deliverables, Streamline shall own all
copyrights in its own original work.
3.6. TUNE-UPS. To the extent that Intel prepares and delivers any
Tune-ups to Streamline, Streamline shall have a non-exclusive
license under any Intel copyright therein to incorporate such
Tune-Ups into the software application for which the Tune-Up
was made. Streamline shall retain sole title to the product so
modified, and may license, modify, adapt, translate,
distribute, sell, and otherwise commercialize it in any way
whatsoever without any duty of accounting to Intel arising
from the incorporation of the Tune-Ups. The Parties do not
intend to create a "joint work."
* Confidential treatment requested
Page 5
<PAGE>
3.7. OTHER TECHNOLOGICAL INPUTS. Intel may deliver to Streamline
certain copyrighted software, other than the Grocery
Application, which Intel has developed either for the purpose
of this relationship or otherwise. Where such materials are
intended for redistribution, Intel shall provide Streamline
with written notice that it has a nonexclusive license under
Intel's copyrights to use the software in accordance with the
terms set out in Section 3.1.
3.8. NEW DEVELOPMENTS. Ownership of new developments, whether
patentable or not, shall be determined in accordance with the
patent laws of the United States. If a patentable invention is
made jointly, patent counsel of the parties shall meet and in
good faith agree on an appropriate manner of securing patent
protection therefor. Any jointly owned intellectual property
may be exploited without any duty of accounting.
4. STREAMLINE OBLIGATIONS RELATING TO THE PROJECT
4.1. DEVELOPMENT EFFORT. Streamline will commit sufficient
financial, technical, and marketing resources reasonably
appropriate to support a coordinated product rollout according
to the schedule set out in this Agreement.
4.2. SUPPORT. Streamline shall provide technical support to its
customers consistent with standard commercial practices and
the nature of the services it provides.
4.3. WARRANTS. In consideration of entering into this Agreement,
Streamline has granted to Intel a warrant to acquire 285,714
shares of Streamline's Common Stock, attached hereto as
Attachment B (the "Warrant"), for no additional consideration.
The Warrant is subject to the provisions of this Agreement.
5. MARKETING
5.1. EVENTS. Intel may invite Streamline to participate in industry
marketing events to provide testimony to the value of IA PCs
in new business models such as the Consumer Grocery business.
In
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<PAGE>
turn, if Streamline requests, Intel may elect to participate
in Streamline's marketing efforts
5.2. PUBLICITY. Neither party will reveal the existence or contents
of this Agreement without the consent of the other, except as
provided below or as required by law (in which case the other
party will be first given notice and an opportunity to
object).
5.2.1. Each party may discuss Grocery Application and use
the other party's name in connection with promotion
of its portal technology, provided that neither party
discloses any confidential information about the
other.
5.2.2. Streamline may publicly disclose and position its use
of Intel technology within the general framework
and-timeline set out below. Intel may make public
statements which parallel these permitted comments:
(a) before delivery of the Grocery Application,
Streamline shall keep the relationship confidential
except as agreed by the parties; (b) after delivery
of the Grocery Application the earlier of (i) the
completion of a 12 week in-market test by P&G or (ii)
six months after delivery of the Grocery Application
"Product Launch") Streamline may reveal that Intel
has selected Streamline to be the only beta customer
in the Consumer Grocery segment for its consumer
direct portal technology; and (c) after Product
Launch, Streamline may reveal that its consumer
direct solution is based on Intel architecture and
that Streamline is the first customer to make use of
the Intel consumer direct portal technology.
5.3. RESPECT FOR TRADEMARKS. Streamline shall not use Intel's
trademarks, or portions of them, including MMX(TM),
Pentium(R), Pentium(R) II, or -II, except in accordance with
Intel's guidelines for such use. In particular, Streamline
shall not incorporate any of these marks into its product
names, but Streamline may truthfully report that a product is
optimized or designed for such Intel products.
5.4. TAXES. Each party shall be solely responsible for its own
taxes, including any applicable sales taxes and customs duties
on items acquired under this Agreement. To the extent, if any,
that the applicable taxing authority requires withholding of
taxes
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<PAGE>
based on payments made hereunder, the paying party shall
withhold such taxes and provide the payee with the
documentation reasonably necessary to claim a credit therefor.
6. TERM & TERMINATION
6.1. TERM OF AGREEMENT. This Agreement's term commences as of the
Effective Date and terminates as of December 31, 2002, unless
the parties agree to extend it or it is terminated in
accordance with the terms hereof.
6.2. BREACH. Either party may terminate this Agreement by written
notice if the other party is in material breach of any of its
terms and fails to cure such breach within thirty days of
written notice of such breach.
6.3. SURVIVAL. The following provisions shall survive termination
or expiration: 3.1, 3.4, 3.6, 3.8, 5.4, and 7, provided that
where the termination is for breach by a party, the license(s)
granted to such party shall terminate.
6.4. EFFECT OF TERMINATION. The provisions of section 2 of the
Warrant attached hereto shall govern in the case of
termination of this Agreement.
7. GENERAL PROVISIONS
7.1. CONFIDENTIAL TERMS. Confidential information shall be held in
confidence pursuant to the terms of the Corporate
Non-Disclosure Agreement in place between the parties, except
to the extent that the terms are superseded by the express
provisions hereof. Streamline shall not disclose any
information or methods to Intel that Intel will be foreclosed
by confidentiality obligations from incorporating into its own
products, except that this shall not give Intel a right to
Streamline's source code.
7.2. RELATIONSHIP OF PARTIES. The parties are not partners or joint
venturers, or liable for the obligations, acts, or activities
of the other.
7.3. AMENDMENTS AND ASSIGNMENTS. Any change, modification or waiver
to this Agreement must be in writing and signed by an
authorized representative of each party. Neither party may
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<PAGE>
assign this Agreement or any portion of this Agreement to any
other party without the other's prior written consent.
7.4. MERGER AND WAIVER. Except for those certain agreements
pertaining to confidentiality, and equity investments, this
Agreement is the entire agreement between the parties with
respect to the development and distribution of the Grocery
Application, and it supersedes any prior or contemporaneous
agreements and negotiations relating thereto. No waiver of any
breach or default shall constitute a waiver of any subsequent
breach or default.
7.5. INTEL CONTRIBUTIONS. Intel represents that the work provided
by Intel hereunder is Intel's original work or properly
licensed from the author(s) thereof.
7.6. SUITS BASED ON INTEL DELIVERABLES. During the term of this
Agreement, Intel shall defend, indemnify, and hold Streamline
and its customers harmless from and against any suit or
proceeding brought against Streamline, its subsidiaries or
customers, based upon a claim that the Grocery Application
alone and not in combination with any other product infringes
the copyright or trade secret of another, or that it infringes
a U.S. patent of which Intel had notice upon or prior to
delivery to Streamline thereof. Streamline's indemnity will
include all damages and costs awarded, including attorneys'
fees, and settlement costs, provided that Streamline shall not
settle any claim without Intel's consent and that Intel shall
not be obligated to pay a settlement or judgment in excess of
$250,000, and further provided that:
7.6.1. Streamline shall promptly notify Intel of any claim
and will provide information, assistance, and
cooperation in defending against it (at Intel's
expense).
7.6.2. Streamline will have the right to participate in the
defense of any claim, at its own expense.
7.6.3. This indemnity shall not apply to software prepared
or supplied by Streamline.
7.6.4. Intel shall have the right to modify the Grocery
Application in order to avoid a claim of
infringement, or to replace it entirely in Intel's
reasonable judgment.
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<PAGE>
7.7. RIGHTS. Streamline warrants and represents that it has or
shall obtain all rights necessary to undertake the activities
described in this Agreement and to develop and market the
Streamline System. Streamline shall promptly notify Intel of
any written or otherwise valid charge or claim of infringement
of any third party's right relating to development or
distribution of the Streamline System.
7.8. Suits based on Streamline System. Streamline shall defend,
indemnify, and hold Intel and its customers harmless from and
against any suit or proceeding brought against Intel, its
subsidiaries or customers, based upon the development or
distribution of Streamline System, including any claim that
the Streamline System infringes any third-party intellectual
property right or that the Streamline System (including any
portion supplied by Intel) is in any way related to or a cause
of liability for harm to a human being (a "Claim").
Streamline's indemnity will include all damages and costs
awarded, including attorneys' fees, and settlement costs,
provided that Intel shall not settle any claim without
Streamline's consent.
7.8.1. Intel shall promptly notify Streamline of any Claim
and will provide information, assistance, and
cooperation in defending against it (at Streamline's
expense).
7.8.2. Intel will have the right to participate in the
defense of any Claim, at its own expense.
7.8.3. This indemnity shall not apply to software prepared
or supplied by Intel.
7.9. NO WARRANTY. EXCEPT AS EXPRESSLY PROVIDED HEREIN, MATERIALS
CONTRIBUTED BY EACH PARTY HEREUNDER ARE PROVIDED AS IS. THE
PARTIES MAKE NO WARRANTIES WITH RESPECT TO SUCH MATERIALS,
EITHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, NONINFRINGEMENT OR FITNESS FOR A PARTICULAR
PURPOSE.
7.10. LIMITED LIABILITY. Neither party shall be liable to the other
for lost profits, expected revenues, or development or support
costs arising from any termination of this Agreement. IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOSS OF
PROFITS, DATA, OR USE OR ANY SPECIAL,
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<PAGE>
CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER CAUSED, EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE PARTIES
ACKNOWLEDGE THAT THESE LIMITATIONS ON POTENTIAL LIABILITIES
WERE AN ESSENTIAL ELEMENT IN SETTING CONSIDERATION UNDER THIS
AGREEMENT.
7.11. COMPLIANCE WITH LAW. Neither party shall export, distribute,
or sell the Streamline System or the Intel Technology in
violation of US or other applicable law.
7.12. NOTICES AND REQUESTS. All notices and requests required or
made under this Agreement must be in writing and shall be
personally delivered or if mailed postage prepaid, certified
or registered mail, or overnight courier to the addresses
listed below:
To Intel To Streamline
Intel Corporation Streamline, Inc.
2200 Mission College Blvd.,
Santa Clara, California 95052
ATTN.: GENERAL COUNSEL ATTN.: GENERAL COUNSEL
7.13. CHOICE OF LAW. Any claim based on this Agreement shall be
governed by the laws of Delaware, and shall be subject to the
exclusive jurisdiction of the state and federal courts located
there.
In witness of their agreement the parties have caused the Agreement to be
executed below by their authorized representatives.
Intel Corporation Streamline, Inc.
By: /s/ Ronald J. Whittier By: /s/ Timothy A. Demello
-------------------------- ---------------------------
Name Ronald J. Whittier Name Timothy A. DeMello
Title Sr. VP Title Chairman
Page 11
<PAGE>
DEVELOPMENT AGREEMENT STREAMLINE-INTEL
- --------------------------------------------------------------------------------
Attachment A
Description and Development Plan
This Attachment is effective solely as a technical description and development
plan. It is subordinate to the provisions of the Agreement to which it is
attached.
DESIGN PHILOSOPHY
- -----------------
Intel seeks to build a showcase application that brings real value to
Streamline and its customers by taking advantage of the capabilities inherent
in the *. The team will make *, and * of the * to aid consumers in their
shopping).
For this to be a practical product, Intel plans to use * wherever possible.
These can be from the industry or from *. However, since this is a new
application, * will also be developed. Intel plans to develop these * so that
it can be * .
OVERVIEW OF SYSTEM
- ------------------
The * Intel is developing consists of two major parts: the * and the *. The *
is a *. It is * that will speed up the shopping experience for the
consumer. The * of the product * Streamline's *, and will be responsible for
* the * and facilitating the transactions.
[diagram depicting the conceptual design of the application]
Note: Intel will be responsible for implementing the *, the * and the parts
of the *. Responsibility for * of the *.
* APPLICATION
- -------------
The * will be the * to Streamline for * with *. (Consumers will always have
the option of accessing Streamline's services through a *. It will have the
following features:
- - *
- - * that will be designed with consumer preferences in mind.
- - * which will enable *
- - * (in the form of a CD or DVD disk)
- - *
- - * (to suit different users)
- - * to adapt the application (and the store) to the user
- - *
[diagram depicting the integration of the
several functional segments of the application]
* Confidential Treament Requested
-2-
<PAGE>
*
The * keep the client * with the right information. These * will need to be *
including the * and *. Because of * of this * is very much * the * to *.
[diagram depicting the integration of the
several functional segments of the application]
* Confidential treatment requested
<PAGE>
AMENDMENT NO. 1
TO
DEVELOPMENT AGREEMENT STREAMLINE-INTEL
("AGREEMENT")
The subject Agreement Effective June 6, 1997 between Intel Corporation ("Intel")
and Streamline, Inc. ("Streamline") is hereby amended pursuant to paragraph 7.3
of the Agreement, effective as of September 22, 1998, to incorporate the
following modifications:
1. The following is added at the end of Section 7.7:
Streamline acknowledges that the Grocery Application will
contain search engine software owned by Verity, Inc., and that
Intel has entered into a license agreement with Verity,
allowing Intel to sublicense the search engine software as
incorporated in the Grocery Application, to Streamline (the
"Verity Agreement," attached hereto as Attachment C).
Streamline warrants and represents that it will abide by all
terms and conditions imposed on a sublicensee in the Verity
Agreement. Streamline will defend, indemnify, and hold Intel
harmless from and against any suit or proceeding brought
against Intel resulting from a breach of this representation
and warranty. Streamline's indemnity will include all damages
and costs awarded, including attorneys' fees, and settlement
costs, provided that Intel shall not settle any claim without
Streamline's consent.
The remaining terms of the Agreement remain in full force and effect.
AGREED:
INTEL CORPORATION STREAMLINE, INC.
/s/ Martin Guttmann /s/ Frank Britt
- ---------------------------- ----------------------------
Signature Signature
Martin Guttmann Frank Britt
- ---------------------------- ----------------------------
Printed Name Printed Name
Sr. Engineering Manager Vp Marketing
- ---------------------------- ----------------------------
Title Title
9/08/98 9/22/98
- ---------------------------- ----------------------------
Date Date
<PAGE>
EXHIBIT 10.30
COMMERCIAL LEASE
BY AND BETWEEN
STREAMLINE, MID-ATLANTIC, INC.
A DELAWARE CORPORATION
"TENANT"
AND
MANOR CARE, INC. A DELAWARE CORPORATION
"LANDLORD"
AT
ARCHIVES BUILDING
11555 DARNESTOWN ROAD
GAITHERSBURG, MARYLAND 20852-3200
"BUILDING"
LISTING AGENT:
JOSEPH A. SUTTON, JR.
SENIOR VICE PRESIDENT
SCHEER PARTNERS, INC.
1700 ROCKVILLE PIKE, SUITE 240
ROCKVILLE, MARYLAND 20852
PHONE: (301) 770-1430
FAX: (301) 468-11.90
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Article I. Definitions and Certain Basic Provisions...................................1
Article II. Granting Clause............................................................2
Article III. Rental.....................................................................3
Article IV. Security Deposit...........................................................7
Article V. Construction and Acceptance of the Demised
Premises...................................................................10
Article VI. Uses and Care of Demised Premises..........................................11
Article VII. Landlord's Services........................................................13
Article VIII. Alterations................................................................15
Article IX. Landlord's Right of Access and Use.........................................15
Article X. Signs......................................................................17
Article XI. Utilities..................................................................17
Article XII. Indemnity, Public Liability Insurance and Fire
and Extended Coverage Insurance............................................18
Article XIII. Tenant's Insurance and Landlord's Insurance................................18
Article XIV. Non-Liability for Certain Damages..........................................20
Article XV. Damage by Casualty.........................................................21
Article XVI. Eminent Domain.............................................................22
Article XVII. Assignment and Subletting..................................................23
Article XVIII. Default by Tenant and Remedies.............................................24
Article XIX. Landlord's Lien............................................................28
Article XX. Holding Over...............................................................28
Article XXI. Subordination; Attornment; and Estoppel....................................28
Article XXII. Notices....................................................................30
Article XXIII. Brokers....................................................................30
Article XXIV. Approval and Changes Required by Lender....................................30
Article XXV. Parking....................................................................31
Article XXVI. Waiver of Trial by Jury....................................................31
Article XXVII. Furnishing of Financial Statements.........................................31
Article XXVIII. Occupational and Environmental Compliance..................................31
Article XXIX. Surrender of Demised Premises..............................................33
Article XXX. Miscellaneous..............................................................34
Article XXXI. Status as Sublease.........................................................36
Article XXXII. Attachments................................................................37
</TABLE>
<PAGE>
COMMERCIAL LEASE
This Lease is entered into this 30th day of June, 1997, by and between
the Landlord and the Tenant named below.
ARTICLE I. DEFINITIONS AND CERTAIN BASIC PROVISIONS.
1.1.
(a) "LANDLORD": Manor Care, Inc., a Delaware
corporation
(b) "LANDLORD'S ADDRESS": 1155 Darnestown Road
Gaithersburg, Maryland 20852-3200
Attn.: Facilities Services
(c) "TENANT": Streamline, Mid-Atlantic, Inc.
a Delaware Corporation
(d) "TENANT'S CURRENT ADDRESS": 5110 Ridgefield Road
Suite 413
Bethesda, MD 20816
(e) "TENANT'S TRADE NAME": Not Applicable
(f) "TENANT ADDRESS IN BUILDING": 11555 Darnestown Road,
Bay T.B.D., Gaithersburg,
MD 208783200 (or any
other address Landlord
assigns prior to the
Commencement Date).
(g) "BUILDING": shall refer to the building commonly known as the
archives building at the address of 11555 Darnestown Road, Maryland 20878-3200
together with additions and other changes as Landlord may from time to time
designate. Landlord reserves the right to assign a different address to the
Building prior to the Commencement Date.
(h) "DEMISED PREMISES": approximately 56,400 rentable square feet, (see
Demising Plan, Exhibit A). Substantially measured in accord with outside wall to
outside wall and outside wall to middle of demising walls, as appropriate. See
Section 2.1
(i) "TENANT'S PROPORTIONATE SHARE": 27.92%
<PAGE>
-3-
(j) "LEASE TERM": The period of time commencing from the Commencement
Date, as defined in Section 5.3, and terminating ten (10) years and zero (0)
months after such Commencement Date, unless such termination date is other than
the last day of a calendar month, in which event this Lease shall terminate on
the last day of the calendar month in which such date falls.
(k) "LEASE YEAR": In the case of the first Lease Year, that period from
the Commencement Date to the last day of the twelfth (12th) month following the
Commencement Date. Thereafter, "Lease Year" shall mean each successive twelve
(12) month calendar period following the expiration of the first Lease year.
(l) "TARGET COMMENCEMENT DATE": October 1, 1997. See Section 5.3.
(m) "ANNUAL BASE RENT": $366,600.00 calculated using a rate of $6.50
per rentable square foot.
(n) "MONTHLY RENTAL INSTALLMENTS": $30,550.00
(o) "INITIAL OPERATING EXPENSES": $4,988.37 per month
(p) "SECURITY DEPOSIT": $30,550.00 in cash; $166,000.00 in Letter of
Credit.
(q) "ADVANCE DEPOSIT": $30,550.00
(r) "PERMITTED USE": General Office, Distribution, and Storage Uses,
but no use outlined in Exhibit J.
(S) "INITIAL TAX ESCROW PAYMENT": $1,733.37 per month
ARTICLE II. GRANTING CLAUSE.
2.1. In consideration of the obligation of Tenant to pay rent and other
charges as provided in this Lease and in consideration of the other included
terms, covenants and conditions, Landlord demises and Leases to Tenant, and
Tenant Leases from Landlord, the Demised Premises as described in ARTICLE I,
SECTION 1.1(h) TO HAVE AND TO HOLD said premises for the Lease Term specified in
ARTICLE I, SECTION 1.1(j), all upon the terms and conditions set forth in this
Lease. Landlord expressly reserves the right to change the name of said Building
without notice to the Tenant. Prior to the Lease Commencement Date, Landlord's
architect at Landlord's expense shall measure the Demised Premises to determine
the actual square footage contained in the Demised Premises. The determination
of Landlord's
<PAGE>
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architect as to square footage shall in the Demised Premises shall be deemed
conclusive and such number shall be used, as applicable, for all matters
dependant on the actual square footage of the Demised Premises.
ARTICLE III. RENTAL.
3.1. Tenant shall pay to Landlord in monthly installments an amount
equal to 1/12 of the Annual Base Rent, in advance on the first day of each
month, with the first installment to be paid at the time of signing the Lease.
The Annual Base Rent shall be increased each year on the Anniversary Date by
three per cent (3%). All Rent (hereinafter defined) shall begin as of the
Commencement Date and shall be adjusted proportionately for any partial month at
the beginning or end of the Term. All Rent shall be payable without prior notice
or demand except as expressly set forth herein, and without offset, deduction or
counterclaim, in lawful money of the United States of America, to Landlord at
the address set forth on the Lease Summary Sheet or at such other place as
Landlord may from time to time designate by written notice.
3.2. This Lease is what is commonly called a "Net Lease", it being
agreed that Landlord shall receive the rent set forth in Article 3 free and
clear of any and all impositions, taxes, real estate taxes, liens, charges of
any nature whatsoever in connection with the ownership and operation of [lie
Premises together with the Building and land associated therewith ("Land"). In
addition to the rent reserved in Article 3, Tenant shall pay as Additional Rent
its proportionate share as stipulated below of all impositions, taxes,
assessments, governmental charges of any kind, insurance premiums, operating
charges, maintenance charges, reasonable management fees, expenses, construction
costs, and any other costs expenses which arise or may be contemplated to arise
under any relevant provisions of this Lease during the term hereof. All such
charges, costs and expenses shall constitute additional charges and, upon the
failure of Tenant to pay any of such costs, charges or expenses, Landlord shall
have the same rights and remedies as otherwise provided in this Lease for the
failure of Tenant to pay rent. During each month of the term of this Lease, on
the same day that rent is due hereunder, Tenant shall escrow with Landlord an
amount equal to 1/12 of the estimated annual cost of its proportionate share of
such items. Tenant authorizes Landlord to use the funds deposited with Landlord
under this Paragraph 3.2 to pay such costs. The initial monthly escrow payments
are based upon the estimated amounts for the year in question, and shall be
increased or decreased annually to reflect the projected actual costs of all
such items. If Tenant's total escrow payments are less than Tenant's actual
proportionate share of all such items, Tenant shall pay the difference to
Landlord within ten (10) days after demand. If the total escrow payments of
<PAGE>
-5-
Tenant are more than Tenant's actual proportionate share of all such items,
Landlord shall retain such excess and credit it against Tenant's next annual
escrow payments or return it to Tenant if there are no further escrow payments.
A copy of such estimated operating expenses and real estate taxes for the
calendar year 1997 is attached hereto as - Exhibit A-1.
Notwithstanding the foregoing, Tenant shall not be responsible for the
following charges, costs and expenses under the Lease.
i) wages, bonuses and other compensation paid to any partner,
shareholder, officer or director of Landlord;.
ii) any costs or expenses associated with or incurred in connection
with the removal, enclosure, encapsulation or other handling of
asbestos or other hazardous or toxic materials or substances which
costs or expenses arose due to the negligence or intentional act of the
Landlord or another tenant of the Building or the Land.
iii) cost of any item for which Landlord is paid or reimbursed by
insurance;
iv) increased insurance or Real Estate Taxes assessed and charged
specifically to any other tenant;
v) charges for electricity, water, other utilities and applicable taxes
for which Landlord is reimbursed from any other tenant;
vi) cost of any HVAC, janitorial or other services provided to other
tenants on an extra-cost basis after regular business hours or
otherwise charged to that tenant;
vii) cost of correcting defects in the design, construction or
equipment of or latent defects in the Building;
viii) cost of any work or service performed on an extra-cost basis for
any other tenant, which cost is charged to that tenant;
ix) cost of any work or services performed for any building other than
the Building;
x) the portion of any cost representing an amount paid to a person,
firm, corporation or other entity related to Landlord which is
substantially in excess of the amount which would have been paid in the
absence of such relationship;
<PAGE>
-6-
xi) Landlord's costs attributable to the activities of Landlord's
officers and executives, if any;
xii) attorneys' fees, accounting fees, brokerage fees and commissions
and expenditures incurred in connection with negotiations, disputes and
claims of other tenants;
xiii) cost of any alterations, additions, changes, uninsured repairs,
replacements or other items which under generally accepted accounting
principles are properly classified as capital expenses except if
Landlord's intent in incurring such cost was to lower operating
expenses;
xiv) rental expenses incurred in leasing air conditioning systems,
elevators or other equipment affixed to any realty on the Land and
which are ordinarily considered to be of a capital nature except if
Landlord's intent in incurring such cost was to lower operating
expenses;
xv) cost of acquiring sculptures and paintings;
xvi) costs of repairs, alterations and/or replacements caused by the
exercise of the rights of eminent domain to the extent Landlord
receives compensation through a condemnation award;
(xvii) advertising and promotional expenses, including the costs of any
Landlord provided functions, events, parties, etc., for persons other
than tenants in the Building;
xviii) expenses incurred by Landlord solely to maintain its existence
as a corporation, partnership or other business entity;
xix) costs, fines or penalties incurred due to violation by Landlord of
any laws or governmental rules or regulations;
xx) the portion of management fees or other fees paid to a managing
agent of the Building substantially in excess of fees customarily
charged at other similar buildings in the local area; and
For a period of six (6) months after the delivery of the
statement for the lease year covered thereby, Tenant shall have the
right after reasonable notice to Landlord and at a reasonable place and
time determined by Landlord to inspect Landlord's records with regard
to the charges provided in this Article. In the event that an audit
conducted by a Certified Public Accountant manifestly shows that
<PAGE>
-7-
Landlord's billings to Tenant for such charges exceeded the actual
charges attributable to Tenant, then Landlord shall refund the
difference and, if the Landlord's billings exceed the actual charges by
more than ten percent (10%), Landlord will pay Tenant for the
reasonable expenses incurred for such Certified Public Accountant
performing such inspection. If such audit shows an underpayment by
Tenant, Tenant hereby agrees and is obligated to disclose same to
Landlord and shall promptly pay such underpayment amount to Landlord.
3.3. All Base Rent and Additional Rent and all other sums payable by
Tenant under this Lease are referred to collectively herein as "Rent", and shall
be collectible by Landlord as rent. If Tenant fails to pay any Rent as required
in this Lease, Landlord shall have the same rights and remedies as for a failure
to pay Base Rent, without prejudice to any other right or remedy available
therefor.
3.4. Intentionally Deleted.
3.5. No payment by Tenant or receipt by Landlord of an amount less than
the Rent payable hereunder shall be deemed to be other than a payment on account
of unpaid Rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment for Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent and pursue any other remedy
provided herein or by law.
3.6. Tenant shall be liable for all taxes levied against personal
property and trade fixtures placed by Tenant in the Building or the land
associated with the Building. If any such taxes are levied against Landlord or
Landlord's property relating to personal property or trade fixtures placed by
Tenant in the Building, and if Landlord elects to pay the same or if the
assessed value of Landlord's property is increased by inclusion of personal
property and trade fixtures placed by Tenant on the property and Landlord elects
to pay the taxes based on such increase, Tenant shall pay to Landlord as
additional rent hereunder, within ten (10) days of demand, the amount of such
taxes paid by Landlord.
3.7. If at any time during the term of this Lease, the present method
of taxation shall be changed so that in lieu of the whole or any part of any
taxes, assessments, levies, or charges levied, assessed or imposed on the
Building or land associate therewith, there shall be levied, assessed or imposed
on Landlord a capital levy or other tax directly on the rents received therefrom
and/or a franchise tax assessment, levy or charge measured by or based, in whole
or in part, upon such rents on the present or any future
<PAGE>
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building or buildings on the property then all such taxes, assessments, levies
or charges, or the part thereof so measured or based so long as such taxes are
not income, estate or inheritance taxes, shall be deemed to be included within
the term "Taxes" for the purposes hereof.
3.8. LATE CHARGE. In the event Tenant fails to pay to Landlord, when
due, any installment of rental or other sum to be paid to Landlord which may
become due in this Lease, Landlord will incur additional expenses in an amount
not readily ascertainable and which has not been elsewhere provided for between
Landlord and Tenant. If Tenant should fail to pay to Landlord, when due, any
installment of rental or other sum to be paid hereunder, Tenant will pay
Landlord as additional rent a late charge of five percent (5%) of the amount
due. If the Tenant fails to pay any such sums within ten (10) days after the due
date such unpaid amount shall bear interest from the due date thereof to the
date of payment at an annual rate equal to the lesser of twelve percent (12%) or
the highest rate permitted by law. Provision for such late charge shall be in
addition to all other rights and remedies available to Landlord within this
Lease or at law or in equity and shall not be construed as liquidated damages or
limiting Landlord's remedies in any manner.
3.9. All payments to be made by Tenant to Landlord pursuant to this
Lease shall be made by check payable to Manor Care, Inc., and delivered to
Landlord at Landlord's Address or to such other person and place as may be
designated by notice in writing from Landlord to Tenant from time to time.
3.10. Unless otherwise agreed in writing between Landlord and Tenant,
no payment by Tenant or receipt by Landlord of a lesser amount than the monthly
installments of rent stipulated shall be deemed to be other than on account of
the above-stipulated rent, nor shall any endorsement or statement on any check
or any letter accompanying any check or payments as rent be deemed an accord
with satisfaction, and Landlord may accept such check for payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy in this Lease provided.
ARTICLE IV. SECURITY DEPOSIT.
4.1. As security for the performance and observance by Tenant of all of
its obligations under this Lease, Tenant shall, upon execution of this Lease,
deposit with Landlord the sum specified in ARTICLE I, SECTION 1.1(P), which sum
shall be held by Landlord as a security deposit during the term of this Lease.
As additional security, Tenant shall deposit with the Landlord on the
later to occur of: (i) the date Landlord commences construction of Landlord's
Work ("hereinafter defined"), or (ii) 60 days after Landlord executes the
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Lease, a letter of credit in the amount of One Hundred Thousand Dollars
($100,000.00) ("Initial Letter of Credit"). In addition, Tenant shall deposit
with the Landlord three (3) days prior to the Commencement Date, an additional
letter of credit in the amount of Sixty-Six Thousand Dollars ($66,000.00)
("Additional Letter of Credit"). The Initial Letter of Credit, and when posted
the Additional Letter of Credit, shall be referred to herein as the "Letter of
Credit". The Letter of Credit shall be in the form of an irrevocable letter of
credit from a commercial bank (the "Issuer") of substantial financial standing
and otherwise reasonably acceptable to Landlord from which Landlord may draw in
the event of any default by Tenant under the terms of this Lease. The Letter of
Credit must be in writing, be in form and content reasonably acceptable to
Landlord, signed by the Issuer, made payable to the order of Landlord, be
assignable by the beneficiary thereunder at no additional cost to such
beneficiary, and must provide that, effective upon the date of issuance of the
Letter of Credit, the Issuer shall, upon written notice signed on behalf of
Landlord, immediately remit whatever amounts are specified in said notice, up to
and including the full face amount of the Letter of Credit. The Letter of Credit
shall, by its terms, be fully effective during a one (1) year period following
the date of issuance. Tenant shall arrange for the Letter of Credit to be
renewed, or replaced by an equivalent letter of credit, to provide continuing
identical security to Landlord during each subsequent one (1) year period and
during any remaining period under the Lease term (the last such extension to
provide for the continuance of the Letter of Credit for at least three months
beyond the Expiration Date). The Letter of Credit shall either provide that it
shall be automatically renewed by its terms throughout the duration of this
Lease or contain a provision that requires the Issuer to notify the beneficiary
at lease thirty (30) days prior to the expiration date of the Letter of Credit
that the Letter of Credit has not been renewed or replaced. No later than twenty
(20) days prior to the expiration date of each Letter of Credit, or renewal or
replacement thereof, Tenant shall provide written notice (and supporting
documentary evidence signed by the Issuer) to Landlord that the then effective
Letter of Credit has been so renewed or so replaced for the succeeding time
period. The failure of Tenant to maintain the Letter of Credit as herein
specified (including the failure to deliver evidence of the renewal or
replacement of the Letter of Credit within five days (5) days after Landlord
gives Tenant notice to correct, or the failure to increase the undrawn balance
of the Letter of Credit as herein provided) or the Issuer's refusal or failure
to permit Landlord to draw against the Letter of Credit shall be a default under
the terms of this Lease with the same effect as a default for failure to pay
Rent. In addition to all other remedies available to Landlord in the event of
default by Tenant under the terms of this Lease, Landlord shall have the
specific remedy of immediately drawing against the Letter of Credit in any
amount up to and including the full face amount of the Letter of Credit in the
event of any
<PAGE>
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default by Tenant of any of the covenants or provisions of this Lease, except
that Landlord shall have the right to draw the full face amount of the Letter of
Credit in the event Tenant fails to renew or replace the Letter of Credit as
herein provided; in which events Landlord shall hold such amount as a cash
security deposit in accordance with the provisions of this Section. In the event
that Landlord draws against the Letter of Credit as provided for under this
paragraph, other than as a result of Landlord's draw of the full face amount of
the Letter of Credit as a result of Tenant's failure to renew or replace the
Letter of Credit as herein provided, then Tenant shall, upon demand by Landlord,
increase the then undrawn balance of the Letter of Credit to the amount provided
for herein. In the event that Tenant fails to so increase the then undrawn
balance of the Letter of Credit as herein provided, then Landlord shall be
entitled to draw the remaining balance of the Letter of Credit. It is
specifically agreed and understood that, in the event that Landlord has not
received from Tenant a Letter of Credit in form and substance acceptable to
Landlord, and in accordance with the provisions of this paragraph, including but
not limited to, the time frame provided in this Article 4.1, then this Lease
shall be, at the sole option of Landlord, null and void and of no further force
and effect. Notwithstanding the foregoing, if Tenant shall not then be in
default under the Lease and provided further that Landlord has not drawn upon
the Letter of Credit for any amounts due under the Lease, then upon the third
anniversary of the Commencement Date of the Lease, the Letter of Credit
requirement shall be eliminated.
Tenant shall also deposit with Landlord the sum specified in ARTICLE I,
SECTION 1.1(q), which sum shall be held by Landlord until the date of Lease
Commencement as a security deposit and then applied to the first months Base
Rent due. Landlord shall return the cash portion of the security deposit or
balance thereof then held by Landlord, without interest, to Tenant within sixty
(60) days after the expiration of this Lease or after Tenant surrenders
possession of the Demised Premises, whichever is later. In the event of a
default by Tenant in the payment of rent and/or to cure any other such default;
and if Landlord draws upon the Security Deposit, Tenant shall, upon request,
deposit with Landlord the amount so applied so that Landlord will have on hand
at all times during the term of this Lease the full amount of the security
deposit. Landlord shall not be required to hold the cash portion of the Security
Deposit as a separate account, but may commingle it with Landlord's other funds.
4.2. In the event of a sale of the property, Landlord shall have the
right to transfer the Security Deposit to its purchaser, and upon Landlord
transferring the Security Deposit to its Purchaser, Landlord shall thereupon be
released by Tenant from all responsibility for the return of such deposit; and
Tenant agrees to look solely to the new purchaser for the return of such
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deposit. In the event of an assignment of this Lease by Tenant, the Security
Deposit shall be deemed to be held by Landlord as a deposit made by the
assignee, and Landlord shall have no further responsibility for the return of
such deposit to the assignor.
ARTICLE V. CONSTRUCTION AND ACCEPTANCE OF THE DEMISED PREMISES.
5.1. Landlord agrees to perform the work described under "Description
of Landlord's Work" outlined in Exhibit B ("Landlord's Work"). Other than
Landlord's Work, Tenant accepts the Demised Premises in "as is" condition. The
Demised Premises shall be deemed to be "Ready for Delivery" when Landlord
certifies in writing to Tenant that Landlord has substantially completed
Landlord's Work subject to punch list items which Landlord agrees to correct
within a reasonable period of time. If the Demised Premises are not Ready for
Delivery, Landlord shall not be deemed to be in default hereunder or otherwise
liable in damages to Tenant, nor shall the length of the Lease Term be affected.
5.2. When the Demised Premises are Ready for Delivery, Tenant agrees to
accept and Landlord agrees to deliver possession thereof and to proceed with due
diligence to perform the work described under "Description of Tenant's Work" in
EXHIBIT B-1, ("Tenant's Work") all of such work to be performed in compliance
with EXHIBIT B-1, and to install its fixtures, furniture and equipment. Any
Tenant Work causing venting, opening, sealing, waterproofing or any altering of
the roof shall be performed by Landlord's roofing contractor at Tenant's
expense. Tenant shall provide Landlord with a certificate from Landlord's
roofing contractor that all of Tenant's Work described in EXHIBIT B-1 causing
venting, opening, sealing, waterproofing or in any other way altering the roof
has been performed in compliance with EXHIBIT B-1. Tenant holds Landlord
harmless from any damage to the Demised Premises resulting, directly or
indirectly, from Tenant's venting, opening, sealing, waterproofing or in any
other way altering the roof unless such a certificate from Landlord's roofing
contractor has been delivered to Landlord before the date of any such loss. In
the event of any dispute as to work performed or required to be performed by
Landlord or Tenant, the certificate of Landlord's architect or engineer shall be
conclusive. Tenant further agrees that, if requested by Landlord and if true,
Tenant will furnish Landlord with a written statement that Tenant has accepted
the Demised Premises and that Landlord has fully complied with Landlord's
covenants and obligations.
5.3. The Commencement Date of this Lease shall be the earlier of (a)
the date Landlord has completed Landlord's Work and Tenant secures a Use
<PAGE>
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and Occupancy Permit for the Demised Premises or (b) the later of (i) October 1,
1997, or (ii) sixty days after the Ready for Delivery Date. Landlord and Tenant
each agree that, at the request of either, they will, following the Commencement
Date, execute and deliver an acknowledgment that Tenant has accepted possession
and reciting the exact Commencement Date and termination date of this Lease.
Notwithstanding the foregoing the parties agree that in no event shall the
Commencement Date be prior to October 1, 1997.
5.4. Notwithstanding the foregoing, Tenant shall be permitted
non-exclusive rent free access to perform Tenant's Work at reasonable times
after the execution date of the Lease provided (i) such access does not impair
Landlord's ability to perform Landlord's Work to the Demised Premises, (ii)
Tenant agrees to indemnify and hold Landlord harmless from all losses and
liability arising from such entry including reasonable attorneys's fees and
costs and (iii) Tenant presents Landlord evidence that Tenant has in force the
general liability insurance outlined in Article XIII.
ARTICLE VI. USES AND CARE OF PREMISES.
6.1. The Demised Premises may be used only for the purpose or purposes
specified in ARTICLE I, SECTION 1.1(r) above, and for no other purpose or
purposes without the prior written consent of Landlord. Tenant shall use in the
transaction of business in the Demised Premises the trade name specified in
ARTICLE 1, SECTION 1.1(c) above and no other trade name without the prior
written consent of Landlord.
6.2. Tenant shall not use the Demised Premises for any unlawful
purposes or acts; shall not commit or permit any waste or damage to the Demised
Premises; shall use and maintain the Demised Premises in compliance with (i) all
laws, codes, ordinances, rules, regulations and orders (collectively "Laws") of
any governmental authority or agency, including, without limitation, those
governing zoning, health, safety (including fire safety), and the occupational
hazards, pollution and environmental control, and handicapped accessibility
(including but not limited to any such laws imposing upon Landlord or Tenant any
duty respecting or triggered by any change in use or occupancy or any alteration
or improvement of, in or to the Demised Premises), and (ii) all reasonable
directions of the Landlord, including the Building rules and regulations,
attached hereto as EXHIBIT "D", as may be modified from time to time by Landlord
on reasonable notice to Tenant so long as such modifications do not have a
material adverse impact on Tenant's Permitted Use. Tenant shall use his best
efforts to cause its agents, employees, customers, invitees, licensees, and
concessionaires to comply with the Building rules and regulations and with the
covenants and
<PAGE>
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agreements of this Section. With regard to the enforcement of the Rules and
Regulations as to other tenants, Landlord agrees that it shall not waive
enforcement if such waiver shall have a material adverse effect on Tenant's
business. To the extent of any inconsistency between the Rules and Regulations
and the Lease, the terms of the Lease shall control.
6.3. Tenant shall not, without Landlord's prior written consent, keep
anything within the Demised Premises for any purpose which increases the
insurance premium costs or invalidates any insurance policy carried on the
Demised Premises or other part of the property. Tenant shall pay as additional
rent, upon demand of Landlord, any such increased premium cost due to Tenant's
use or occupation of the property. All property kept, stored or maintained
within the property by Tenant shall be at Tenant's sole risk.
6.4. Tenant shall not conduct within the Demised Premises the retail
sale to the public of any items, nor conduct any fire, auction, going out of
business, liquidation or bankruptcy sales or operate within the Demised Premises
a "Wholesale" or "Factory Outlet" store, a cooperative store, a "Second Hand"
store, or a "Surplus" store. Tenant shall not permit any objectionable or
unpleasant odors to emanate from the Demised Premises, nor place or permit any
radio, television, loud-speaker, or amplifier on the roof or outside of the
Demised Premises, or where the same can be seen or heard from outside the
Demised Premises, nor place an awning, or other projection on the exterior of
the Demised Premises, (except an antenna and only as provided in the next
sentence); nor solicit business or distribute leaflets or other advertising
material on the property outside the Demised Premises; nor take any other action
which, in the reasonable judgment of Landlord, would constitute a nuisance or
would disturb or endanger other tenants of the Building or unreasonably
interfere with their use of their respective premises, nor do anything which
would tend to injure the reputation of the Building. Provided Tenant secure
Landlord's written consent which Landlord agrees not to unreasonably withhold,
condition or delay and to the extent permitted under the applicable governmental
laws, rules and regulations, Tenant may place one antenna on the roof of the
Building. Such placement shall be subject to Tenant agreeing to all of
Landlord's reasonable rules and regulations regarding the placement of an
antenna which may include, but are not limited to, such issues as Federal
Communications Commission compliance, securing permits and approvals, and not
causing interference with Landlord's equipment or other tenant's equipment.
6.5. Tenant shall take good care of the Demised Premises and keep the
same free from waste at all times. Tenant shall keep the Demised Premises neat,
clean and free from dirt, rubbish, insects and pests at all
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times, and shall store all trash and garbage within the Demised Premises or
within dumpsters which shall be kept against the side of the Building where
Tenant's loading docks are located. Tenant will store all trash and garbage
within the area designated by Landlord for such trash pickup and removal and
only in receptacles of the size, design and color from time to time prescribed
by Landlord. Receiving and delivery of goods and merchandise and removal of
garbage and trash shall be made only in the manner and areas from time to time
prescribed by Landlord.
6.6. Without the consent of Landlord which Landlord shall not
unreasonably withhold condition or delay, Tenant shall not move any furniture or
equipment into or out of the Demised Premises except at such times as Landlord
may from time to time designate in writing to all tenants.
6.7. Tenant shall not allow any animals other than seeing eye dogs into
the Building or land associated therewith whatsoever.
6.8. Tenant shall procure, at its sole expense, any permits and
licenses required for the transaction of business in the Demised Premises and
otherwise comply with all applicable laws, ordinances and governmental
regulations. Landlord makes no representation or warranty, expressed or implied,
with regard to the fitness of the Demised Premises or the property for the
Tenants intended use or for any particular purpose except that Landlord shall
not knowingly deliver the Demised Premises in material noncompliance with any
applicable law. Tenant shall bear the cost of all alterations or improvements to
the Building or Demised Premises required by any applicable laws, ordinances or
governmental regulation based upon Tenant's use of the property.
6.9. Tenant's employees shall have reasonable access to the Demised
Premises twenty-four (24) hours per day three hundred sixty-five (365) days per
year except in the event of an emergency.
ARTICLE VII. LANDLORD'S SERVICES.
7.1. Landlord covenants and agrees that it will:
(a) keep the foundation, the exterior walls and roof of the
Demised Premises in good repair;
(b) Repair and replace (except as provided differently in this
Lease), and maintain the landscaping, parking areas and other common
facilities on the Land in good condition, subject to Tenant not being
in default under the Lease.
<PAGE>
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7.2. Failure by Landlord to any extent to furnish the above described
services, or any cessation thereof, shall not render Landlord liable for damages
to either person or property, nor be construed as an eviction of Tenant, nor
give Tenant the right to an abatement of Rent, nor relieve Tenant from the
obligation to fulfill any covenant or agreement hereof, unless such failure to
provide services is a result of the gross negligence of Landlord or Landlord's
agents. Should any of the Building equipment or machinery break down, or for any
cause cease to function properly, Landlord shall use reasonable diligence to
repair the same promptly, and Tenant shall have no claim for an abatement of
rent or damages on account of any interruptions in service occasioned thereby or
resulting therefrom.
7.3. Landlord shall not be required to make any repairs occasioned by
the wrongful act or negligence of Tenant, its agents, employees, subtenants,
licensees and concessionaires, which repairs shall be made by Tenant. In the
event that the Demised Premises should become in need of repairs required to be
made by Landlord hereunder, Tenant shall give immediate written notice thereof
to Landlord and Landlord shall not be responsible in any way for failure to make
such repairs until a reasonable time shall have elapsed after delivery of such
written notice. Landlord's obligation hereunder is limited to repairs specified
in this article only, and Landlord shall have no liability for any damages or
injury arising out of any condition or occurrence causing a need for such
repairs. The cost of such repairs and maintenance shall be included in the
Operating Expenses, unless caused by the negligence or willful misconduct of
Landlord.
7.4. Tenant shall keep the Demised Premises in good clean condition and
shall, at its sole cost and expense, make all needed repairs and replacements
including replacement of cracked or broken glass, except for repairs and
replacements expressly required to be made by Landlord under the provisions of
ARTICLE VII, SECTION 7.1, ARTICLE XI, SECTION 11.1 AND ARTICLE XV, SECTION 15.3.
If any repairs required to be made by Tenant hereunder are not made within ten
(10) days after written notice delivered to Tenant by Landlord except in the
event of an emergency in which case no advance notice need be given. Unless
Tenant is diligently working to make such repairs, Landlord may, at its
discretion, make such repairs without liability to Tenant for any loss or damage
which may result to its stock or business by reason of such repairs, and Tenant
shall pay to Landlord immediately upon demand as additional rental hereunder the
cost of such repairs plus ten percent (10%) of the amount thereof and failure to
do so shall constitute an event of default hereunder.. At the expiration of this
Lease, Tenant shall surrender the Demised Premises in good condition, reasonable
wear and tear, and damage by fire and casualty (to the extent such fire and
casualty damage is covered by Landlord's insurance) excepted, and shall
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surrender all keys for the Demised Premises to Landlord and shall inform
Landlord of all combinations on locks, safes and vaults, if any, in the Demised
Premises.
ARTICLE VIII. ALTERATIONS.
8.1. Tenant shall not make any alterations, additions, or improvements
to the Demised Premises of a structural nature without the prior written consent
of Landlord, which Landlord may grant or deny in its sole discretion. Except for
improvements of a decorative nature, Tenant shall not make any nonstructural
improvements without the prior written consent of Landlord which consent
Landlord may grant or deny in its reasonable discretion. All alterations,
additions, improvements and fixtures, except any trade fixtures installed in the
Demised Premises at the sole expense of Tenant and which can be removed without
causing material damage to the Building, shall remain upon and be surrendered
with the Demised Premises and become the property of Landlord at the termination
of this Lease (except for trade fixtures which Tenant may remove in its
discretion provided Tenant restores the Demised Premises to good condition after
such removal), unless Landlord requests their future removal at the time of
installation in which event Tenant shall remove the same and restore the Demised
Premises to their original condition at Tenant's expense. Any linoleum,
carpeting or other floor covering which may be cemented or otherwise affixed to
the floor of the Demised Premises is a permanent fixture and shall become the
property of the Landlord without credit or compensation to Tenant.
8.2. All construction work done by Tenant within the Demised Premises
shall be performed in a good and workmanlike manner, in compliance with all
governmental requirements, and the requirements of any contract or deed or trust
to which the Landlord may be a party and in such manner as to cause a minimum of
interference with other construction in progress and with the transaction of
business in the Building. Tenant agrees to indemnify Landlord and hold it
harmless against any loss, liability or damage resulting from such work, and
Tenant shall, if requested by Landlord, furnish bond or other security
satisfactory to Landlord against any loss, liability or damage.
ARTICLE IX. LANDLORD'S RIGHT OF ACCESS AND USE.
9.1. Except in the event of an emergency in which case Landlord shall
have the right to enter at any time, Landlord shall have the right to enter upon
the Demised Premises at any reasonable time after reasonable notice to Tenant
for the purpose of inspecting the same, or of making repairs to the Demised
Premises, or of making repairs, alterations or additions to adjacent premises,
or of showing the Demised Premises to prospective purchasers,
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tenants (within the last one hundred twenty days of the Lease Term), or lenders.
9.2. Landlord may, within one hundred twenty (120) days prior to the
expiration of the Lease Term, post and maintain notices, free from hindrance or
control of Tenant, so long as such notices do not materially interfere with
Tenant's business.
9.3. Use of the roof above the Demised Premises is reserved to
Landlord.
9.4. In addition to the rights specified elsewhere in this Lease,
Landlord shall have the following rights regarding the use of the Demised
Premises or the property by Tenant, its employees, agents, customers and
invitees, each of which may be exercised without notice or liability to Tenant:
(a) Landlord may install such signs, advertisements or notices
or Tenant identification information on or in the Building, on the
property or on the directory board or Tenant access doors as it shall
deem necessary or proper, so long as such installation does not have a
material adverse impact on Tenant's business.
(b) Landlord shall approve or disapprove, prior to
installation, all types of drapes, shades and other window coverings
used in the Demised Premises visible from outside the Demised Premises,
and may control all internal lighting and signage that may be visible
from outside the Demised Premises.
(c) Landlord may grant to any person the exclusive right to
conduct business or render any service in the Building, provided that
such exclusive right shall not operate to limit Tenant from using the
Demised Premises for the use permitted in Article I, Section 1. 1 (r),
nor preclude Tenant from entering any operating or services contracts.
(d) Landlord may control the use of the property in such
manner as it deems necessary or proper, including by way of
illustration and not limitation: requiring all persons entering or
leaving the Building to identify themselves and their business in the
Building to a security guard; excluding or expelling any peddler,
solicitor or loud or unruly person from the Building; closing or
limiting access to the Building or any part thereof, including
entrances, corridors, doors and elevators, during times of emergency,
repairs or after regular business hours.
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ARTICLE X. SIGNS.
10.1. All newly installed signs, decorations and advertising media
shall conform in all respects to the sign criteria established by Landlord for
the Building from time to time in the exercise of its sole discretion, and shall
be subject to the prior written approval of Landlord as to construction, method
of attachment, size, shape, height, lighting, color, location and general
appearance. All signs shall be kept in good condition and in proper operating
order at all times. Landlord approves Tenant's exterior signage in the location
on the Land as depicted on Exhibit F and the size, shape, and color scheme shown
on Exhibit F; provided however, Tenant's right to such signage is contingent on
Tenant securing all necessary governmental approvals and Landlord makes no
representation or warranty as to whether Tenant can secure such approvals; and
provided further, this Lease is in no way contingent on Tenant securing such
signage. Tenant shall be responsible for the cost of its exterior signage and
for ensuring that its exterior signage is in compliance with all applicable
Federal, State and local laws, ordinances, rules and regulations.
ARTICLE XI. UTILITIES.
11.1. Tenant shall pay when due all charges for all utilities and
services for every kind supplied to or imposed against the Demised Premises,
including without limitation water, air conditioning, sewage, heat, gas,
sprinkler charges, light, garbage, electricity, telephone, steam, power, or
other public or private utilities (collectively, "Utilities"). Landlord agrees
that the electricity service shall be no less than 480 volts and 1200 amps.
Tenant shall also pay for all Utilities used by it or its agents, employees or
contractors prior to the Commencement Date. Landlord at its expense shall either
install separate meters for Tenant's utilities or submeters. The choice of which
method to use shall be determined in Landlord's discretion. If in Landlord's
reasonable discretion, it is not feasible to separately meter the Demised
Premises, Tenant shall pay to Landlord as Additional Rent, Tenant's pro rata
share, as reasonably determined by Landlord (which determination shall include a
reasonable allocation of the actual use by each tenant of such Utilities and a
reasonable allocation of any excess use premiums) of all charges for jointly
metered or billed Utilities. Landlord agrees that at the time it requests
payment from Tenant for such submetered utilities, Landlord shall provide Tenant
reasonable back-up documentation in support of the request for payment. Landlord
does not represent or warrant the uninterrupted availability of such utilities
and any such interruption shall not be deemed an eviction or disturbance of
Tenant's right to possession, or render Landlord liable to Tenant for damages by
abatement of
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rent or otherwise, or relieve Tenant from the obligation to fully and timely
perform its obligations and covenants under this Lease.
11.2. In the event any public utility company supplying energy, water,
sewer or other utility, or governmental law, regulation, executive or
administrative order requires that Landlord or Tenant reduce or maintain at a
certain level the consumption of a utility and such requirement affects the
HVAC, light, use of or hours of operation of the Demised Premises or Building,
Landlord and Tenant shall each adhere to and abide by said laws, regulations or
executive orders without any reduction in Rent.
ARTICLE XII. INDEMNITY, PUBLIC LIABILITY INSURANCE AND FIRE AND
EXTENDED COVERAGE INSURANCE.
12.1. Landlord shall not be liable to Tenant or to Tenant's employees,
agents or visitors, or to any other person or entity, whatsoever, for any injury
to person or damage to or loss of property on or about the Demised Premises or
the property caused by the negligence or misconduct of Tenant, its employees,
subtenants, licensees or concessionaires, or of any other person entering the
Building under the express or implied invitation of Tenant or arising out of the
use of the Demised Premises by Tenant and the conduct of its business therein,
or arising out of any breach or default by Tenant in the performance of its
obligations hereunder or resulting from any other cause occurring in the Demised
Premises except Landlord's gross negligence, and Tenant agrees to indemnify
Landlord and hold Landlord harmless from any loss, expense or claims arising out
of such damage or injury.
12.2. Landlord and Tenant agree and covenant that neither shall be
liable to the other for loss arising out of damage to or destruction of the
Demised Premises or contents thereof when such loss is caused by any perils
included within standard fire and extended coverage insurance policies for
buildings similar to the Building in the state in which the Demised Premises is
situated. This agreement shall be binding whether or not such damage or
destruction be caused by negligence of either party or their agents, licensees,
employees or visitors.
12.3. Landlord shall indemnify and hold harmless Tenant from all
damages or losses suffered and claims advanced by third persons relating to
occurrences in the common area of the Building and the Land, except if caused by
Tenant, its agents or employees.
ARTICLE XIII. TENANT'S INSURANCE AND LANDLORD'S INSURANCE.
13.1. Tenant agrees, at its sole cost, to carry and keep in full force
and effect at all times during the term of this Lease, a comprehensive general
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liability policy with a single limit of at least Five Million Dollars
($5,000,000.00), including coverage for bodily injury, property damage,
contractual liability for this Lease and personal injury liability.
13.2. Tenant agrees, at its sole cost, to carry and keep in full force
and effect at all times during the term of this Lease Comprehensive Automobile
Liability (owned, non-owned or hired) with a single limit of at least Five
Million Dollars ($5,000,000.00) including coverage for bodily injury and
property damage.
13.3. Tenant shall obtain extended fire and casualty insurance insuring
against loss to the Demised Premises (including any improvements thereon). Such
insurance shall be in the form and amount reasonably satisfactory to Landlord,
and Tenant shall, when requested from time to time by Landlord, provide Landlord
with evidence of such insurance. Such insurance shall contain waiver of
subrogation provisions in favor of Landlord and its agents.
13.4. Tenant agrees to carry and keep in full force and effect at all
times during the term of this Lease, at its sole cost, worker's compensation or
similar insurance in form and amounts required by law and employer's liability
insurance in the amount of $100,000.00 per accident.
13.5. Intentionally Deleted.
13.6. Tenant's comprehensive general liability insurance policy and
comprehensive automobile liability insurance policy, and certificates evidencing
such insurance shall name Landlord and its property manager of the Building as
additional insureds and shall also contain a provision by which the insurer
agrees that such policy shall not be canceled except after thirty (30) days
written notice to Landlord. Any liability insurance carried or to be carried by
Tenant hereunder shall be primary over any policy that might be carried by
Landlord. If Tenant shall fail to obtain or maintain such insurance, Landlord
may obtain, after providing written notice to Tenant with a thirty (30) day
opportunity to cure, such insurance on Tenant's behalf and the cost shall be
deemed additional rent and shall be payable upon Landlord's demand.
13.7. Landlord shall obtain and keep in force, during the term of this
Lease standard all-risk fire (boiler and machinery coverage) and casualty
insurance covering the Building in an amount at least equal to 80% of the
replacement cost of the Building at the time in question. In addition Landlord
agrees to carry and keep in full force and effect at all times during the term
of this Lease, a comprehensive general liability policy with a single limit of
at least Five Million Dollars ($5,000,000.00), including coverage for bodily
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injury, property damage, contractual liability for this Lease and personal
injury liability.
13.8. Landlord and Tenant mutually covenant and agree that each party,
in connection with insurance policies required to be furnished in accordance
with the terms and conditions of this Lease, whether personal or real, shall
expressly waive any right of subrogation on the part of the insurer against the
Landlord (and any mortgagee requested by Landlord) or Tenant as the same may be
applicable, which right to the extent not prohibited or violative of any such
policy is hereby expressly waived, and Landlord and Tenant each mutually waive
all right of recovery against each other, their agents, or employees for any
loss, damage or injury of any nature whatsoever to property of person for which
either party is required by this Lease to carry insurance.
ARTICLE XIV. NON-LIABILITY FOR CERTAIN DAMAGES.
14.1. Landlord and Landlord's agents and employees shall not be liable
to Tenant or any other person or entity whomsoever for any injury to person or
damage to property caused by the Demised Premises or other portions of the
property becoming out of repair or by defect in or failure of equipment, pipes
or wiring, or broken glass, or by the backing up of drains, or by gas, water,
steam, electricity or oil leaking, escaping or flowing into the Demised
Premises, nor shall Landlord be liable to Tenant or any other person or entity
whomsoever from any loss or damage that may be occasioned by or through the acts
or omissions of other tenants of the Building or of any other persons or entity
whomsoever. Tenant shall indemnify and hold harmless Landlord, its affiliated
companies and its and their agents and employees from any loss, cost, expense or
claims arising out of such injury or damage referred to in this ARTICLE XIV,
SECTION 14.1.
14.2. In the event of any violation of this Lease by Landlord, Tenant's
exclusive remedy shall be an action for damages (Tenant waiving the benefit of
any laws granting it a lien upon the property of Landlord and/or upon rent due
the Landlord), but prior to any such action Tenant will give Landlord written
notice specifying such violation with particularity, and Landlord shall
thereupon have thirty (30) days in which to cure any such violation. Unless and
until Landlord fails to so cure any violation after such notice, Tenant shall
not have any remedy or cause of action by reason thereof. All obligations of
Landlord hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of its
ownership of the property and not thereafter.
The term "Landlord" shall mean only the owner, for the time being, of the
property and in the event of the transfer by such owner of its interest in the
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property such owner shall thereupon be released and discharged from all
covenants and obligations of the Landlord thereafter accruing, but such
covenants and obligations shall be binding during the Lease term upon each new
owner for the duration of such owner's ownership.
Notwithstanding any other provision hereof, Landlord shall not have any personal
liability hereunder. In the event of any breach or default by Landlord in any
term or provision of this Lease, Tenant agrees to look solely to the equity or
interest then owned by Landlord in the land and improvements which constitute
the property; however, in no event shall any deficiency judgment or any money
judgment of any kind be sought or obtained against Landlord or affiliated
companies.
ARTICLE XV. DAMAGE BY CASUALTY.
15.1. Tenant shall give immediate written notice to Landlord of any
damage caused to the Demised Premises by fire or other casualty.
15.2. If the Building shall (i) be destroyed or substantially damaged
by a casualty not covered by Landlord's insurance; (ii) be destroyed or rendered
untenantable to an extent in excess of fifty percent (50%) of the first floor
area by a casualty covered by Landlord's insurance; or (iii) be damaged to such
extent that the remaining term of this Lease is not sufficient to amortize the
cost of reconstruction, then Landlord may elect either to terminate this Lease
as hereinafter provided or to proceed to rebuild and repair the Demised
Premises. Should Landlord elect to terminate this Lease, it shall give written
notice of such election to Tenant within ninety (90) days after the occurrence
of such casualty. If Landlord should not elect to terminate this Lease, Landlord
shall proceed with reasonable diligence and at its sole expense to rebuild and
repair the Demised Premises. In the event Landlord elects to rebuild and repair
the Demised Premises and in Landlord's reasonable discretion the time in which
to perform such work will exceed one hundred eighty (180) days, then Landlord
shall notify Tenant of same and Tenant shall have the option to terminate the
Lease provided Tenant notifies Landlord of Tenant's election to terminate the
Lease within ten (10) days of receiving Landlord's notice.
15.3. Landlord's obligation to rebuild and repair under this ARTICLE XV
shall in any event be limited to restoration to substantially the condition in
which the Demised Premises (exclusive of the items designated as Tenant's Work
as described in EXHIBITS B-1 AND C) existed prior to the casualty, and shall be
further limited to the extent of the insurance proceeds available to Landlord
for such restoration, and Tenant agrees that promptly after the completion of
such work by Landlord, it will proceed with reasonable diligence and at its sole
cost and expense to rebuild, repair and restore its
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signs, fixtures, equipment and other items of Tenant's Work as described in
EXHIBITS B-1 AND C.
15.4. Tenant agrees that during any period of reconstruction or repair
of the Demised Premises it will continue operation of its business within the
Demised Premises to the extent practicable. During the period from the
occurrence of the casualty until Landlord's repairs are substantially completed,
the Annual Base Rent shall be reduced to such extent as may be fair and
reasonable under the circumstances. However, there shall be no abatement of the
Tenant's Proportionate Share of Operating Expenses, Taxes or other charges
provided herein.
15.5. All damage or injury to the Demised Premises or the Building
caused by the act or omission of Tenant, its employees, agents, invitees,
licensees or contractors, shall be promptly repaired by Tenant at Tenant's sole
cost and expense, to the satisfaction of Landlord except to the extent covered
by insurance carried by Landlord; provided, however, Tenant shall pay any
deductible under Landlord's policy required to be paid thereunder.
ARTICLE XVI. EMINENT DOMAIN.
16.1. If more than twenty percent (20%) of the floor area of the
Demised Premises should be taken for any public or quasi-public use under
governmental law, ordinance or regulation, or by right of eminent domain or by
private purchase in lieu thereof, this Lease shall terminate and the rent shall
be abated during the unexpired portion of this Lease, effective on the date
physical possession is taken by the condemning authority.
16.2. If some portion of the Building or the land associated therewith,
but less than twenty percent (20%) of the floor area of the Demised Premises
should be taken as aforesaid, then at the Landlord's option this Lease shall
either terminate and the Annual Base Rent shall be abated during the unexpired
portion of this Lease, effective on the date physical possession is taken by the
condemning authority or this Lease shall not terminate in which case the Annual
Base Rent payable hereunder during the unexpired portion of this Lease shall be
reduced in proportion to the area taken, effective on the date physical
possession is taken by the condemning authority. Following such partial taking,
Tenant shall make all necessary repairs or alterations within the scope of
Tenant's Work as described in EXHIBITS B-1 AND C necessary to make the Demised
Premises an architectural whole.
16.3. All compensation awarded for any taking (or the proceeds of
private sales in lieu thereof) of the Demised Premises or the property shall be
the property of Landlord, and Tenant assigns its interest in any such award to
Landlord; provided, however, Landlord shall have no interest in any award
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made to Tenant for loss of business or the taking of Tenant's fixtures and other
property if a separate award for such items is made to Tenant.
ARTICLE XVII. ASSIGNMENT AND SUBLETTING.
17.1. Tenant shall not assign or transfer all or any portion of its
interest in this Lease or in the Demised Premises, or sublet all or any portion
of the Demised Premises, without the prior written consent of Landlord, which
consent may be withheld at the sole and absolute discretion of the Landlord.
Notwithstanding the foregoing, Landlord agrees that provided Tenant is not in
default under the Lease, Landlord shall not withhold its consent to Tenant
assigning its interest in the Lease or in the Demised Premises or subletting all
or any portion of the Demised Premises to a (i) subsidiary or affiliate of
Tenant; (ii) any corporation or entity in which or with which Tenant, its
permitted successors or permitted assigns, is merged or consolidated, in
accordance with applicable statutory provisions for merger or consolidation of
entities: or (iii) in connection with an acquisition (including without
limitation, the sale of the majority of the shares of stock of the Tenant
corporation provided the subtenant or assignee (a) can demonstrate to Landlord,
in its reasonable discretion, by balance sheets and other financial
documentation submitted to Landlord that it is capable of servicing all of
Tenant's financial obligations under this Lease, and (b) has a credit rating
satisfactory to Landlord (in Landlord's reasonable judgment). Any assignment or
sublease without the Landlord's prior written consent shall be voidable and, at
Landlord's election, shall constitute a default of Tenant hereunder. Consent by
Landlord to one or more assignments or subletting shall not operate as a waiver
of Landlord's rights with respect to any subsequent assignment or subletting.
The term "sublet" shall be deemed to include the granting of licenses,
concession, and any other rights of occupancy of any portion of the Demised
Premises. In the event of any assignment or subletting, Tenant shall remain
liable under the Lease. Landlord agrees to respond to Tenant's request to
sublease or assign within twenty (20) days of written notice from Tenant;
provided, at the time of the request, Tenant provides Landlord with the
necessary materials to consider adequately such a request.
17.2. In the event of the transfer and assignment by Landlord of its
interest in this Lease or in the property to a person expressly assuming
Landlord's obligations under this Lease, Landlord shall thereby be released from
any further obligations hereunder, and Tenant agrees to look solely to such
successor in interest of the Landlord for performance of such obligations. Any
such security given by Tenant to secure performance of Tenant's obligations
hereunder may be assigned and transferred to such successor in
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interest, and Landlord shall thereby be discharged of any further obligations
relating thereto.
17.3. Tenant shall not mortgage, pledge or otherwise encumber its
interest in this Lease or in the Demised Premises.
17.4. In no case may Tenant assign any options granted to Tenant
hereunder, all such options being deemed personal to Tenant and exercisable by
Tenant only.
17.5. Any request by Tenant for approval to sell or sublet the Demised
Premises or to transfer or assign Tenant's interest in this Lease, shall be
accompanied by a processing charge in the amount of Three Hundred Dollars
($300.00) payable to Landlord.
17.6. In the event Landlord approves Tenant subletting or assigning
this Lease and the subtenant or assignee is paying to Tenant an amount in excess
of that paid by Tenant to Landlord under this Lease (which such amount shall be
deemed the aggregate sum of all payments by subtenants to Tenant), then fifty
percent (50%) of any such excess amounts shall be deemed rent under this
Agreement and shall be immediately paid by Tenant to Landlord. If any court of
law should find this provision invalid, then, in such event, Tenant shall be
prohibited from subletting or assigning this Lease for an amount in excess of
the amounts paid by Tenant to Landlord pursuant to the terms of this Lease.
ARTICLE XVIII. DEFAULT BY TENANT AND REMEDIES.
18.1. The following events shall be deemed to be defaults or events of
default by Tenant under this Lease:
(a) Tenant shall fail to pay any installment of rental or any
other expense within five (5) days after receiving written notice
thereof from Landlord.
(b) Tenant shall fail to comply with any term, provision or
covenant in this Lease, other than the payment of rental or expenses
demanded by Landlord and shall not cure such failure within twenty (20)
days after receiving written notice thereof from Landlord; provided
however if Tenant is diligently pursuing a cure Tenant shall have an
additional reasonable time to effect a cure.
(c) Tenant or any guarantor of Tenants obligations under this
Lease shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
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(d) Tenant or any guarantor of Tenant's obligations under this
Lease shall file a petition under any section or chapter of the
National Bankruptcy Act, as amended, or under any similar law or
statute of the United States or any State thereof; or Tenant or any
guarantor of Tenant's obligations under this Lease shall be adjudged
bankrupt or insolvent in proceedings filed against Tenant or any
guarantor of Tenant's obligations under this Lease and such proceedings
such adjudication shall have continued for a period of thirty (30)
days.
(e) A receiver or Trustee shall be appointed for all or
substantially all of the assets of the Tenant or any guarantor of
Tenant's obligations under this Lease and such appointment shall have
continued for a period of thirty (30) days.
(f) Tenant shall desert or vacate the Demised Premises, or
Tenant shall, for a period of thirty (30) days or more, fail to occupy
the Demised Premises or a substantial portion thereof or fail to be
open for business.
(g) Tenant shall do or permit to be done anything which
creates a lien upon the Demised Premises and such lien is not released
or bonded off within fifteen (15) days.
(h) The Tenant shall be prohibited to occupy the Demised
Premises by any governmental agency.
18.2. Upon the occurrence of any such events of default, Landlord shall
have the option to pursue any one or more of the following remedies without any
notice or demand whatsoever:
(a) Terminate this Lease in which event Tenant shall
immediately surrender the Demised Premises to Landlord, and if Tenant
fails to do so, Landlord may, without prejudice to any other remedy
which he may have for possession or arrearages in rental, enter upon
and take possession of the Demised Premises and expel or remove Tenant
and any other person who may be occupying said premises or any part
thereof, under process of law, without being liable for prosecution or
any other claim of damages.
(b) Enter upon and take possession of the Demised Premises and
expel or remove Tenant and any other person who may be occupying said
premises or any part, under process of law, without being liable for
prosecution or any claim for damages with or without having terminated
the Lease.
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(c) Enter upon the Demised Premises by force, if necessary,
without being liable for prosecution or any claim for damages, and do
whatever Tenant is obligated to do under the terms of this Lease, and
Tenant agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in effecting compliance with Tenant's obligations
under this Lease, and Tenant further agrees that Landlord shall not be
liable for any damages resulting to the Tenant from such action.
18.3. In the event Landlord elects to terminate the Lease by reason of
an event of default, then notwithstanding such termination, Tenant shall be
liable for, and shall pay to Landlord, at the address specified for notice to
Landlord, the sum of all rental and other indebtedness accrued to date of such
termination plus, as damage, an amount equal to the difference between (i) the
total rental including Annual Base Rent, Tenant's Proportionate Share of
Operating Expenses and Tax Escrow Payments for the remaining portion of the
Lease term (had such term not been terminated by Landlord prior to the date of
expiration stated in ARTICLE I); and (ii) the then-present value of the fair
rental value of the Demised Premises for such period.
18.4. In the event that Landlord elects to repossess the Demised
Premises without terminating the Lease, then Tenant shall be liable for and
shall pay to Landlord, at the address specified for notice to Landlord, all
rental and other indebtedness accrued to the date of such repossession, plus, as
damage, an amount equal to the total rent including Annual Base Rent, Tenant's
Proportionate Share of Operating Expenses and Tax Escrow Payments for the
remainder of the Lease term until the date of expiration of the term as stated
in ARTICLE I diminished by any net sums thereafter received by Landlord through
reletting the Demised Premises during said period (after deducting expenses
incurred by Landlord as provided in ARTICLE XVIII, SECTION 18.5 hereof). In no
event shall Tenant be entitled to any excess of any rental obtained by reletting
over and above the rental herein reserved. Actions to collect amounts due from
tenant to Landlord may be brought from time to time on one or more occasions,
without the necessity of Landlord's waiting until expiration of the Lease term.
18.5. In case of any event of default or breach by Tenant, Tenant shall
also be liable for and shall pay to Landlord, at the address specified for
notice herein, in addition to any sum provided to be paid above, brokers fees
incurred by Landlord in connection with reletting the whole or part of the
Demised Premises (with the amount of the broker's fee to be amortized so that
the Tenant's portion will reflect the amount applicable over the period which
would have constituted the unexpired portion of the Term; the costs of removing
and storing Tenant's or other occupant's property; the cost of
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repairing, altering, remodeling or otherwise putting the Demised Premises into
condition acceptable to a new tenant or tenants, and all reasonable expenses
incurred by Landlord in enforcing or defending Landlord's rights and/or
remedies, including reasonable attorneys' fees which shall not be less than
fifteen percent (15%) of all sums then owing by Tenant to Landlord.
18.6. In the event of termination or repossession of the Demised
Premises for an event of default, Landlord shall use commercially reasonable
efforts to relet or attempt to relet the Demised Premises, or any portion
thereof, or to collect rental after reletting. Landlord may relet the whole or
any portion of the Demised Premises for any period, to any Tenant, and for any
use and purpose.
18.7. If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligations to do so and without waiving such default, may make such payment
and/or remedy such other default for the account of Tenant (and enter the
Demised Premises for such purpose), and thereupon Tenant shall be obligated to,
and agrees to, pay Landlord, as additional rent, upon demand, all costs,
expenses and disbursements (including reasonable attorneys' fees) incurred by
the Landlord in taking such remedial action.
18.8. In the event that Landlord shall have taken possession of the
Demised Premises pursuant to the authority herein granted, then Landlord shall
have the right to remove from the Demised Premises (without the necessity of
obtaining a distress warrant, writ of sequestration or other legal process) all
or any portion of such furniture, fixtures, equipment and other property located
thereon and place same in storage at any premises within the County in which the
Demised Premises is located; and in such event, Tenant shall be liable to
Landlord for costs incurred by Landlord in connection with such removal and
storage and shall indemnify and hold harmless Landlord from all loss, damage,
cost, expense and liability in connection with such removal and storage.
Landlord shall also have the right to relinquish possession of all or any
portion of such furniture, fixtures, equipment and other property to any person
("Claimant") claiming to be entitled to possession thereof who presents to
Landlord a copy of any instrument represented to Landlord by Claimant to have
been executed by Tenant (or any predecessor of Tenant) granting Claimant the
right under various circumstances to take possession of such furniture,
fixtures, equipment or other property, without the necessity on the part of
Landlord to inquire into the authenticity of said instrument's copy of Tenant's
or Tenant's predecessor's signature thereon and without the necessity of
Landlord's making any nature of investigation or inquiry as to the validity of
the factual or legal basis upon which Claimant purports to act; and Tenant
agrees to
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indemnify and hold Landlord harmless from all costs, expense, loss, damage, and
liability incident to Landlord's relinquishment of possession of all or any
portion of such furniture, fixtures, equipment or other property by Claimant.
The rights of Landlord herein stated shall be in addition to any and all other
rights which Landlord has or may hereafter have at law or in equity; and Tenant
stipulates and agrees that the rights herein granted Landlord are commercially
reasonable.
ARTICLE XIX. LANDLORD'S LIEN.
19.1. Intentionally Deleted.
ARTICLE XX. HOLDING OVER.
20.1. In the event Tenant remains in possession of the Demised Premises
after the expiration of this Lease and without the execution of a new Lease, it
shall be deemed to be occupying said Demised Premises as a Tenant from month to
month at a rental equal to the rental (including Annual Base Rent, Tenant's
Proportionate Share of Operating Expenses and Taxes) herein provided, plus fifty
percent (50%) of such amount and otherwise subject to all the conditions,
provisions and obligations of this Lease insofar as the same are applicable to a
month to month tenancy.
ARTICLE XXI. SUBORDINATION; ATTORNMENT; AND ESTOPPEL CERTIFICATES.
21.1. Tenant accepts this Lease subject and subordinate to any
mortgage, deed of trust or other lien presently existing or hereafter created
upon the property and to any renewals and extensions thereof. Landlord is
irrevocably vested with full power and authority to subordinate this Lease to
any mortgage, deed of trust or other lien hereafter placed upon the property and
Tenant agrees upon demand to execute such further instrument subordinating this
Lease as Landlord may request, and if Tenant shall fail at any time to execute,
seal and deliver any such instrument to Landlord, in addition to any other
remedies available to it in consequence thereof, such failure shall be deemed a
default under the Lease. Notwithstanding anything herein to the contrary,
Landlord agrees to make a reasonable effort to secure from any present
lienholder, and any present prime, master or ground lessor a nondisturbance
agreement that provides that as long as Tenant is not in default under the
Lease, such lienholder, or prime, master or ground lessor or any purchaser at
foreclosure or other sale will not be entitled to disturb Tenant's possession or
use of the Demised Premises. In the event Landlord does not secure such a
nondisturbance agreement within seven business days after the mutual execution
of this Lease, then Tenant may terminate the Lease provided it gives Landlord
written notice of termination within thirty
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days of the mutual execution of the Lease. If Tenant does not give such notice
in a timely manner, then such right to terminate shall expire. Notwithstanding
anything herein to the contrary, as a condition to Tenant subordinating the
Lease in the future to any future lienholders, and any future prime master or
ground lessor, Landlord agrees to secure a nondisturbance agreement that
provides that as long as Tenant is not in default under the Lease, such future
lienholder, or future prime, master or ground lessor or any purchaser at
foreclosure or other sale will not be entitled to disturb Tenant's possession or
use of the Demised Premises.
21.2. Subject to Article 21. 1, at the option of any transferee of the
Landlord's interest in the property pursuant to a foreclosure or similar
proceeding under any mortgage, deed of trust or other lien upon the property,
whether now existing or hereafter created, Tenant shall attorn to and be bound
to any such transferee under the terms, covenants and conditions of this Lease
for the balance of the term hereof remaining and any extensions or renewals
hereof which may be affected in accordance with any option therefore in this
Lease, with the same force and effect as if the transferee was the Landlord, and
Tenant does hereby agree to attorn to such transferee, at the transferee's
option, the attornment to be effective and self operative without the execution
of any further instruments on the part of Tenant, immediately upon the
transferee succeeding to the interest of the Landlord, provided said transferee
provides written notice to the Tenant of its election to accept such attornment
within sixty (60) days of the subject transfer.
Tenant hereby agrees that said transferee shall not be (a) liable for
any act or admission of Landlord under the Lease prior to the subject transfer
or (b) subject to any offsets or defenses which Tenant might have against
Landlord arising from events or circumstances existing prior to the subject
transfer, or (c) bound by any rent or additional rent which Tenant might have
paid in advance for more than the month of the subject transfer, or (d) bound by
any amendment or modification of this Lease made after such foreclosing party
acquired its lien without the foreclosing party's prior written consent of such
amendment.
21.3. Tenant agrees to furnish from time to time, when requested by
Landlord, the holder of any deed of trust or mortgage or the Landlord under any
ground Lease covering all or any part of the property or any interest of
Landlord therein, an estoppel certificate signed by Tenant confirming and
containing such factual certifications and representations deemed appropriate by
Landlord. The holder of any such deed of trust or mortgage or the Landlord under
any such ground Lease and Tenant shall, within fifteen (15) days following
receipt of said proposed estoppel certificate from Landlord, return a
fully-executed copy of said certificate to Landlord. In the
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event Tenant fails to return a fully-executed copy of such certificate to
Landlord within the foregoing ten-day period, then Tenant shall be deemed to
have approved and confirmed all of the terms, certifications and representations
contained in such certificate.
ARTICLE XXII. NOTICES.
22.1. Wherever any notice is required or permitted hereunder, such
notice shall be in writing. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered, whether actually received
or not when deposited in the United States mail, postage prepaid, certified or
registered mail, return receipt requested, addressed to the parties hereto at
the respective addresses set out in ARTICLE I, SECTIONS 1.1(b), 1.1(d) AND
1.1(f) above and as to notices to Landlord with a copy to the attention of the
General Counsel (re: Real Estate), 11555 Darnestown Road, Gaithersburg, Maryland
20878-3200, and as to notices to Tenant to with a copy to Margolius, Mallios,
Davis, Rider & Tomar, LLP, 1828 L Street, N.W., Suite 500, Washington, D.C.
20036, or such other address as they may have hereafter specified by written
notice.
ARTICLE XXIII. BROKERS.
23.1. Landlord and Tenant represent and warrant to each other that,
except as set forth in this Lease, if at all, it has not employed a broker in
carrying on the negotiations relating to this Lease. Tenant further warrants and
covenants that is has not relied and will not rely upon any oral representation
about the property, other Tenants, occupancy, uses or related matters made by
any real estate agent, real estate broker, agent or employee of Landlord, or any
other party. Tenant shall indemnify and hold Landlord harmless, from and against
any cost, liability or expense (including attorney's fees and disbursements)
incurred as a result of the assertion(s) or claim(s) by any person, firm or
entity (other than Landlord's exclusive agent and any agent of Tenant whose name
appears in the following sentence) for brokerage or other commissions, finder's
fees or any of its employees, agents or representatives. Landlord acknowledges
that Scheer Partners, Inc. has acted as Landlord's exclusive representative and
Tenant acknowledges that other than CB Commercial Real Estate Group, Inc.,
Tenant has not authorized any other broker, agent or finder in connection with
this Lease. Landlord warrants that it has agreed to pay a leasing commission to
Scheer Partners, Inc. and agrees to indemnify and hold Tenant harmless from any
claim therefor.
ARTICLE XXIV. APPROVAL AND CHANGES REQUIRED BY LENDER.
Intentionally Deleted.
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ARTICLE XXV. PARKING.
25.1. Tenant shall be allocated 50 unreserved spaces on a non-exclusive
basis in the Building's existing surface lot as designated on Exhibit G for use
by Tenant and its employees during the term of the Lease at no additional
charge. Tenant and its employees, shall not be entitled to use more than the
number of parking spaces allocated to Tenant at any one time. Landlord reserves
the right to designate reserved parking in said lot provided such designation
does not diminish Tenant's allocation. Landlord reserves the right to relocate
the parking lot.
ARTICLE XXVI. WAIVER OF TRIAL BY JURY AND RIGHT TO REDEEM.
26.1. Landlord and Tenant each agree to and they waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of said premises and/or any claim of injury or damage, and
statutory remedy. Tenant also hereby agrees that the provisions of SECTION
8-401(e) OF THE MARYLAND REAL PROPERTY CODE shall not apply to this Lease and
Tenant hereby waives its rights thereunder.
ARTICLE XXVII. FURNISHING OF FINANCIAL STATEMENTS.
27.1. Within ten (10) days of the execution of this Lease, Tenant shall
furnish Landlord financial statements outlining Tenant's current financial
condition if applicable, as of the last annual audit or the last regularly
prepared report including tax returns. Over the term of this Lease and any
extensions, within ten (10) days of Landlord's written request, Tenant shall
furnish financial statements outlining Tenant's current financial condition to
any prospective purchaser or lender of
ARTICLE XXVIII. OCCUPATIONAL AND ENVIRONMENTAL COMPLIANCE.
28.1. Tenant shall not in any manner use, maintain or allow its agents,
employees or invitees to use or maintain the Demised Premises, Building or Land
in violation of any law, ordinance, statute, regulation, rule or order
(collectively "Laws") of any governmental authority, including but not limited
to Laws governing zoning, health, safety (including fire safety), occupational
hazards, and pollution and environmental control. Tenant shall not use, maintain
or allow its agents, employees or invitees to use or maintain the Demised
Premises, Building or Land to treat, store, dispose of, transfer, release,
convey or recover hazardous materials nor shall Tenant otherwise, in any manner,
possess or allow its agents, employees or invitees to possess any hazardous,
materials on or about the Demised Premises,
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Building or Land; provided however, any hazardous material lawfully permitted
and generally recognized as necessary and appropriate for general office or
warehouse may be stored and used in the Demised Premises so long as (i) such
storage and use is in the ordinary course of Tenant's business permitted under
this Lease; (ii) such storage and use is performed in compliance with all
applicable laws and regulations and in compliance with the highest standards
prevailing in the industry for the storage and use of such materials; and (iii)
Tenant delivers prior written notice to Landlord of the identity of and
information regarding such materials as Landlord may require. Tenant shall
immediately notify Landlord of the presence or suspected presence of any
hazardous material on or about the property and shall deliver to Landlord any
notice received by Tenant relating thereto.
If Landlord deems it reasonably necessary, Landlord and its agents
shall have the right, but not the duty, to inspect the Demised Premises and
conduct tests thereon at any time to determine whether or the extent to which
there is hazardous materials on the Demised Premises. Landlord shall have the
right to immediately enter upon the Demised Premises to remedy any contamination
found thereon. In exercising its rights herein, Landlord shall use reasonable
efforts to minimize interference with Tenant's business but such entry shall not
constitute an eviction of Tenant, in whole or in part, and Landlord shall not be
liable for any interference, loss, or damage to Tenant's property or business
caused thereby. If any lender or governmental agency shall ever require testing
to ascertain whether there has been a release of hazardous materials, then the
reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand
as additional rent if such requirement arose in whole or in part because of
Tenant's use of the Demised Premises, Building or land associated therewith.
Tenant shall execute affidavits, representations and the like from time to time,
at Landlord's request, concerning Tenant's best knowledge and belief regarding
the presence of any hazardous materials on the property on the Demised Premises,
Building or land associated therewith or Tenant's intent to store or use
hazardous materials on the Demised Premises, Building or land associated
therewith. Tenant shall indemnify and hold harmless Landlord from any and all
claims, loss, liability, costs, expenses or damage, including attorneys' fees
and costs of remediation and compliance, incurred by Landlord in connection with
any breach by Tenant of its obligations under this section. The covenants and
obligations of Tenant hereunder shall survive the expiration or earlier
termination of this Lease.
28.2. For the purposes of this ARTICLE XXVIII, the term "hazardous
materials" shall mean (i) any and all hazardous waste, toxic chemicals,
materials or substances occurring in the air, water, soil or ground water at the
property by reason of which the Tenant or Landlord would be subject to
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an injunction action and/or any damages, penalties, clean up costs or other
liability under the provisions of the COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION AND LIABILITY ACT 42 U.S.C. SS. 9601 ET SEQ, THE SUPERFUND
AMENDMENTS AND REAUTHORIZATION ACT OF 1986, 42 U.S.C. SS. 9601 (20D), THE
RESOURCE CONSERVATION AND RECOVERY ACT (THE SOLID WASTE DISPOSAL ACT), 42 U.S.C.
SS. 9601 ET SEQ, THE FEDERAL WATER POLLUTION CONTROL ACT, AS AMENDED BY THE
CLEAN WATER ACT oF 1977, 33 U.S.C. SS. 1251 ET SEQ, THE CLEAN AIR ACT OF 1966,
42 U.S.C. SS. 7401 ET SEQ, AND THE TOXIC SUBSTANCES CONTROL ACT, 15 U.S.C.
SS.2601, ET SEQ; (II) any "oil, petroleum products and their by-products" as
defined by thE MARYLAnD ENVIRONMENTAL CODE ANNOTATED SS. 4-411(a)(3); as amended
from time to time and regulations promulgated thereunder; (III) any "hazardous
substance" as defined by the MARYLAND ENVIRONMENTAL CODE ANNOTATED, TITLE 7,
SUBTITLE 2, as amended from time to time and regulations promulgated thereunder;
and (iv) any substance the presence of which is prohibited or controlled by any
other federal, state or local laws, regulations, statutes, or ordinances now in
a force or hereafter enacted relating to waste disposal or environmental
protection with respect to hazardous, toxic or other substances generated,
produced, leaked, released, spilled, stored or disposed of at or from the
property. Hazardous material shall also include any other substance which by law
requires special handling in its collection, storage, treatment or disposal, but
not including small quantities of materials present on the property in retail
containers, which would not be prohibited, regulated or controlled under
applicable environmental laws.
ARTICLE XXIX. SURRENDER OF DEMISED PREMISES.
29.1. By taking possession of the Demised Premises, Tenant shall be
deemed to have accepted the Demised Premises in good, clean and completed
condition and repair subject to any punch list items, and subject to all
applicable laws, codes and ordinances. On the expiration or early termination of
this Lease, Tenant shall surrender the Demised Premises to Landlord in its
condition as of the Commencement Date, normal wear and tear, fire and casualty
damage (to the extent such fire and casualty damage is covered by Landlord's
insurance or is not caused by Tenant or its employees, agents or visitors)
excepted. Tenant shall remove from the Demised Premises all of Tenant's personal
property, trade fixtures and any alterations required to be removed pursuant to
Article VIII. Tenant shall repair damage or perform any restoration work
required by the removal. If Tenant fails to remove any personal property, trade
fixtures or alterations after the end of the Lease Term, Landlord may remove the
property and store it at Tenant's expense. If the Demised Premises are not so
surrendered at the termination of this Lease, Tenant shall indemnify Landlord
against all loss or liability resulting from delay by Tenant in so surrendering
the Demised Premises, including,
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without limitation, any claims made by any succeeding tenant, losses to Landlord
due to lost opportunities to lease to succeeding tenants, and attorneys' fees
and costs.
ARTICLE XXX. MISCELLANEOUS.
30.1. Nothing herein contained shall be deemed or construed by the
parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or a joint venture between parties hereof,
it being understood and agreed that neither the method of computation of rental,
nor any other provisions contained herein, nor the acts of the parties hereto,
shall be deemed to create any relationship between the parties hereto other than
the relationship of Landlord and Tenant. Whenever herein the singular number is
used, the same shall include the plural, and words of gender shall include each
other gender.
30.2. The captions used herein are for convenience only and do not
limit or amplify the provisions hereof.
30.3. One or more waivers of any covenant, term or condition of this
Lease by either party shall not be construed as a waiver of a subsequent breach
of the same covenant, term or condition. The consent or approval by either party
shall not be construed as a waiver of a subsequent breach of the same covenant,
term or condition. The consent or approval by either party to or of any act by
the other party shall not be deemed to waive or render unnecessary consent to or
approval of any subsequent similar act.
30.4. Whenever a period of time is herein prescribed for action to be
taken by either party to this Lease, such party shall not be liable or
responsible for, and there shall be excluded from the computation of any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, government laws, regulations or restrictions or any
other cause of any kind whatsoever which is beyond the reasonable control of
such party; provided however, the provisions of this paragraph shall not operate
to (1) excuse Tenant from the prompt payment of Base Rent, Additional Rent or
any other monetary sums due under the Lease, nor (2) extend the term of this
Lease. At any time when there is outstanding a mortgage, deed of trust or
similar security instrument covering Landlord's interest in the Demised
Premises, Tenant may not exercise any remedies for default by Landlord hereunder
unless and until the holder of the indebtedness secured by such mortgage, deed
of trust or similar instrument shall have received written notice of such
default and a reasonable time for curing such default shall thereafter have
elapsed.
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30.5. This Lease contains the entire agreement between the parties, and
no agreement shall be effective to change, modify or terminate this Lease in
whole or in part unless such agreement is in writing and duly signed by the
party against whom enforcement of such change, modification or termination is
sought.
30.6. The laws of the State in which the Demised Premises is located
shall govern the interpretation, validity, performance and enforcement of this
Lease. If any provision of this Lease should be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this Lease shall not be affected thereby.
30.7. The terms, provisions and covenants contained in this Lease shall
inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors in interest and legal representatives except as
otherwise herein expressly provided.
30.8. In order to induce Landlord to execute this Lease, Tenant agrees
that Landlord may, at its option, at or prior to its execution of the Lease
require Streamline, Inc. to guarantee the obligations of the Tenant hereunder.
30.9. Tenant shall not record this Lease or any memorandum or other
document referring to this Lease without the express written permission of
Landlord. Landlord, however, may record this Lease or any related document
without the consent or joinder of Tenant.
30.10. Tenant shall pay before delinquency all costs for work done or
caused to be done by Tenant in the Demised Premises which could result in any
lien or encumbrance in respect of such work and shall indemnify, defend and hold
harmless Landlord against any claim, loss, cost, demand and legal or other
expenses, whether in respect of any lien or otherwise, arising out of the supply
of material, services or labor for such work. Tenant shall immediately notify
Landlord of any such lien, claim of lien or other action of which it has or
reasonably should have knowledge and which affect the title to the Land or
building or any part thereof, and shall cause the same to be removed or bonded
off within fifteen (15) days (or such additional time as Landlord may consent to
in writing) after its filing, creation or assertion, whichever shall first
occur, failing which Landlord may declare Tenant in default hereunder and take
such action as Landlord deems necessary to remove the same and the entire cost
thereof shall be immediately due and payable by Tenant to Landlord as additional
rent hereunder.
30.11. The submission of this Lease for examination does not constitute
a reservation of or an option for the Demised Premises nor does it
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constitute an offer to lease the Demised Premises until signed by Landlord and
this Lease becomes effective as a Lease only upon execution and delivery thereof
by both Landlord and Tenant.
30.12. Time shall be of the essence for this Lease.
30.13. If any term, covenant or condition of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Lease shall be valid and be enforced to
the fullest extent permitted by law.
30.14. It is agreed that, for the purpose of any suit brought or based
on this Lease, this Lease shall be construed to be a divisible contract, to the
end that successive actions may be maintained thereon as successive periodic
sums shall mature or be due hereunder, and it is further agreed that failure to
include in any suit or action any sum or sums then matured or due shall not be a
bar to the maintenance of any suit or action for the recovery of said sum or
sums so omitted; and Tenant agrees that it will not, in any suit or suits
brought or arising under this Lease for a matured sum for which judgment has not
previously been obtained or entered, plead, rely on or interpose the defenses of
RES JUDICATA, former recovery, extinguishment, merger, election or remedies or
other similar defense as a defense to said suit or suits.
ARTICLE XXXI. STATUS AS SUBLEASE.
31.1. It is understood that this Lease is a sublease of a portion of
the Project leased to Landlord pursuant to a Lease dated August 30, 1995,
between the Gaithersburg Realty Trust, as Landlord, and Landlord, as Tenant (the
"Master Lease"). This Lease is fully subject and subordinate to all terms and
conditions of the Master Lease, and to the rights of the Gaithersburg Realty
Trust thereunder. In no event shall the Lease Term hereunder extend beyond the
Expiration Date or earlier termination of the Master Lease (unless the Property
is conveyed to Landlord). After termination or expiration of the Master Lease
(unless the Property is conveyed to Landlord), Tenant shall promptly surrender
all its interest in the Property. (The terms "Expiration Date" and "Property"
shall have the respective meanings given to them in the Master Lease).
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ARTICLE XXXII. ATTACHMENTS.
The Following Attachments are attached hereto and made a part hereof:
ADDENDUM
EXHIBIT A - DEMISING PLAN
EXHIBIT A-1 - 1997 ESTIMATED OPERATING EXPENSES AND
R/E TAXES
EXHIBIT B - DESCRIPTION OF LANDLORD'S WORK
EXHIBIT B-1 - DESCRIPTION OF TENANT'S WORK
EXHIBIT B-1(I) - PRELIMINARY OUTLINE OF CERTAIN TENANT
IMPROVEMENTS
EXHIBIT C - SPACE PLAN
EXHIBIT D - RULES AND REGULATIONS
EXHIBIT E - INTENTIONALLY DELETED
EXHIBIT F - TENANT'S EXTERIOR SIGNAGE
EXHIBIT G - BUILDING SURFACE LOT
EXHIBIT H - SITE PLAN RELATING TO DRIVEWAY AROUND
BUILDING
EXHIBIT I - SITE PLAN RELATING TO LOADING DOCKS
EXHIBIT J - RESTRICTED BUSINESSES CONTIGUOUS TO
TENANT'S DEMISED PREMISES AND BUSINESS
TENANT SHALL NOT CONDUCT.
SIGNATURES ON NEXT PAGE
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IN WITNESS HEREOF, the parties hereunto signed their names, as their
free act and deed, on the day and year first above written do hereby acknowledge
and accept this Lease agreement.
WITNESS/ATTEST: Landlord:
MANOR CARE, INC.
/S/ JOHN R. BURTON By: /S/ JAMES H. REMPE (Seal)
- ----------------------------------- --------------------------
Assistant Secretary Name: JAMES H. REMPE
------------------------
Title: SENIOR VICE PRESIDENT
------------------------
Date: 8/15/97
------------------------
WITNESS/ATTEST: Tenant:
STREAMLINE, MID-ATLANTIC, INC.
/S/ W. DEITRICH By: /S/ KEVIN M. SHEEHAN (Seal)
- ----------------------------------- --------------------------
Name: KEVIN M. SHEEHAN
------------------------
Title: PRESIDENT
------------------------
Date: 6/30/97
------------------------
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ADDENDUM
THIS ADDENDUM, made and entered into this 30th day of June, 1997, by
and between Manor Care, Inc., a Delaware corporation ("Landlord") and
Streamline, Mid-Atlantic Inc., a Delaware corporation ("Tenant").
WHEREAS, Landlord and Tenant wish to make certain modifications to the
Lease agreement dated June 30, 1997.
NOW, THEREFORE, in consideration of the terms, covenants and conditions
of the Lease and the mutual obligations of the parties hereto, it is agreed as
follows:
1. RIGHT OF FIRST OFFERING
In the event that Landlord leases any space contiguous to the Demised
Premises containing at least 30,000 square feet after the Commencement Date of
the Lease to another tenant and then such space becomes or is reasonably
anticipated by Landlord to become vacant during the Term, Landlord shall notify
Tenant in writing of the availability of such space. Provided that an Event of
Default does not exist under this Lease, Tenant shall have the right of first
offer to lease such space in its entirety ("Expansion Space"). Tenant shall have
a period of ten (10) days to exercise its right of first offer by giving written
notice of its acceptance of such offer to Landlord within said ten (10) day
period. Tenant's failure to exercise its right of first offer within said ten
(10) day period as to the Expansion Space shall extinguish Tenant's right to of
first offer with regard to such space and Landlord shall have the right to lease
such space to any party or parties and upon any terms and conditions which
Landlord desires, in its sole discretion.
If Tenant exercises its Right of First Offering, Tenant shall lease the
Expansion Space in its "as is" condition (with Landlord having no obligation to
do any work to the Expansion Space), for the remaining balance of the Term of
the Lease for the Demised Premises and Tenant shall commence paying rent for the
Expansion Space the date Landlord tenders possession. The rent for the Expansion
Space shall be computed at an amount equal to the then prevailing fair market
rent for the Expansion Space, as a "Net Lease" hereinafter referred to as "Fair
Market Rent":
(a) Landlord shall deliver to Tenant notice of its proposed
Fair Market Rent for the Expansion Space within twenty (20) days after
Landlord's receipt of Tenant's notice of its intent to exercise its
right of first offering.
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(b) In the event Tenant does not agree as to the proposed Fair
Market Rent, Tenant shall engage a broker, who is a licensed real
estate broker in the State of Maryland with a minimum of ten (10) years
experience in commercial warehouse leasing matters in the Metropolitan
Washington, D.C. area and specializing in Suburban Maryland,
hereinafter referred to as "Real Estate Broker", for the purpose of
determining Fair Market Rent for the Expansion Space. Tenant shall
deliver to Landlord within twenty (20) days after receipt of Landlord's
notice, a copy of its Real Estate Broker's determination of the Fair
Market Rent. In the event Tenant does not timely deliver a copy as
aforesaid, the Fair Market Rent proposed by Landlord shall be the Fair
Market Rent for the first year of the Renewal Term.
(c) If Landlord disputes the determination of Fair Market Rent
by Tenant's Real Estate Broker, then Landlord shall engage a Real
Estate Broker pursuant to the selection provisions contained in
SUBPARAGRAPH (B) and Landlord shall deliver to Tenant within twenty
(20) days after receipt of Tenant's notice of such Fair Market Rent, a
copy of its Real Estate Broker's determination of the Fair Market Rent
for the Expansion Space. In the event Landlord does not timely deliver
a copy as aforesaid, then the Fair Market Rent for the first Lease year
of the Renewal Term proposed by Tenant's Real Estate Broker shall be
the Fair Market Rent.
(d) In the event Tenant disputes Landlord's Real Estate
Broker's determination of the Fair Market Rent, then the two (2) Real
Estate Brokers shall select a third Real Estate Broker within twenty
(20) days after Landlord's notice to Tenant as set forth in
subparagraph (c) above and shall notify Landlord and Tenant of such
selection. In the event that said two (2) Real Estate Brokers cannot
agree on the selection of a third Real Estate Broker within said time
period, then the President of the Washington Area Commercial Brokers
Council, Inc. shall select a third Real Estate Broker within forty (40)
days after Landlord's notice to Tenant as set forth in subparagraph (c)
above. Each party shall bear the cost of its appointed Real Estate
Broker and shall share equally the cost of the third Real Estate
Broker.
(e) The third Real Estate Broker shall determine the Fair
Market Rent for the Expansion Space and shall deliver to both Landlord
and Tenant within ten (10) days after being selected a copy of said
third Real Estate Broker's Fair Market Rent. The Fair Market Rent for
the Renewal Term shall be the average of the two closest Real Estate
Brokers' determinations. Landlord shall deliver to Tenant a
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final notice setting forth the Fair Market Rent as established herein
no later than ten (10) days after receiving said third Real Estate
Broker's Fair Market Rent.
2. RENEWAL OPTION:
Provided that (i) this Lease is in full force and effect and (ii)
Tenant shall not then be in default, Tenant shall have the right, at Tenant's
sole option, to extend the Lease for one (1) additional period of five (5) years
("Renewal Term"). All terms, covenants, conditions of this Lease, shall remain
in full force and effect except as expressly modified herein. The minimum annual
rent payable during Renewal Term shall be the amount determined pursuant to
PARAGRAPH (1) as defined below, provided however, that in no event shall the
minimum annual rent be less than the minimum annual rent being paid for the last
year of the initial Lease term. Tenant must give written notice of its intent to
exercise said option to Landlord not less than one hundred eighty (180) days
prior to the expiration of the initial Lease term.
1. During the first Lease year of the Renewal Term, the minimum annual
rent shall be computed at an amount equal to ninety-five percent (95%) of the
then prevailing fair market rent for the Demised Premises, as a "Net Lease"
hereinafter referred to as "Fair Market Rent":
(a) Landlord shall deliver to Tenant notice of its proposed
Fair Market Rent for the Demised Premises during the first Lease year
of the Renewal Term within twenty (20) days after Landlord's receipt of
Tenant's notice of its intent to exercise its renewal option.
(b) In the event Tenant does not agree as to the proposed Fair
Market Rent, Tenant shall engage a broker, who is a licensed real
estate broker in the State of Maryland with a minimum of ten (10) years
experience in commercial warehouse leasing matters in the Metropolitan
Washington, D.C. area and specializing in Suburban Maryland,
hereinafter referred to as "Real Estate Broker", for the purpose of
determining Fair Market. Rent for the Demised Premises. Tenant shall
deliver to Landlord within twenty (20) days after receipt of Landlord's
notice, a copy of its Real Estate Broker's determination of the Fair
Market Rent. In the event Tenant does not timely deliver a copy as
aforesaid, the Fair Market Rent proposed by Landlord shall be the Fair
Market Rent for the first year of the Renewal Term.
(c) If Landlord disputes the determination of Fair Market Rent
by Tenant's Real Estate Broker, then Landlord shall engage a Real
Estate Broker pursuant to the selection provisions contained in
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SUBPARAGRAPH (b) and Landlord shall deliver to Tenant within twenty
(20) days after receipt of Tenant's notice of such Fair Market Rent, a
copy of its Real Estate Broker's determination of the Fair Market Rent
for the Demised Premises. In the event Landlord does not timely deliver
a copy as aforesaid, then the Fair Market Rent for the first Lease year
of the Renewal Term proposed by Tenant's Real Estate Broker shall be
the Fair Market Rent.
(d) In the event Tenant disputes Landlord's Real Estate
Broker's determination of the Fair Market Rent, then the two (2) Real
Estate Brokers shall select a third Real Estate Broker within twenty
(20) days after Landlord's notice to Tenant as set forth in
SUBPARAGRAPH (c) above and shall notify Landlord and Tenant of such
selection. In the event that said two (2) Real Estate Brokers cannot
agree on the selection of a third Real Estate Broker within said time
period, then the President of the Washington Area Commercial Brokers
Council, Inc, shall select a third Real Estate Broker no later than
ninety (90) days prior to the expiration of the then current term. Each
party shall bear the cost of its appointed Real Estate Broker and shall
share equally the cost of the third Real Estate Broker.
(e) The third Real Estate Broker shall determine the Fair
Market Rent for the Demised Premises and shall deliver to both Landlord
and Tenant within then (10) days after being selected a copy of said
third Real Estate Broker's Fair Market Rent. The Fair Market Rent for
the Renewal Term shall be the average of the two closest Real Estate
Brokers' determinations. Landlord shall deliver to Tenant a final
notice setting forth the Fair Market Rent as established herein no
later than two (2) months prior to the Renewal Term.
2. At the commencement of (each anniversary of the) Renewal Term, the
minimum annual rent shall be adjusted in the manner described in ARTICLE 3.1 of
this Lease. There shall be no rent abatement or buildout allowance during the
renewal term.
3. Should Tenant either fail to give notice of its intent to renew or
elect not to exercise its option to renew, Landlord shall be relieved of any
liability created by the grant of this renewal option.
3. LANDLORD'S REPRESENTATION AND WARRANTY.
To the actual knowledge of Landlord's General Counsel as of June 27, 1997, the
Building or the Land is not currently in administrative or judicial litigation
regarding any environmental condition. To the actual knowledge of
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Landlord's General Counsel as of June 27, 1997, Landlord has not received any
notice of violation from any governmental entity relating to the Americans with
Disabilities Act.
4. SUBDIVISION OF BUILDING AND LAND.
Tenant acknowledges that Landlord has disclosed to Tenant that the Building and
Land are located on the property known as Parcel lettered "B" in the subdivision
known as "QUINCE ORCHARD, NATIONAL GEOGRAPHIC SOCIETY PROPERTY" as per plat
thereof recorded among the Land Records of Montgomery County, Maryland in Plat
Book 81 at Plat 8364 ("Property") and that Landlord may subdivide the Property.
In the event of such a subdivision, the Building and Land may have its own tax
parcel identification number, separate road access, separate operating expenses
from the office building located on the Property and the land associated with
the Building may change. As part of the subdivision process, the land associated
with the Building may contain approximately twenty (20) acres. Tenant agrees to
support reasonably such a subdivision and any further subdivisions. Such support
shall include, but not be limited to, promptly executing any applications, maps
and development entitlements Landlord deems necessary for the subdivision,
executing any easements needed for the subdivision, and participating in any
required traffic mitigation programs, provided however, Landlord agrees and
represents that the subdivision shall not unreasonably interfere with Tenant's
business and Landlord shall not charge to the Tenant any filing fees, surveyor's
fees, legal fees or other charges directly related to the subdivision.
5. TRUCKS.
In connection with the operation of Tenant's business, Tenant indicates that it
needs the right to have 18 wheel vehicles or comparable large vehicles
("Tenant's Related Trucks") access the Demised Premises from Route 28
(Darnestown Road). Landlord is concerned about Tenant's Related Trucks because
of the potential for disruption to Landlord's corporate office and the harm to
the driveways associated with Landlord's real property. Accordingly, during any
weekly period Monday through Sunday, Tenant shall not permit more than an
average of three Related Trucks per day to access Landlord's real property. In
addition, because what is now the western access point from Route 28 (Darnestown
Road) is not built to accommodate vehicles like Tenant's Related Trucks, Tenant
shall use reasonable effort to ensure that all of Tenant's Related Trucks enter
and exit from what is now called the eastern access point from Route 28
(Darnestown Road).
<PAGE>
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6. LEASE CONTINGENCY
This Lease is contingent on Landlord securing the necessary
governmental approvals for the construction of the proposed driveway adjacent to
a portion of the Building and additional loading docks ("Loading Docks") at the
Building. Attached hereto as Exhibits H and I respectively are the agreed upon
site plans for the driveway and the Loading Docks. Landlord agrees to make a
reasonable effort to secure such approvals at Landlord's expense. Upon securing
such approvals Landlord, at its expense shall diligently perform the site work
for 15 typical 25 foot straight truck type loading docks and 3 typical 18-wheel
vehicle loading docks (it being the intent of the parties that the Tenant at its
own expense shall construct the loading docks) and the driveway adjacent to the
Building. If Landlord has not secured such approvals by November 1, 1997, then
either party may terminate the Lease, by giving the other party written notice
of termination by November 11, 1997. If Landlord has secured the approvals by
November 1, 1997, then it shall have until March 31, 1998 to perform the site
work for the loading docks and construct the driveways; provided, that as of
November 1, 1997, Landlord makes available to Tenant a temporary loading dock
(until Tenant's loading docks are completed which completion Tenant will pursue
with best efforts) to an alternative loading dock. Such availability shall
either be in the form of temporary use of the existing loading dock (if Landlord
has not agreed to allow another tenant to use it) or giving the Tenant the right
at Tenant's expense to create a temporary loading dock (if permitted under all
applicable laws, rules and regulations) with Landlord performing the site work
for such temporary loading dock (if permitted under all applicable laws, rules
and regulations). If the existing loading dock is not available to Tenant by
November 1, 1997 or Landlord has not substantially completed the site work for
the temporary loading dock by November 1, 1997, or Tenant cannot secure any
necessary governmental approvals by November 1, 1997 to build a temporary
loading despite reasonable effort, or Landlord does not substantially finish the
driveway or site work for the loading docks by March 31, 1998, then Tenant may
terminate the Lease by giving Landlord written notice within ten days of the
applicable due date.
In addition, in the event Landlord has not secured the necessary
governmental approvals within sixty (60) days after mutual execution of the
Lease, Tenant shall have the right to terminate the Lease by giving Landlord
written notice of termination within ten days of the applicable due date;
provided however, Landlord may void Tenant's notice of termination upon written
notice given within ten (10) days of receiving Tenant's notice of termination
("Landlord's Nullification Notice"). As part of Landlord's Nullification Notice,
Landlord shall agree to pay any reasonable buildout expenses Tenant incurs from
the date of Landlord's Nullification Notice until
<PAGE>
-8-
the date Landlord or Tenant terminates the Lease pursuant to this section 6;
provided however, Landlord's agreement is conditioned upon preapproving such
expenses and Tenant agrees to give Landlord a detailed itemization of such
expenses in a form reasonably acceptable to Landlord. Under no circumstances
shall Landlord have any responsibility to pay any portion of the expenses that
arises after Landlord or Tenant terminates the Lease.
Landlord intends initially to attempt to secure the necessary approvals
for the loading docks and the driveway at the administrative level and to
include in such submission permission for a new parking lot and the aforesaid
driveway and loading docks. To the extent that Landlord is given approval at the
administrative level for just the driveway and loading dock, Landlord agrees to
accept such approval and pursue permission for the parking lot in a separate
action. If the Lease is terminated because of the failure of the above Lease
contingency, Landlord shall return Tenant's Security Deposit.
7. LEASE RESTRICTION
Landlord agrees that absent Tenant's consent, Landlord will not lease
space that is contiguous to the Demised Premises to any tenant that will use a
majority of their space for any of the businesses outlined in Exhibit J. To the
extent that any contiguous tenant so uses their space (notwithstanding the lease
restriction), Landlord agrees to use reasonable effort to enforce such lease
restriction. In addition, Landlord agrees that it will use reasonable effort to
enforce against any tenant of the Building the Rules and Regulations outlined in
Exhibit D pertaining to environmental matters.
IN WITNESS HEREOF, the parties hereunto signed their names, as their
free act and deed, on the day and year first above. written do hereby
acknowledge and accept this Lease agreement.
WITNESS/ATTEST: Landlord:
Manor Care, Inc.
/S/ JOHN R. BURTON By: /S/ JAMES H. REMPE (Seal)
- ------------------------- ------------------
Assistant Secretary James H. Rempe
Senior Vice President
Date: 8/15/97
--------
<PAGE>
WITNESS/ATTEST: Tenant:
Streamline, Mid-Atlantic, Inc.
/S/ W. DEITRICH By: /S/ KEVIN M. SHEEHAN (Seal)
- --------------------- ---------------------
Name: KEVIN M. SHEEHAN
-------------------
Title: PRESIDENT
-------------------
Date: 6/30/97
-------------------
<PAGE>
EXPANSION ADDENDUM
THIS EXPANSION ADDENDUM ("Expansion Addendum"), made and entered into as of the
dates below written and dated for reference purposes as Marsh 24, 1999, by and
among Manor Care, Inc. ("Landlord"), Streamline Mid-Atlantic, Inc., a Delaware
corporation ("Tenant" and REII - Gaithersburg, Maryland, L.L.C., a Delaware
limited liability company ("REII - Gaithersburg") for the building known as
Lakelands Technology Centre, 11531-11539 Darnestown Road, Gaithersburg, Maryland
("Building").
WHEREAS, Landlord and Tenant wish to make certain modifications to that certain
lease agreement dated June 30, 1997 and that certain rider to lease dated August
18, 1997 by and between Landlord and Tenant (referred to collectively in the
singular as "Lease"); and
WHEREAS, REII-Gaithersburg wishes to join in the execution of this Expansion
Addendum to evidence its consent thereto as the contract purchaser of the
Building and Property (as hereinafter defined).
NOW, THEREFORE, in consideration of the terms, covenants and conditions of the
Lease and the mutual obligations of the parties hereto, it is agreed as follows:
1. Landlord's Closing On The Purchase Of The Building: Tenant acknowledges
that it has been advised that Landlord and REII - Gaithersburg have
entered into a Purchase Contract, as amended, (the "Contract") for the
purchase and sale of certain real property and improvements thereon,
including the Building, located in Gaithersburg, Maryland (hereinafter
collectively referred to as the "Property"). On the occurrence of the
closing of the sale of the Property contemplated by the Contract, REII -
Gaithersburg shall succeed to the interests of and become the Landlord
under the Lease and this Expansion Addendum.
2. Expansion Space: The size of the premises to be leased by Tenant shall be
increased as indicated on the attached Exhibit A, Demising Plan
("Expansion Space"), attached hereto and made a part hereof. The Expansion
Space and the Demised Premises as defined in Article I, Paragraph (h) of
the Lease are collectively referred to as the "New Demised Premises." For
all purposes under the Lease and this Expansion Addendum, the parties
agree as follows: (I) the size of the Expansion Space is 37,100 rentable
square feet, (ii) the size of the Demised Premises as described in the
Lease is 56,400 rentable square feet and (iii) the size of the New Demised
Premises is 93,500 rentable square feet.
3. Tenant's Proportionate Share: Tenant's Proportionate Share of the Building
for the Expansion Space is 18.19% based upon a 204,000 square foot
Building.
4. Lease Commencement Date: The Lease Commencement Date for the Expansion
Space ("Expansion Commencement Date") shall be the date this Expansion
Addendum has been fully executed by all parties.
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<PAGE>
5. Rent Commencement Date: The Rent Commencement Date for the Expansion Space
shall be the earlier of 120 days from the Expansion Commencement Date or
14 days following the occupancy of the Expansion Space. Following the Rent
Commencement Date, Landlord shall provide written notice to Tenant of the
date that is deemed the Rent Commencement Date and Tenant shall
counter-initial said written notice.
6. Expansion Space Annual Base Rent: The initial Annual Base Rent for the
Expansion Space shall be $259,700.00, which rent shall be in addition to
the Annual Base Rent due under Article I., Paragraph (m) of the Lease.
7. Expansion Space Base Rent Schedule: The Annual Base Rent schedule for the
Expansion Space shall be as follows:
Year Annual Payment Monthly Payment
1 $259,700.00 $21,641.67
2 $267,491.00 $22,290.92
3 $275,515.73 $22,959.64
4 $283,781.20 $23,648.43
5 $292,294.64 $24,357.89
6 $301,063.48 $25,088.62
7 $310,095.38 $25,841.28
8 $319,398.24 $26,616.52
9 $328,980.19 $27,415.02
10 $338,849.60 $28,237.47
8. Lease Term: The Lease Term for the Expansion Space shall be 10 years from
the Rent Commencement Date.
9. Replacement of Certain Exhibits: Exhibit B-2 (attached and labeled "New
Preliminary Outline of Certain Tenant Improvements") will replace Exhibit
B-1i of the Lease and Exhibit C-1 (labeled "New Revised Space Plan") will
replace Exhibit C of the Lease.
10. Security Deposits: Tenant shall deposit with the Landlord the first
month's base rent ("Rent Deposit") of $21,641.67 to be applied to the
first month's Expansion Space base rent. Tenant shall increase the cash
portion of the Security Deposit as provided in Article I., Paragraph (p)
of the Lease by $21,641.67 ("Additional Deposit") to a total of
$52,191.67. The Rent Deposit and the Additional Deposit shall both be due
within 10 days of the date of execution of this Expansion Addendum.
11. Letter of Credit: Not later than April 30, 1999, Tenant shall increase the
Letter of Credit as provided in Article IV, Paragraph 4.1 of the Lease by
an additional $34,000.00 to $200,000.00. The last sentence of the second
paragraph of Article IV, Paragraph 4.1 (which commences with the word
"Notwithstanding") shall be deleted and in its place the following shall
be substituted: "Notwithstanding anything to the contrary herein
contained, if Tenant shall not then be in default under the Lease or any
other lease or agreement by and between Landlord and Tenant and provided
further that Landlord has not drawn upon the Letter of
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<PAGE>
Credit, then upon 'substantial completion' of Tenant's Work described in
Exhibit B-2 ("New Preliminary Outline of Certain Tenant Improvements) and
Exhibit C-I, New Revised Space Plan together with proof reasonably
satisfactory to Landlord that Tenant has incurred building improvement
costs and paid in full no less than $1,000,000 (exclusive of any leased
equipment) for Tenant's Work, the Letter of Credit shall be returned to
Tenant. In determining 'substantial completion' for purposes hereof,
Landlord shall act with commercial reasonableness and neither unreasonably
withhold, delay or condition the return of the Letter of Credit."
12. Racking: Tenant shall have the right to remove all or a portion of the
racking ("Racking") within the Expansion Space and receive any salvage
value therefrom. Subject to Paragraph 18 hereof, all costs for removing
the Racking shall be divided equally between Landlord and Tenant, such
costs shall be calculated after deducting any payments or compensation
received by Tenant for the salvage value. The Racking removal shall be
competitively bid by Tenant and the contract terms and price approved by
Landlord and REII-Gaithersburg prior to the removal of any Racking.
Landlord shall reimburse Tenant for 50% of the approved price for the
removal of the Racking, the later of 30 days after Landlord and REII -
Gaithersburg close on the purchase of the Property or 30 days after
receipt by Landlord of reasonable evidence that the contractor has been
paid by Tenant for such removal.
13. Tenant Improvements: Tenant has agreed to lease the Expansion Space in "AS
IS" condition. Tenant's improvements depicted on Exhibit C-I shall be
performed by Tenant and/or its contractors, subject to the approvals of
Landlord and REII-Gaithersburg, such approvals, not to be unreasonably
withheld, delayed, conditioned or denied. Tenant shall have the right to
construct a mezzanine within the New Demised Premises so long as the size
of the mezzanine does not exceed Tenant's Proportionate Share of the total
allocation of mezzanine available to the Building as dictated by the
appropriate regulatory authorities. Subject to Paragraph 18 hereof,
Landlord shall reimburse Tenant for 50% of the cost of the demising wall
depicted on Exhibit C-I, which reimbursement shall be made the later of 30
days after Landlord and REII-Gaithersburg close on the purchase of the
Property or 30 days after substantial completion thereof and receipt of
evidence that payment has been made to Tenant's contractor. The demising
wall shall be constructed in a good and workmanlike manner at a cost
approved by Landlord and REII-Gaithersburg, comply with all applicable
law, regulations, and building codes and be competitively bid by Tenant to
at least three appropriately licensed contractors reasonably acceptable to
Landlord and REII-Gaithersburg, such approvals by Landlord and
REII-Gaithersburg not to be unreasonably withheld, delayed, conditioned or
denied. Tenant shall not be entitled to any additional parking spaces as a
result of the construction of the mezzanine.
14. Electric Power: Upon a subdivision of the Property resulting in the
creation of a separate tax parcel for Lakelands Technology Center,
Landlord shall promptly submit and diligently pursue with commercial
reasonableness an application with PEPCO to run new direct feed electrical
power to the Building. Following said subdivision and the installation by
PEPCO of new electrical service to the Building, Tenant shall be given the
right to utilize up to an additional 1300 AMPS/48O volts of power from the
new power source to the Building, resulting in a total cumulative
electrical power allocation under the Lease and this Expansion
-3-
<PAGE>
Addendum of 2500 AMPS/480 volts. The cost of bringing such new service to
the Building shall not be at Tenant's expense. Landlord, at its expense,
may require the New Demised Premises to be submetered. In the event that
the Property is subdivided and the Building receives separate power,
Tenant shall be responsible for the cost of bringing power to the New
Demised Premises from the supply location within the Building. All work
performed by or on behalf of Tenant to the electrical systems within the
Building shall be subject to the approvals of Landlord and
REII-Gaithersburg, such approvals, not to be unreasonably withheld,
delayed, conditioned or denied. Notwithstanding anything herein or
elsewhere to the contrary, in the event that PEPCO is unable to provide
the additional power source to the Building by the Rent Commencement Date
set forth in Section 5 of this Expansion Addendum and the existing power
at the Building is insufficient for Tenant to conduct its business, then
Tenant may, at its option, obtain in a commercially reasonable manner
alternate power supply from a standby generator or other similar
equipment. In such event, all out-of-pocket costs, fees and expenses of
Tenant in obtaining such alternate power source may be set-off and
deducted from any monetary obligation otherwise due and payable to
Landlord under this Expansion Addendum (whether the same may be Monthly
Rental Installments, Operating Expenses or any other payment whatsoever),
plus 7% simple interest accruing from the date Tenant shall have advanced
said payments.
15. Trucks and Trash Dumpsters: Landlord agrees that Tenant may increase from
3 per day to 5 per day, Tenant's right to be serviced by eighteen wheel
trucks or comparable large vehicles. Tenant shall locate all of its truck
parking (before and after hours) and trash dumpsters along the north side
of the Building, namely, that area where Tenant will be installing loading
docks as indicated on the attached Exhibit A or inside the covered
trucking station contained within the Expansion Space. In the event Tenant
requires additional parking for its trucks, Landlord shall make reasonable
efforts to accommodate Tenant so long as such accommodations do not incur
an additional expense to the Landlord or material inconvenience to other
tenants within the Building. Tenant shall not at any time obstruct
vehicular access to any existing or future parking areas at the Building.
16. Parking Expansion: Upon completion of the Parking Expansion, as
hereinafter defined, Tenant's allocable share of parking spaces shall be
increased to 105 spaces, none of which shall reduce the "Truck Parking
Area" to be denoted as defined by the parties on the Parking Expansion
Exhibit. Notwithstanding the terms of Article XXV of the Lease, Landlord,
at its expense, shall expand the parking area as hereinafter provided as
soon as practicable following the closing on the purchase of the Property
by REII-Gaithersburg, but in no event later than October 1, 1999 ("Parking
Expansion"). The Landlord anticipates the Parking Expansion shall be
constructed substantially in accordance with the March 6, 1998 Schematic
Site Plan--Phase III prepared by Macris, Hendricks, and Glascock, P.A.,
attached as the "Parking Expansion Exhibit" hereto. In the event the City
of Gaithersburg, Maryland, shall condition issuance of a certificate of
use and occupancy for the New Demised Premises (or any part thereof) upon
completion of the Parking Expansion, Landlord shall seek and pursue with
commercially-reasonable diligence and in good faith upon such terms,
conditions and provisions as may be satisfactory to both Landlord and
Tenant, an amendment to existing or pending site plans, the waiver of the
parking requirements by the City of Gaithersburg, otherwise required,
until completion of the Parking Expansion.
-4-
<PAGE>
17. Other Lease Provisions Unaffected: All other terms and conditions
contained within the Lease shall remain in full force and effect except as
otherwise modified by this Expansion Addendum. Capitalized terms not
otherwise defined in this Expansion Agreement shall have the definitions
given to such terms in the Lease. In the event the New Demised Premises
decrease in size due to the expiration of the Lease with respect to the
original Demised Premises, all terms and conditions of the Lease shall
continue to remain in full force and effect with respect to the Expansion
Space with the appropriate sections in the Lease prorated to account for
the reduction of the size.
18. Failure of Closing on Purchase of the Property by REII - Gaithersburg:
Landlord and Tenant have agreed the obligations of Landlord under
Paragraph 12 (Racking), Paragraph 13 (Tenant Improvements), Paragraph 16
(Parking Expansion) and the approval and consent rights of
REII-Gaithersburg set forth elsewhere in this Expansion Addendum have been
specifically negotiated by Landlord anticipating that REII - Gaithersburg
will close on the purchase of the Property. Therefore, should
REII-Gaithersburg fail to so close and notwithstanding any other provision
herein or in the Lease (regarding setoffs and deductions) to the contrary,
all approval and consent rights of REII-Gaithersburg shall terminate and
the obligations of Landlord pursuant to Paragraphs 12, 13 and 16 shall be
modified as follows:
A. The obligations of Landlord pursuant to Paragraphs 12 and 13 to
timely reimburse Tenant shall be excused only if Landlord has and
continues to diligently and actively market the sale of the
Property, and, in consideration therefor, Tenant may at any time
following October 1, 1999, setoff and deduct any monetary obligation
otherwise due and payable to Landlord under this Expansion Addendum
(whether the same may be Monthly Rental Installments, Operating
Expenses or any other payment whatsoever) the amount that Landlord
would otherwise be obligated to reimburse Tenant, plus 7% simple
interest accruing from the date Tenant shall have advanced said
payments.
B. The obligations of Landlord pursuant to Paragraph 16 to design,
develop and construct the Parking Expansion area shall be excused
until April 1, 2000 (time being of the essence) only if Landlord has
and continues to diligently and actively market the sale of the
Property, whereupon from and after said date, Tenant shall be
permitted to engage in the development and construction of the
Parking Expansion, subject to Landlord's approval, said approval not
to be unreasonably withheld, delayed, conditioned or denied.
Reimbursement shall be due to Tenant for all its costs, fees and
expenses in exercise of its rights under this Paragraph within 30
days of completion of the Parking Expansion area and submission of
evidence that payment has been made therefor and provided that lien
waivers are produced to Landlord. Notwithstanding the foregoing,
while Tenant shall have the right to undertake such development and
construction, it shall be under no obligation to do so. In the event
Landlord shall fail to timely reimburse Tenant, Tenant's sole and
exclusive remedy shall be to setoff and deduct any monetary
obligation otherwise due and payable to Landlord under this
Expansion Addendum (whether the same may be Monthly Rental
Installments, Operating Expenses or any other payment whatsoever)
the amount that Landlord would otherwise
-5-
<PAGE>
be obligated to reimburse Tenant, plus 7% simple interest on any
outstanding unreimbursed amount (after taking into account all
set-offs) accruing from the date that Landlord was obligated to
reimburse Tenant.
19. Brokers Fees. Each party hereto hereby represents and warrants to the
other parties that except as expressly provided for below, it has not
engaged the services of any agent, broker or other similar party in
connection with this transaction. Each party hereby agrees to indemnify
and hold the other parties harmless from the claims of any agent, broker
or other similar party claiming by, through or under the indemnifying
party. REII-Gaithersburg hereby acknowledges Scheer Partners, Inc. as the
leasing agent and CB Commercial Realty as the co-leasing agent with
respect to this Expansion Addendum and agrees to pay such leasing and
co-leasing agents such commissions as may be due in accordance with a
separate agreement between REII-Gaithersburg and Scheer Partners, Inc.,
provided however, that, in the event that the closing of the sale of the
Property as contemplated by the Contract does not occur, then the
obligation to pay any leasing commissions in connection with this
Expansion Addendum shall be assumed by the future purchaser of the
Property and REII-Gaithersburg and Landlord shall be relieved of any and
all liability therefor.
20. Execution of Guaranty by Streamline, Inc.: By its signature below,
Streamline, Inc., the parent entity of the Tenant, agrees to execute,
contemporaneously with the execution of this Expansion Addendum, a lease
guaranty of all of Tenant's obligations under the Lease (as amended) and
this Expansion Addendum, on a form of lease guaranty attached hereto as
Exhibit A.
IN WITNESS HEREOF, the parties hereunto signed their names, as their free act
and deed, on the day and year below written and do hereby acknowledge and accept
this Lease agreement.
Landlord: Manor Care, Inc., a Delaware
corporation
By: /s/ Paul G. [ILLEGIBLE], VP
------------------------------------------
Dated: 4/8/99
---------------------------------------
Attest:
Its: /s/ Marilyn J. Burke
- ---------------------------
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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<PAGE>
Tenant: Streamline Mid-Atlantic, Inc., a
Delaware corporation
By: /s/ Timothy A. DeMello
------------------------------------------
Dated: 3/26/99
---------------------------------------
Attest:
Its: /s/ [ILLEGIBLE]
- ---------------------------
Parent of Tenant: Streamline, Inc., a Delaware
corporation
By: /s/ Timothy A. DeMello
------------------------------------------
Dated: 3/26/99
---------------------------------------
Attest:
Its: /s/ [ILLEGIBLE]
- ---------------------------
JOINDER BY REII-GAITHERSBURG
REII-Gaithersburg hereby joins in the execution of this Expansion Addendum to
evidence its consent thereto and agreement to be bound by the provisions of this
Expansion Addendum in the event that REII-Gaithersburg and Landlord close on the
acquisition of the Property.
Witness/Attest: REII - Gaithersburg, Maryland, L.L.C., a Delaware limited
liability company
- ------------------
By: REII - Gaithersburg Managing Corp., a Delaware
corporation, its managing member
By: /s/ Weldon Humphries
-----------------------------------------------------
Weldon Humphries, Vice President
Date: 4/9/99
---------------------------------------------------
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<PAGE>
EXHIBIT A
FORM OF GUARANTY BY STREAMLINE, INC.
GUARANTY
This Guaranty ("Guaranty") to and in favor of MANOR CARE, INC., a Delaware
corporation, having a place of business at 11555 Darnestown Road, Gaithersburg,
Maryland, 20878 or its successors or assigns ("Landlord"), is made as of March
__, 1999, by and from STREAMLINE, INC., a Delaware corporation, having a place
of business at 27 Dartmouth Street, Westwood, MA 02090 ("Guarantor").
EXPLANATORY STATEMENT
A. Streamline Mid-Atlantic, Inc., a Delaware corporation ("Tenant"), has
entered into a lease with Landlord dated August 18, 1997 and modified by a rider
dated August 18, 1997 (collectively the "Original Lease") for the lease of
certain demised premises located at 11531 - 11539 Darnestown Road, Gaithersburg,
Maryland (the "Building") and has agreed to lease from Landlord pursuant to an
expansion addendum of even date herewith (the "Expansion Addendum") additional
space at the Building (the Original Lease and the Expansion Addendum as the same
may, from time to time, be renewed, amended, modified, supplemented or assigned,
are collectively referred to in the singular as the "Lease").
B. Landlord is willing to enter into the Expansion Addendum with Tenant
only on the condition that all of the obligations of Tenant under the Lease are
guaranteed by Guarantor in accordance with the terms and conditions of this
Guaranty.
C. Guarantor expects to derive substantial benefit from the Lease as
Tenant is a wholly-owned subsidiary of Guarantor.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, the Guarantor agrees as follows:
1. Guarantor irrevocably guarantees: (a) the due and punctual payment in
full of any and all amounts due and owing by Tenant to Landlord under the Lease
after the expiration of any applicable grace periods or notice requirements, if
any, afforded to Tenant pursuant to the terms of the Lease; including interest
and default interest; (b) the due and punctual performance of Tenant's other
obligations under the Lease; (c) all reasonable expenses, including attorneys'
fees, incurred by Landlord in enforcing the Lease or this Guaranty; and (d) any
of the foregoing that would have accrued but for the commencement of, or any
rulings or determinations made pursuant to, a bankruptcy, insolvency, or similar
proceeding (collectively, the "Guaranteed Obligations"). The Guaranteed
Obligations shall be determined without regard to any modification or reduction
that may occur pursuant to any bankruptcy, insolvency, or similar proceeding
including, without limitation, any reduction or limitation thereof that may
occur under Section 502(b)(6) of the United States Bankruptcy Code, or any
similar or successor statute.
<PAGE>
2. Guarantor's liability under this Guaranty shall be primary and not
secondary, shall constitute a guarantee of payment and not of collection, shall
be absolute and unconditional and shall be and remain in full force and effect
as the separate and independent undertaking of Guarantor without regard to the
genuineness, validity or enforceability of the Lease, unless any such failure of
the genuineness or validity of the Lease is the result of Landlord's not being
authorized to enter into the Lease. The Guaranteed Obligations shall not be
subject to offset, deduction, reduction, counterclaim, or defense of any kind,
including without limitation on account of any offset, deduction, reduction,
counterclaim, or defense arising or purportedly arising under the Lease or from
the landlord-tenant relationship thereunder. Without notice to, or consent by,
Guarantor, and in Landlord's sole and absolute discretion and without prejudice
to Landlord or in any way limiting or reducing Guarantor's liability under this
Guaranty, Landlord may: (a) grant extensions of time, renewals or other
indulgences or modifications to Tenant; (b) change, amend or modify the Lease;
and (c) file or refrain from filing a claim in any bankruptcy or similar
proceeding, and otherwise deal with Tenant and any other party related to the
Lease.
3. This Guaranty is a continuing guarantee and shall remain in full force
and effect until the Guaranteed Obligations are fully completely and
indefeasibly, paid, performed and/or discharged.
4. Guarantor shall be subrogated to all rights of Landlord in respect of
any amounts paid by Guarantor pursuant to the provisions of this Guaranty;
provided, however, that Guarantor shall be entitled to enforce, or to receive
any payments arising out of or based on, such right of subrogation only after
the Guaranteed Obligations have been indefeasibly paid in full and fully
performed, and only in the event that such right of subrogation does not violate
(or otherwise produce any result adverse to Landlord under) any bankruptcy or
insolvency law.
5. (a) This Guaranty shall continue to be effective or reinstated, as the
case may be, if at any time any payment made to Landlord by Guarantor hereunder
or by Tenant under the Lease is rescinded or must otherwise be returned by
Landlord as a result of the insolvency, bankruptcy, or reorganization by
Guarantor or Tenant, all as though such payment had not been made.
(b) Guarantor waives any right to require Landlord to
exercise any or all of its rights and remedies against Tenant or pursue any
other right or remedy for Guarantor's benefit.
(c) Guarantor waives diligence and all demands (other than demands,
if any, required herein), protests, presentments and notices of every kind or
nature, including notices of protest, dishonor, nonpayment, acceptance of this
Guaranty and the creation, renewal, extension, modification or accrual of any of
the Guaranteed Obligations. No failure or delay on Landlord's part in exercising
any power, right or privilege under this Guaranty shall impair or waive any such
power, right or privilege. Guarantor irrevocably waives any right to trial by
jury in any action, proceeding, counterclaim or other litigation arising out of
or relating to this Guaranty.
(d) Landlord may enforce this Guaranty against Guarantor either
before, after, in conjunction with, or independently of Landlord's assertion
against Tenant of any remedies available under the Lease or at law.
2
<PAGE>
(e) Guarantor's liability under this Guaranty shall not be limited,
restricted, diminished, or reduced in any manner by the occurrence of any of the
following: (a) Tenant's departure from the Premises (as such term is defined in
the Lease); (b) Landlord's obtaining a monetary judgment against Tenant, except
to the extent that such judgment has actually been paid and such payment(s) are
(or should be in accordance with the terms of such judgment) credited against
the Guaranteed Obligations; or (c) the termination or modification of any
affiliation between Landlord and Tenant.
6. Guarantor represents and warrants that it is a corporation duly
organized and validly existing under the laws of its state of incorporation and
that it has full power and legal right to execute and deliver this Guaranty and
the same is enforceable against Guarantor in accordance with its terms.
7. All notices shall be in writing and deemed effective for all purposes
as of the date such communication is mailed, postage prepaid, by certified mail,
return receipt requested, to be delivered as follows: Streamline, Inc., 27
Dartmouth Street, Westwood, MA 02090, attention: Comptroller.
8. No right, benefit, or obligation of Guarantor under this Guaranty may
be assigned without the prior written consent of Landlord.
9. If Landlord executes and delivers any mortgage, deed of trust,
indemnity deed of trust, or other real property security instrument affecting
Landlord's estate in the Premises (a "Mortgage" (and the holder or beneficiary
of such Mortgage, a "Mortgagee")), then from and after such time as Guarantor
has received notice thereof and continuing until either (a) the Mortgage has
been discharged, released or satisfied of record, or (b) a Foreclosure Event (as
such term is defined in the Lease) has occurred and all Guaranteed Obligations
have been fully paid and performed: (1) any assignment by Landlord of the Lease
to Mortgagee (whether contained in the Mortgage or in a separate instrument)
shall be deemed, without further action, to include an assignment of this
Guaranty to Mortgagee or, from and after a Foreclosure Event, to Landlord's
successor-in-interest pursuant to such Foreclosure Event; (2) this Guaranty may
not be amended, modified, or waived, in whole or in part, without Mortgagee's
prior written consent; and (3) from and after any Foreclosure Event, if either
or both (x) the Lease remains in effect and/or (y) Tenant remains in possession
of the Premises, then this Guaranty shall continue to apply to the Guaranteed
Obligations for the benefit of Landlord's successor-in-interest pursuant to such
Foreclosure Event. The foregoing shall not limit the effectiveness of any other
waivers provided for in this Guaranty.
10. The invalidity of any clause of this Guaranty shall not affect the
validity of the remaining clauses.
11. This Guaranty constitutes the entire agreement between the parties and
supersedes all prior oral and written agreements between the parties hereto with
respect to the subject matter hereof.
12. This Guaranty shall be construed and enforced in accordance with, and
governed by, the laws of the State of Maryland.
3
<PAGE>
13. This Guaranty shall apply to and bind successors and assigns of the
parties. Guarantor acknowledges that it has been advised that Landlord and
REII-Gaithersburg, Maryland, L.L.C., a Delaware limited liability company
("REII-Gaithersburg") have entered into a purchase contract, as amended for the
purchase and sale of certain real property and improvements thereon, including
the Building. Without in any way limiting the generality of the foregoing, upon
the sale of the Building to REII-Gaithersburg, or any other party, the terms,
conditions and provisions of this Guaranty shall inure to the benefit of and the
obligations of Guarantor shall be binding upon such successor landlord without
the requirement of any notice to Guarantor.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed and
delivered as of the day and year first above written.
GUARANTOR:
Streamline, Inc.
a Delaware corporation
By: /s/ Timothy A. DeMello
--------------------------
Name: Timothy A. DeMello
Title: Chairman / CEO
ATTEST:
/s/ [ILLEGIBLE]
- ------------------------------
Secretary/Assistant Secretary
4
<PAGE>
Exhibit 10.31
FORM OF
INVENTION AND NON-DISCLOSURE AGREEMENT
This Agreement is made between Streamline, Inc., a Delaware corporation
(hereinafter referred to collectively with its subsidiaries, if any, as the
"Company"), and ____________________________ ("Employee").
1. PROPRIETARY INFORMATION:
(a) The Employee agrees that all information, whether or not in
writing, of a private, secret or confidential nature concerning
the Company's business, business relationships or financial
affairs (collectively, "Proprietary Information") is and shall be
the exclusive property of the Company. By way of illustration,
Proprietary Information may include inventions, products,
processes, methods, techniques, formulas, compositions,
compounds, projects, developments, plans, research data, clinical
data, financial data, personnel data, computer programs, customer
and supplier lists, and contacts at or knowledge of customers or
prospective customers of the Company. The Employee will not
disclose any Propriety Information to any person or entity other
than employees of the Company or use the same for any purposes
(other than in the performance of his/her duties as an employee
of the Company) without written approval by an officer of the
Company, either during or after his/her employment with the
Company, unless and until such Proprietary Information has become
public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports,
records, data sketches, drawings, laboratory notebooks, program
listings, or other written, photographic, or other tangible
material containing Propriety Information, whether created by the
Employee or others, which shall come into his/her custody or
possession, shall be and are the exclusive property of the
Company to be used by the Employee only in their performance of
his/her duties for the Company. All such materials or copies
thereof and all tangible property of the Company in the custody
or possession of the Employee shall be delivered to the Company,
upon the earlier of (i) a request by the Company or (ii)
termination of his/her employment. After such delivery, the
Employee shall not retain any such materials or copies thereof or
any such tangible property.
(c) The Employee agrees that his/her obligation not to disclose or to
use the information and materials of the types set forth in
paragraphs (a) and (b) above, and his/her obligation to return
materials and tangible property, set forth in paragraph (b)
above, also extends to such types of information, materials and
tangible property of customers of the Company or suppliers to the
Company other third parties who may disclosed or entrusted the
same to the Company or to the Employee.
2. DEVELOPMENTS.
(a) The Employee will make full and prompt disclosure to the Company
of all inventions, improvements, discoveries, methods,
developments, software, and works of authorship, whether
patentable or not, which are created, made, conceived or reduced
to practice by him/her or under his/her direction of jointly with
others during his/her employment by the Company, whether or not
during normal working hours or on the premises of the Company
(all of which are collectively referred to in this Agreement as
"Developments")
<PAGE>
(b) The Employee agrees to assign and does hereby assign to the
Company (or any person or entity designated by the Company) all
his/her right, title and interest in and to all Developments and
all related patents, patent applications, copyrights and
copyright applications. However, this paragraph 2 (b) shall not
apply to Developments which do not relate to the present or
planned business or research and development of the Company and
which are made and conceived by the Employee not during normal
working hours , not on the Company's premises and not using the
Company's tools, devices, equipment or Proprietary Information.
The Employee understands that, to the extent this Agreement shall
be construed in accordance with the laws of any state which
precludes a requirement in an employee agreement to assign
certain classes of inventions made by an employee, this paragraph
2(b) shall be interpreted not to apply to any invention which a
court rules and/or the Company agrees falls within such classes.
The Employee also hereby waives all claims to moral rights in any
Developments.
(c) The Employee agrees to cooperate fully with the Company, both
during and after his/her employment with the Company, with
respect to the procurement, maintenance and enforcement of
copyrights, patents and other intellectual property rights (both
in the United States and foreign countries) related to
Developments. The Employee shall sign all papers, including,
without limitation, copyright applications, patent applications,
declarations, oaths, formal assignments, assignments of priority
rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and
interests in any Development. The Employee further agrees that if
the Company is unable, after reasonable effort, to secure the
signature of the Employee on any such papers, any executive
officer of the Company shall be entitled to executed any such
papers as the agent and the attorney-in-fact of the Employee, and
the Employee hereby irrevocably designated and appoints each
executive officer of the Company as his/her agent and
attorney-in-fact to execute any such papers on his/her behalf,
and to take any and all actions as the Company may deem necessary
or desirable in order to protect its rights and interests in any
Development, under the conditions described in this sentence.
3. OTHER AGREEMENTS.
The Employee hereby represents that, except as the Employee has disclosed
in writing to the Company, the Employee is not bound by the terms of any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or confidential or propriety information in the
course of his/her employment with the Company or to refrain from competing,
directly or indirectly, with the business of such previous employer or any other
party. The Employee further represents that his/her performance of all the terms
of this Agreement as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information, knowledge or data
acquires by the Employee in confidence or in trust prior to his/her employment
with the Company, and the Employee will not disclose to the Company or induce
the Company to use any confidential or proprietary information or material
belonging to any previous employer or others.
4. UNITED STATES GOVERNMENT OBLIGATIONS.
The Employee acknowledges that the Company from time to time may have
agreements with other persons or with the United States Government, or agencies
thereof, which impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. The Employee agrees to be bound by all such
obligations and restrictions which are made to the Employee and to take all
action necessary to discharge the obligations of the Company under such
agreements.
5. NOT EMPLOYMENT CONTRACT.
The Employee understands that this Agreement does not constitute a contract
of employment and does not imply that his/her employment will continue for any
period of time.
<PAGE>
6. MISCELLANEOUS.
(a) The validity or unenforceability of any provision of this
agreement of this agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(b) This Agreement supersedes all prior agreements, written or oral,
between the Employee and the Company relating to the subject
matter of this Agreement. This Agreement may not be modified,
changed or discharged in whole or in part, except by an agreement
in writing signed by the Employee and the Company. The Employee
agrees that any change or changes in his/her duties, salary or
compensation after the signing of this Agreement shall not affect
the validity or scope of this Agreement.
(c) This Agreement will be binding upon the Employee's heirs,
executors and administrators and will inure to the benefit of the
Company and its successors and assigns.
(d) No delay or omission by the Company in exercising any right under
this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Company on any one
occasion is effective only in that instance and will not be
construed as a bar to or waiver of any right on any other
occasion.
(e) The Employee expressly consents to be bound by the provisions of
this Agreement for the benefit of the Company or any subsidiary
or affiliate thereof to whose employ the Employee may be
transferred without the necessity that this Agreement by resigned
at the time of such transfer.
(f) The restrictions contained in this Agreement are necessary for
the protection of the business and goodwill of the Company and
are considered by the Employee to be reasonable for such purpose.
The Employee agrees that any breach of this agreement is likely
to cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, the Employee agrees
that the Company, in addition to such other remedies which may be
available, shall be entitled to specific performance and other
injunctive relief.
(g) This Agreement is governed by and will be construed as a sealed
instrument under and in accordance with the laws of the
Commonwealth of Massachusetts. Any action, suit, or other legal
proceeding which is commenced to resolve any matter arising under
or relating to any provision of this Agreement shall be commenced
only in a court of the Commonwealth of Massachusetts (or, if
appropriate , a federal court located within Massachusetts), and
the Company and the Employee each consents to the jurisdiction of
such court.
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISION IN THIS AGREEMENT.
WITNESS: STREAMLINE, INC.:
Date: By:
----------------------------- ------------------------------
------------------------------
Timothy A. DeMello, Chairman & CEO
Date:
----------------------------- ------------------------------
(Signature of Employee)
------------------------------
(Print Name)
<PAGE>
Exhibit 10.32
FORM OF
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
This agreement is made between Streamline, Inc., a Delaware corporation
(hereinafter referred collectively with its subsidiaries as the "Company"), and
___________________ (the "Employee").
In consideration of the employment or continued employment of the
Employee by the Company, the Employee and the Company agree as follows:
1. NON-COMPETITION.
(a) While the Employee is employed by the Company and for a period of
two years after the termination or cessation of such employment
for any reason, the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venture, investor, lender,
consultant, or in any other capacity whatsoever (other than
as the holder of not one more than one percent of the
combined voting power of the outstanding stock of a
publicly held company), develop, design, produce, market,
sell or render (or assist any other person in developing,
designing, producing, marketing, selling or rendering)
products or services competitive with those developed,
designed, produced, marketed, sold, or rendered by the
Company while the Employee was employed by the Company; or
(ii) solicit, divert or take away, or attempt to divert or take
away, the business or patronage of any of the clients,
customers or accounts, or prospective clients, customer or
account, of the Company which were contacted, solicited or
served by the Employee while employed by the Company.
(b) If the Employee violates the provisions of Section 1(a), the
Employee shall continue to be bound by the restrictions set forth
in Section 1(a) until a period of two years has expired without
any violation of such provisions.
2. NON-SOLICITATION.
(a) While the Employee is employed by the Company and for a period of
two years after the termination of cessation of such employment
for any, the Employee will not directly or indirectly recruit,
solicit or hire any employee of the Company, or induct or attempt
to induce any employee of the Company to terminate his/her
employment with, or otherwise cease his/her relationship with,
the Company.
(b) If the employee violates the provisions of Section 2(a), the
Employee shall continue to be bound by the restrictions set forth
in Section 2(a) until a period of two years has expired without
violation of such provisions.
3. MISCELLANEOUS.
(a) NO CONFLICT. The Employee represents that the execution and
performance by him/her of this agreement does not and will not
conflict with or breach the terms of any other agreement by which
the Employee is bound.
(b) NOT EMPLOYMENT CONTRACT. The Employee acknowledges that this
Agreement does not constitute a contract of employment and does
not imply that the Company will continue his/her employment for
any period of time.
<PAGE>
(c) INTERPRETATION. If any restriction set forth in Section 1 or 2 is
found by any court of competent jurisdiction to be unenforceable
because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area
as to which it may be enforceable.
(d) SEVERABILITY. The invalidity of unenforceability of any provision
of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement. If any restriction
contained herein is found by a court of competent jurisdiction to
be unenforceable because it extends for too long a period of time
or over too great a range of activities, then it is to extend
only over a maximum period of time or range of activities as
to which it may be enforceable.
(e) WAIVER OF RIGHTS. No delay or omission by the Company is
exercising any right under this Agreement will operate as a
waiver of that or any other right . A waiver or consent given by
the Company on any one occasion is effective only in that
instance and will be construed as a bar to or waiver of any
right on any other occasion.
(f) EQUITABLE REMEDIES. The restrictions contained in this Agreement
are necessary for the protection of the business and goodwill of
the Company and are considered by the Employee to be reasonable
for such purpose The Employee agrees that any breach of this
Agreement is likely to cause the Company substantial and
irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to
such other remedies which may be available, shall be entitle
to specific performance and other injunctive relief.
(g) ASSIGNABILITY. The Company may assign this Agreement to any other
corporation or entity which acquires (whether by purchase,
merger, consolidation or otherwise) all or substantially all
of the business and/or assets of the Company.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.
Any action, suit, or other legal proceeding which is commenced to
resolve any matter arising under or relating to any provision of
this Agreement shall be commenced only in a court of the
Commonwealth of Massachusetts (or, if appropriate, a federal
court located within Massachusetts), and the Company and the
Employee each consents to the jurisdiction of such a court.
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
WITNESS our hands and seals:
STREAMLINE, INC.
Date: BY:
-------------------------- -----------------------------
-----------------------------
Timothy A. DeMello
Chairman and CEO
EMPLOYEE
Date:
--------------------------- -----------------------------
(Signature)
-----------------------------
(print name)
<PAGE>
Exhibit 10.35
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY AND THE SHARES OF COMMON STOCK
ISSUABLE HEREUNDER HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii)
THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE
COMMISSION RULE 144.
Void after 5:00 p.m.,
Eastern Time
on April 12, 1999
WARRANT TO PURCHASE 150,000 SHARES OF COMMON STOCK
OF
STREAMLINE, INC.
(Subject to Adjustment)
Initial Number of Shares: 150,000 shares1
Date of Grant: April 12, 1999
Expiration Date: April 12, 2002
THIS CERTIFIES THAT, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Nordstrom, Inc. or its permitted
registered assigns ("HOLDER"), is entitled to purchase from Streamline, Inc., a
Delaware corporation (the "COMPANY"), subject to the terms and conditions of
this Warrant, One Hundred Fifty Thousand (150,000) fully paid and nonassessable
shares of the Common Stock of the Company, $0.01 par value per share (the
"WARRANT STOCK"), at an exercise price of $3.50 per share (the "EXERCISE
PRICE"). Both the number of shares of Warrant Stock purchasable under this
Warrant and the Exercise Price are subject to adjustment as provided herein.
This Warrant shall
- ---------------------
1 Share and prices per share information in this Warrant reflect the
capitalization of the Company on the date of issuance of this Warrant and do not
reflect a forthcoming 1-for-2 reverse stock split.
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
terminate at 5:00 p.m., Eastern Time, on April 12, 2002 (the "EXPIRATION DATE").
1. CERTAIN DEFINITIONS. As used in this Warrant:
1.1. The term "WARRANT STOCK" shall mean the Common Stock, $0.01 par
value per share, of the Company, and any other securities and property at any
time receivable or issuable upon exercise of this Warrant, unless the context
otherwise requires.
1.2. The term "WARRANT" as used herein, shall include this Warrant and
any warrant delivered in substitution or exchange therefor as provided herein.
1.3. The term "REGISTERED HOLDER" shall mean any Holder in whose name
this Warrant is registered upon the books and records maintained by the Company.
1.4. The term "FAIR MARKET VALUE" of a share of Warrant Stock as of a
particular date (the "DETERMINATION DATE") shall mean:
(a) If traded on a securities exchange or the NASDAQ National
Market, the Fair Market Value shall be deemed to be the average of the closing
prices of the Common Stock of the Company on such exchange over the five (5)
business days ending two (2) days prior to the Determination Date;
(b) If actively traded over-the-counter, the Fair Market Value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) days prior to the Determination Date; and
(c) If there is no active public market, the Fair Market Value
shall be the value thereof, as determined in good faith by the Board of
Directors of the Company.
2. VESTING
This Warrant shall be fully vested and exercisable as of April
12, 1999.
3. MANNER OF EXERCISE
3.1. PAYMENT.
-2-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
Subject to compliance with the terms and conditions of this Warrant and
applicable securities laws, this Warrant may be exercised, in whole or in part,
at any time on or before the Expiration Date, by surrendering this Warrant at
the principal office of the Company together with:
(a) the form of Notice of Exercise attached hereto as Exhibit
1 (the "NOTICE OF EXERCISE") duly executed by the Holder, and
(b) payment, in cash (by check) or by wire transfer, of an
aggregate amount equal to the number of shares of Warrant Stock being purchased
upon such exercise multiplied by the applicable Exercise Price for each such
share (such aggregate amount being referred to herein as the "EXERCISE AMOUNT").
3.2. PARTIAL EXERCISE, EFFECTIVE DATE OF EXERCISE.
In case of any partial exercise of this Warrant, the Company
shall cancel this Warrant upon surrender hereof and shall execute and deliver a
new Warrant of like tenor and date for the balance of the shares of Warrant
Stock purchasable hereunder. This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above. The person entitled to receive the shares of Warrant
Stock issuable upon exercise of this Warrant shall be treated for all purposes
as the holder of record of such shares as of the close of business on the date
the Holder is deemed to have exercised this Warrant.
3.3. STOCK CERTIFICATES, FRACTIONAL SHARES.
As soon as practicable on or after such date, the Company
shall issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of whole shares of Warrant Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share equal to such fraction of the Fair Market Value of one whole share of
Warrant Stock as of the date of exercise of this Warrant. No fractional shares
or scrip representing fractional shares shall be issued upon an exercise of this
Warrant, and any fractional shares shall be rounded to the nearest whole share.
4. VALID ISSUANCE; TAXES.
All shares of Warrant Stock issued upon the exercise of this Warrant
shall be validly issued, fully paid and non-assessable, and the Company shall
pay all taxes and other governmental charges that may be imposed in respect of
the issue or delivery thereof. The Company shall
-3-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
not be required to pay any tax or other charge imposed in connection with any
transfer involved in the issuance of any certificate for shares of Warrant Stock
in any name other than that of the Registered Holder of this Warrant, and in
such case the Company shall not be required to issue or deliver any stock
certificate or security until such tax or other charge has been paid, or it has
been established to the Company's reasonable satisfaction that no tax or other
charge is due.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES.
The number of shares of Warrant Stock issuable upon exercise of this
Warrant (or any shares of stock or other securities or property receivable or
issuable upon exercise of this Warrant) and the Exercise Price are subject to
adjustment upon occurrence of the following events:
5.1. ADJUSTMENT FOR STOCK SPLITS, STOCK SUBDIVISIONS OR
COMBINATIONS OF SHARES.
The Exercise Price of this Warrant shall be proportionally
decreased and the number of shares of Warrant Stock issuable upon exercise of
this Warrant (or any shares of stock or other securities at the time issuable
upon exercise of this Warrant) shall be proportionally increased to reflect any
stock split or subdivision of the Company's Common Stock. The Exercise Price of
this Warrant shall be proportionally increased and the number of shares of
Warrant Stock issuable upon exercise of this Warrant (or any shares of stock or
other securities at the time issuable upon exercise of this Warrant) shall be
proportionally decreased to reflect any combination of the Company's Common
Stock.
5.2. ADJUSTMENT FOR DIVIDENDS OR DISTRIBUTIONS OF STOCK OR OTHER
SECURITIES OR PROPERTY.
In case the Company shall make or issue, or shall fix a record
date for the determination of eligible holders entitled to receive, a dividend
or other distribution with respect to the Warrant Stock (or any shares of stock
or other securities at the time issuable upon exercise of the Warrant) payable
in (i) securities of the Company or (ii) assets (excluding cash dividends paid
or payable solely out of retained earnings), then, in each such case, the Holder
of this Warrant on exercise hereof at any time after the consummation, effective
date or record date of such dividend or other distribution, shall receive, in
addition to the shares of Warrant Stock (or such other stock or securities)
issuable on such exercise prior to
-4-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
such date, and without the payment of additional consideration therefor, the
securities or such other assets of the Company to which such Holder would have
been entitled upon such date if such Holder had exercised this Warrant on the
date hereof and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period giving effect
to all adjustments called for by this Section 5.
5.3. RECLASSIFICATION.
If the Company, by reclassification of securities or
otherwise, shall change any of the securities as to which purchase rights under
this Warrant exist into the same or a different number of securities of any
other class or classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such reclassification or
other change and the Exercise Price therefore shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 5.
5.4. ADJUSTMENT FOR CAPITAL REORGANIZATION, MERGER OR
CONSOLIDATION.
In case of any capital reorganization of the capital stock of
the Company (other than a combination, reclassification, exchange or subdivision
of shares otherwise provided for herein), or any merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all the assets of the Company then, and in each such case, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 5. The foregoing provisions of this Section 5.4 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this
-5-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
Warrant. If the per-share consideration payable to the Holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
5.5 CERTAIN EVENTS
If (i) any event occurs of a type that would have an effect on
the rights granted under this Warrant similar to the effect of any event
described by the other provisions of this Section 5 and (ii) such event IS not
expressly provided for by such other provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights and other rights
with equity features), then an appropriate adjustment in the Exercise Price and
the number of shares of Common Stock obtainable upon exercise of this Warrant so
as to protect the rights of the Holder shall be made.
5.6. RESERVATION OF SECURITIES AND ASSETS.
The Company shall reserve, for the life of the Warrant, such
securities or such other assets of the Company the Holder is entitled to receive
pursuant to this Section 5.
6. CERTIFICATE AS TO ADJUSTMENTS.
In each case of any adjustment in the Exercise Price, or number or type
of shares issuable upon exercise of this Warrant, the Chief Financial Officer or
the Controller of the Company shall compute such adjustment in accordance with
the terms of this Warrant and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based,
including a statement of the adjusted Exercise Price. The Company shall promptly
send (by facsimile and by either first class mail, postage prepaid or overnight
delivery) a copy of each such certificate to the Holder.
-6-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
7. LOSS OR MUTILATION.
Upon receipt of evidence reasonably satisfactory to the Company of the
ownership of and the loss, theft, destruction or mutilation of this Warrant, and
of indemnify reasonably satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
in lieu thereof a new Warrant of like tenor as the lost, stolen, destroyed or
mutilated Warrant.
8. RESERVATION OF COMMON STOCK.
The Company hereby covenants that at all times there shall be reserved
for issuance and delivery upon exercise of this Warrant such number of shares of
Common Stock or other shares of capital stock of the Company as are from time to
time issuable upon exercise of this Warrant and, from time to time, will take
all steps necessary to amend its Certificate of Incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of this
Warrant. All such shares shall be duly authorized, and when issued upon such
exercise, shall be validly issued, fully paid and non-assessable, free and clear
of all liens, security interests, charges and other encumbrances or restrictions
on sale and free and clear of all preemptive rights, except encumbrances or
restrictions arising under federal or state securities laws. Issuance of this
Warrant shall constitute full authority to the Company's officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
9. TRANSFER AND EXCHANGE.
Subject to compliance with applicable securities laws, and subject to
the provisions of Section 10 below, this Warrant may be transferred or assigned
in whole or in part, at any time, and from time to time, at the Holder's sole
election.
10. RESTRICTIONS ON TRANSFER.
The Holder, by acceptance hereof, agrees that, absent an effective
registration statement filed with the U.S. Securities and Exchange Commission
("SEC") under the Act covering the disposition or sale of this Warrant or the
Warrant Stock issued or issuable upon exercise hereof, as the case may be, and
registration or qualification under applicable state securities laws, such
Holder will not sell, transfer, pledge, or hypothecate any or all such Warrants
or Warrant Stock, as the case may be, unless either (i) the Company has received
an opinion of counsel, in form
-7-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
reasonably satisfactory to the Company, to the effect that such registration is
not required in connection with such disposition or (ii) the sale of such
securities is made pursuant to SEC Rule 144; PROVIDED that if such sale is
pursuant to Rule 144, the Company may require the delivery of a reasonably
satisfactory opinion of counsel confirming that such Warrant or Warrant Stock,
as the case may be, may be sold pursuant to Rule 144, if the Company determines
that such opinion is reasonably necessary.
11. COMPLIANCE WITH SECURITIES LAWS.
By acceptance of this Warrant, the Holder hereby represents, warrants
and covenants that any shares of stock purchased upon exercise of this Warrant
shall be acquired for investment only and not with a view to, or for sale in
connection with, any distribution thereof, that the Holder has had such
opportunity as such Holder has deemed adequate to obtain from representatives of
the Company such information as is necessary to permit the holder to evaluate
the merits and risks of its investment in the Company; that the Holder is able
to bear the economic risk of holding such shares as may be acquired pursuant to
the exercise of this Warrant for an indefinite period; that the Holder
understands that the shares of stock acquired pursuant to the exercise of this
Warrant will not be registered under the Act (unless otherwise required pursuant
to exercise by the holder of the registration rights, if any, previously granted
to the registered Holder) and will be restricted securities within the meaning
of Rule 144 under the Act and that the exemption from registration under Rule
144 will not be available for at least one year from the date of exercise of
this Warrant, and even then will not be available unless a public market then
exists for the stock, adequate information concerning the Company is then
available to the public, and other terms and conditions of Rule 144 are complied
with; and that all stock certificates representing shares of stock issued to the
Holder upon exercise of this Warrant may have affixed thereto a legend
substantially in the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE BEEN AND WILL
BE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
OR UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN
FORM REASONABLY SATISFACTORY TO
-8-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN
CONNECTION WITH SUCH DISPOSITION OR (ii) THE SALE OF SUCH SECURITIES IS
MADE PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 144; PROVIDED
THAT IF SUCH SALE IS PURSUANT TO RULE 144, THE COMPANY MAY REQUIRE THE
DELIVERY OF A REASONABLY SATISFACTORY OPINION OF COUNSEL CONFIRMING
THAT SUCH WARRANT OR WARRANT STOCK, AS THE CASE MAY BE, MAY BE SOLD
PURSUANT TO RULE 144, IF THE COMPANY DETERMINES THAT SUCH OPINION IS
REASONABLY NECESSARY.
12. NO RIGHTS OR LIABILITIES AS SHAREHOLDERS.
This Warrant shall not entitle the Holder to any voting rights or other
rights as a shareholder of the Company. In the absence of affirmative action by
such Holder to purchase Warrant Stock by exercise of this Warrant, no provisions
of this Warrant, and no enumeration herein of the rights or privileges of the
Holder hereof shall cause such Holder hereof to be a shareholder of the Company
for any purpose.
13. NOTICES.
All notices and other communications from the Company to the Holder
shall be given in any manner deemed reasonable by the Company to the Holder at
the most recent address or facsimile number of the Holder provided in writing to
the Company by the Holder.
14. HEADINGS.
The headings in this Warrant are for purposes of convenience in
reference only, and shall not be deemed to constitute a part hereof
15. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of Delaware.
16. NO IMPAIRMENT.
The Company will not, by amendment of its Certificate of Incorporation
or bylaws, or through reorganization, consolidation, merger, dissolution, issue
or sale of securities, sale of assets or any other voluntary action, avoid or
seek to avoid the observance or performance of
-9-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Registered
Holder of this Warrant against impairment. Without limiting the generality of
the foregoing, the Company (a) will not increase the par value of any shares of
stock issuable upon the exercise of this Warrant above the amount payable
therefor upon such exercise, and (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of Warrant Stock upon exercise of this
Warrant.
17. NOTICES OF RECORD DATE. In case:
17.1. the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities or to receive any other right; or
17.2. of any consolidation or merger of the Company with or into
another corporation, any capital reorganization or the Company, any
reclassification of the Capital Stock of the Company, or any conveyance of all
or substantially all of the assets of the Company to another corporation in
which holders of the Company's stock are to receive stock, securities or
property of another corporation; or
17.3. of any voluntary dissolution, liquidation or winding-up of
the Company; or
17.4. of any redemption or conversion of all outstanding shares of
Common Stock;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such reorganization,
-10-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
reclassification, consolidation, merger, conveyance, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of shares of Common Stock (or
such stock or securities as at the time are receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
thirty (30) days prior to the date therein specified.
18. SEVERABILITY.
If any term, provision, covenant or restriction of this Warrant is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
19. COUNTERPARTS.
For the convenience of the parties, any number of counterparts of this
Warrant may be executed by the parties hereto and each such executed counterpart
shall be, and shall be deemed to be, an original instrument.
20. NO INCONSISTENT AGREEMENTS.
The Company will not on or after the date of this Warrant enter into
any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders of this Warrant or otherwise conflicts with the
provisions hereof The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to holders of the
Company's securities under any other agreements, except rights that have been
waived.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-11-
<PAGE>
WARRANT
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21. SATURDAYS, SUNDAYS AND HOLIDAYS.
If the Expiration Date falls on a Saturday, Sunday or legal holiday,
the Expiration Date shall automatically be extended until 5:00 p.m. the next
business day.
AGREED:
NORDSTROM, INC. STREAMLINE, INC.
/s/ Darren R. Jackson /s/ Timothy A. DeMello
- --------------------------- --------------------------
Signature Signature
Darren R. Jackson Timothy A. DeMello
- --------------------------- --------------------------
Printed Name Printed Name
VP & Treasurer Chairman & CEO
- --------------------------- --------------------------
Title Title
April 13, 1999 April 13, 1999
- --------------------------- --------------------------
Date Date
-12-
<PAGE>
WARRANT
- -------------------------------------------------------------------------------
EXHIBIT I
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
STREAMLINE, INC.:
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, shares of Common Stock, as provided for therein, and tenders
herewith payment of the exercise price in full in the form of cash or a
certified or official bank check in same-day funds in the amount of
$_________________ for a total of __________ shares of Common Stock.
Please issue a certificate or certificates for such shares of Common
Stock in the name of, and pay any cash for any fractional share to (please print
name, address and social security number):
Name:
-----------------------------------
Address:
-----------------------------------
Signature:
-----------------------------------
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
If said number of shares shall not be all the shares purchasable under
the within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.
By:
------------------------
------------------------
Date:
----------------------
-13-
<PAGE>
Exhibit 10.36
STREAMLINE.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. DEFINITIONS. As used in this 1999 Employee Stock Purchase Plan of
Streamline.com, Inc., the following terms shall have the meanings respectively
assigned to them below:
(a) BASE COMPENSATION means annual or annualized base compensation,
exclusive of overtime, bonuses, contributions to employee benefit plans, or
other fringe benefits.
(b) BENEFICIARY means the person designated as the Participating
Employees' beneficiary on the Participating Employee's Membership Agreement or
other form provided by the personnel department of the Company for such purpose
or, if no such beneficiary is named, the person to whom the Option is
transferred by will or under the applicable laws of descent and distribution.
(c) BOARD means the board of directors of the Company, except that, if
and so long as the board of directors of the Company has delegated pursuant to
Section 4 its authority with respect to the Plan to the Committee, then all
references in this Plan to the Board shall refer to the Committee acting in such
capacity.
(d) CODE means the Internal Revenue Code of 1986, as amended.
(e) COMMITTEE means the Compensation Committee of the Board.
(f) COMPANY means Streamline.com, Inc., a Delaware corporation.
(g) EFFECTIVE DATE means the effective date of the Company's
registration statement on Form S-1, File No. 333-76383 under the Securities Act
of 1933, as amended.
(h) ELIGIBLE EMPLOYEE means a person who is eligible under the
provisions of Section 7 to receive an Option as of a particular Offering
Commencement Date.
(i) EMPLOYER means, as to any particular Offering Period, the Company
and any Related Corporation which is designated by the Board as a
<PAGE>
-2-
corporation whose Eligible Employees are to receive Options as of that
Offering Period's Offering Commencement Date.
(j) MARKET VALUE means, as of the Offering Commencement Date of the
first Offering Period under this Plan, the initial public offering price at
which shares of Stock are offered to the public, as specified in the Company's
registration statement on Form S-1 referred to above, and as of any other
particular date, (i) if the Stock is listed on an exchange, the closing price of
the Stock on such date on such exchange, (ii) if the Stock is quoted through the
National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
National Market System or any successor thereto, the closing price of the Stock
on such date and (iii) if the Stock is quoted through Nasdaq (but not on the
National Market System) or otherwise publicly traded, the average of the closing
bid and asked prices of the Stock on such date.
(k) MEMBERSHIP AGREEMENT means an agreement whereby a Participating
Employee authorizes an Employer to withhold payroll deductions from his or her
Base Compensation.
(l) OFFERING COMMENCEMENT DATE means the first business day of an
Offering Period on which Options are granted to Eligible Employees.
(m) OFFERING PERIOD means (i) in the case of the initial Offering
Period hereunder, the period running from the Effective Date to December 31,
1999 and (ii) in the case of each subsequent Offering Period, a semi-annual
period, running from either January 1 to the next following June 30 or July 1 to
the next following December 31; during which Options will be offered under the
Plan pursuant to a determination by the Board.
(n) OFFERING TERMINATION DATE means the last business day of an
Offering Period, on which Options must, if ever, be exercised.
(o) OPTION means an option to purchase shares of Stock granted under
the Plan.
(p) OPTION SHARES means shares of Stock purchasable under an Option.
(q) PARTICIPATING EMPLOYEE means an Eligible Employee to whom an Option
is granted.
(r) PLAN means this 1999 Employee Stock Purchase Plan of the Company,
as amended from time to time.
<PAGE>
-3-
(s) RELATED CORPORATION means any corporation which is or during the
term of the Plan becomes a parent corporation of the Company, as defined in
Section 424(e) of the Code, or a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
(t) RETIRES means termination of employment with the Company and all
Related Corporations at or after attaining age 65.
(u) STOCK means the common stock, par value $0.01 per share, of the
Company.
2. PURPOSE OF THE PLAN. The Plan is intended to encourage ownership of
Stock by employees of the Company and any Related Corporations and to provide an
additional incentive for the employees to promote the success of the business of
the Company and any Related Corporations. It is intended that the Plan shall be
an "employee stock purchase plan" within the meaning of Section 423 of the Code.
3. TERM OF THE PLAN. The Plan shall become effective on the Effective
Date, subject to the approval by the stockholders of the Company on or prior to
the first anniversary of the Effective Date. No Option shall be granted under
the Plan after the date immediately preceding the tenth anniversary of the
Effective Date.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board. The Board shall determine semi-annually (in accordance with Section 8),
on or before either December 15 and June 15, whether to grant options under the
Plan with respect to the Offering Period which would otherwise begin as of
January 1 and July 1, respectively; PROVIDED, however, that, the Board's
approval of the Plan shall constitute the Board's affirmatively determination to
grant options with respect to the first Offering Period. The Board shall
determine which (if any) Related Corporations shall be Employers as of each
Offering Commencement Date. Either such determination may in the discretion of
the Board apply to all subsequent Offering Periods until modified or revoked by
the Board. The Board shall have authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan, to determine the
terms of Options granted under the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. All determinations of
the Board under the Plan shall be final and binding as to all persons having or
claiming any interest in or arising out of the Plan. The Board may delegate all
or any portion of its authority with respect to the Plan to the Committee, and
thereafter, until such delegation is revoked by the Board, all powers under the
Plan delegated to the Committee shall be exercised by the Committee.
<PAGE>
-4-
5. TERMINATION AND AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time; PROVIDED, HOWEVER, that the Board may not, without
approval by the holders of a majority of the outstanding shares of Stock,
increase the maximum number of shares of Stock purchasable under the Plan or
change the description of employees or classes of employees eligible to receive
Options. Without limiting the generality of the foregoing but subject to the
foregoing proviso, the Board may amend the Plan from time to time to increase or
decrease the length of any future Offering Periods (E.G., to a nine month
period) and to make all required conforming changes to the Plan. No termination
of or amendment to the Plan may adversely affect the rights of a Participating
Employee with respect to any Option held by the Participating Employee as of the
date of such termination or amendment without his or her consent.
6. SHARES OF STOCK SUBJECT TO THE PLAN. No more than an aggregate of
250,000 shares of Stock (after giving effect to the 1-for-2 reverse stock split
to take effect prior to the Effective Date) may be issued or delivered pursuant
to the exercise of Options granted under the Plan, subject to adjustments made
in accordance with Section 9.7. Shares to be delivered upon the exercise of
Options may be either shares of Stock which are authorized but unissued or
shares of Stock held by the Company in its treasury. If an Option expires or
terminates for any reason without having been exercised in full, the unpurchased
shares subject to the Option shall become available for other Options granted
under the Plan. The Company shall, at all times during which Options are
outstanding, reserve and keep available shares of Stock sufficient to satisfy
such Options (or, if less, the maximum number still available for issuance under
the foregoing limit), and shall pay all fees and expenses incurred by the
Company in connection therewith. In the event of any capital change in the
outstanding Stock as contemplated by Section 9.7, the number of shares of Stock
reserved and kept available by the Company shall be appropriately adjusted.
7. PERSONS ELIGIBLE TO RECEIVE OPTIONS. Each employee of an Employer
shall be granted an Option on each Offering Commencement Date on which such
employee meets all of the following requirements:
(a) The employee is customarily employed by an Employer for more than
twenty hours per week and for more than five months per calendar year and, in
the case of any Offering Period after the first Offering Period under the Plan,
has been employed by one or more of the Employers for at least one week prior to
the applicable Offering Commencement Date.
<PAGE>
-5-
(b) The employee will not, after grant of the Option, own Stock
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company or of any Related Corporation. For purposes
of this paragraph (b), the rules of Section 424(d) of the Code shall apply in
determining the Stock ownership of the employee, and Stock which the employee
may purchase under outstanding options shall be treated as Stock owned by the
employee.
(c) Upon grant of the Option, the employee's rights to purchase Stock
under all employee stock purchase plans (as defined in Section 423(b) of the
Code) of the Company and its Related Corporations will not accrue at a rate
which exceeds $25,000 of fair market value of the Stock (determined as of the
grant date) for each calendar year in which such option is outstanding at any
time. The accrual of rights to purchase Stock shall be determined in accordance
with Section 423(b)(8) of the Code.
8. OFFERING COMMENCEMENT DATES. Options shall be granted on the first
business day of each semi-annual period, running from either January 1 to the
next following June 30 or July 1 to the next following December 31, which is
designated by the Board as an Offering Period. Following designation by the
Board of the initial Offering Period under the Plan, all succeeding semi-annual
periods described above shall be deemed Offering Periods without need of further
Board action unless and until contrary action shall have been taken by the Board
prior to the beginning of what would otherwise be an Offering Period.
9. TERMS AND CONDITIONS OF OPTIONS.
9.1 GENERAL. All Options granted on a particular Offering Commencement
Date shall comply with the terms and conditions set forth in Sections 9.2
through 9.11. Subject to Sections 7(c) and 9.9, each Option granted on a
particular Offering Commencement Date shall entitle the Participating Employee
to purchase that number of shares equal to the result of $12,500 (or such lesser
amount as is selected by the Board, prior to the applicable Offering
Commencement Date, and applied uniformly during such Offering Period) divided by
the Market Value of one such share on the Offering Commencement Date and then
rounded down, if necessary, to the nearest whole number.
9.2 PURCHASE PRICE. The purchase price of Option Shares shall be 85% of
the lesser of (a) the Market Value of the shares as of the Offering Commencement
Date or (b) the Market Value of the shares as of the Offering Termination Date.
<PAGE>
-6-
9.3 RESTRICTIONS ON TRANSFER.
(a) Options may not be transferred otherwise than by will or under the
laws of descent and distribution. An Option may not be exercised by anyone other
than the Participating Employee during the lifetime of the Participating
Employee.
(b) The Optionee shall agree in the Membership Agreement to notify the
Company of any transfer of Option Shares within two years of the Offering
Commencement Date for such Option Shares. The Company shall have the right to
place a legend on all stock certificates representing Option Shares instructing
the transfer agent to notify the Company of any transfer of such Option Shares.
The Company shall also have the right to place a legend on all stock
certificates representing Option Shares setting forth or referring to the
restriction on transferability of such Option Shares.
9.4 EXPIRATION. Each Option shall expire at the close of business on
the Offering Termination Date or on such earlier date as may result from the
operation of Sections 9.5 or 9.6.
9.5 TERMINATION OF EMPLOYMENT OF OPTIONEE. If a Participating Employee
ceases for any reason (other than death or Retirement) to be continuously
employed by an Employer, whether due to voluntary severance, involuntary
severance, transfer, or disaffiliation of a Related Corporation with the
Company, his or her Option shall immediately expire, and the Participating
Employee's accumulated payroll deductions shall be returned to the Participating
Employee. For purposes of this Section 9.5, a Participating Employee shall be
deemed to be employed throughout any leave of absence for military service,
illness or other bona fide purpose which does not exceed the longer of ninety
days or the period during which the Participating Employee's reemployment rights
are guaranteed by statute (including without limitation the Veterans
Reemployment Rights Act or similar statute relating to military service) or by
contract. If the Participating Employee does not return to active employment
prior to the termination of such period, his or her employment shall be deemed
to have ended on the ninety-first day of such leave of absence (or such longer
period guaranteed by statute or by contract as provided above).
9.6 RETIREMENT OR DEATH OF OPTIONEE. If a Participating Employee
Retires or dies, the Participating Employee or, in the case of death, his or her
Beneficiary shall be entitled to withdraw the Participating Employee's
accumulated payroll deductions, or to purchase shares on the Offering
Termination Date to the extent that the Participating Employee would be so
entitled had he or she continued to be employed by an Employer. The
<PAGE>
-7-
number of shares purchasable shall be limited by the amount of the
Participating Employee's accumulated payroll deductions as of the date of his
or her Retirement or death. Accumulated payroll deductions shall be applied
by the Company toward the purchase of shares only if the Participating
Employee or, in the case of death, his or her Beneficiary submits to the
Employer not later than the Offering Termination Date a written request that
the deductions be so applied. Accumulated payroll deductions not withdrawn or
applied to the purchase of shares shall be delivered by the Company to the
Participating Employee or Beneficiary within a reasonable time after the
Offering Termination Date.
9.7 CAPITAL CHANGES AFFECTING THE STOCK. In the event that, between the
Offering Commencement Date and the Offering Termination Date with respect to an
Option, a stock dividend is paid or becomes payable in respect of the Stock or
there occurs a split-up or contraction in the number of shares of Stock, the
number of shares for which the Option may thereafter be exercised and the price
to be paid for each such share shall be proportionately adjusted. In the event
that, after the Offering Commencement Date, there occurs a reclassification or
change of outstanding shares of Stock or a consolidation or merger of the
Company with or into another corporation or a sale or conveyance, substantially
as a whole, of the property of the Company, the Participating Employee shall be
entitled on the Offering Termination Date to receive shares of Stock or other
securities equivalent in kind and value to the shares of Stock he or she would
have held if he or she had exercised the Option in full immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance and had
continued to hold such shares (together with all other shares and securities
thereafter issued in respect thereof) until the Offering Termination Date. In
the event that there is to occur a recapitalization involving an increase in the
par value of the Stock which would result in a par value exceeding the exercise
price under an outstanding Option, the Company shall notify the Participating
Employee of such proposed recapitalization immediately upon its being
recommended by the Board to the Company's shareholders, after which the
Participating Employee shall have the right to exercise his or her Option prior
to such recapitalization; if the Participating Employee fails to exercise the
Option prior to recapitalization, the exercise price under the Option shall be
appropriately adjusted. In the event that, after the Offering Commencement Date,
there occurs a dissolution or liquidation of the Company, except pursuant to a
transaction to which Section 424(a) of the Code applies, each Option shall
terminate, but the Participating Employee shall have the right to exercise his
or her Option prior to such dissolution or liquidation.
9.8 PAYROLL DEDUCTIONS. A Participating Employee may purchase shares
under his or her Option during any particular Offering Period by
<PAGE>
-8-
completing and returning to the Company's personnel department at least ten
days prior to the beginning of such Offering Period a Membership Agreement
indicating a percentage (which shall be a full integer between one and ten)
of his or her Base Compensation which is to be withheld each pay period.
Unless the Board decides otherwise prior to the commencement of an Offering
Period, all Participating Employees shall be permitted, no more often than
once per Offering Period, to change the percentage of Base Compensation
withheld during an Offering Period by submitting an amended Membership
Agreement to the Company's personnel department indicating a different
percentage of Base Compensation to be withheld. Any such amended Membership
Agreement shall become effective at the time determined pursuant to rules
adopted by the Board from time to time. In addition, no more than once per
Offering Period, the Participating Employee may cancel his or her Agreement
and withdraw all, but not less than all, of his or her accumulated payroll
deductions by submitting a written request therefor to the Company's
personnel department no later than the close of business on the last business
day of the Offering Period. The percentage of Base Compensation withheld may
also be changed from one Offering Period to another.
9.9 EXERCISE OF OPTIONS. On the Offering Termination Date the
Participating Employee may purchase the number of shares purchasable by his or
her accumulated payroll deductions, or, if less, the maximum number of shares
subject to the Option as provided in Section 9.1, provided that:
(a) If the total number of shares which all Optionees elect to
purchase, together with any shares already purchased under the Plan, exceeds the
total number of shares which may be purchased under the Plan pursuant to Section
6, the number of shares which each Optionee is permitted to purchase shall be
decreased PRO RATA based on the Participating Employee's accumulated payroll
deductions in relation to all accumulated payroll deductions otherwise to be
applied to the purchase of shares as of that Offering Termination Date.
(b) If the number of shares purchasable includes a fraction, such
number shall be adjusted to the next smaller whole number and the purchase price
shall be adjusted accordingly.
Accumulated payroll deductions not withdrawn prior to the Offering
Termination Date shall be automatically applied by the Company toward the
purchase of Option Shares or, to the extent in excess of the aggregate purchase
price of the shares then purchasable by the Participating Employee, refunded to
the Participating Employee, except that where such excess is less than the
purchase price for a single share of Stock on the Offering
<PAGE>
-9-
Termination Date, such excess shall not be refunded but instead shall be
carried over and applied to the purchase of shares in the first following
Offering Period (subject to the possibility of withdrawal by the
Participating Employee during such Offering Period in accordance with the
terms of the Plan).
9.10 DELIVERY OF STOCK. Except as provided below, within a reasonable
time after the Offering Termination Date, the Company shall deliver or cause to
be delivered to the Participating Employee a certificate or certificates for the
number of shares purchased by the Participating Employee. A stock certificate
representing the number of Shares purchased will be issued in the participant's
name only, or if his or her Membership Agreement so specifies, in the name of
the employee and another person of legal age as joint tenants with rights of
survivorship. If any law or applicable regulation of the Securities and Exchange
Commission or other body having jurisdiction in the premises shall require that
the Company or the Participating Employee take any action in connection with the
shares being purchased under the Option, delivery of the certificate or
certificates for such shares shall be postponed until the necessary action shall
have been completed, which action shall be taken by the Company at its own
expense, without unreasonable delay. The Optionee shall have no rights as a
shareholder in respect of shares for which he or she has not received a
certificate.
9.11 RETURN OF ACCUMULATED PAYROLL DEDUCTIONS. In the event that the
Participating Employee or the Beneficiary is entitled to the return of
accumulated payroll deductions, whether by reason of voluntary withdrawal,
termination of employment, Retirement, death, or in the event that accumulated
payroll deductions exceed the price of shares purchased, such amount shall be
returned by the Company to the Participating Employee or the Beneficiary, as the
case may be, not later than within a reasonable time following the Offering
Termination Date applicable to the Option Period in which such deductions were
taken. Accumulated payroll deductions held by the Company shall not bear
interest nor shall the Company be obligated to segregate the same from any of
its other assets.
--------------------------------
<PAGE>
Exhibit 10.37
AGREEMENT
AGREEMENT dated as of May 6, 1999 (the EFFECTIVE DATE), by and between Genco I,
Inc. (GENCO) and Streamline.com, Inc. (STREAMLINE).
WHEREAS, Streamline seeks to outsource its merchandise processing and picking
services in respect of the Streamline Consumer Resource Center to be located in
Westwood, Massachusetts (the CRC FACILITY) and Genco offers to provide such
services;
WHEREAS, Streamline and Genco have engaged in negotiations and discussions that
have culminated in the formation of the relationship described in this
Agreement;
NOW, THEREFORE, in consideration of the agreements of the parties set forth
below, Genco and Streamline agree as follows:
1. DEFINITIONS
Capitalized terms used in this Agreement shall have the respective meanings set
forth in SCHEDULE 1 annexed hereto.
2. TERM
2.01 INITIAL TERM. The initial term of this Agreement shall commence on the
Effective Date and shall continue until 12:00 midnight (Eastern Time) on the
fifth anniversary of the Live Date, unless terminated earlier pursuant to this
Agreement (the INITIAL TERM). Not later than December 6, 1999, the parties shall
meet at a mutually agreed upon location to discuss the budget and performance
measures that will apply to the Services during the period from January 1, 2000
until the end of the Initial Term. At least 5 days prior to such meeting, Genco
shall provide Streamline with the budget it proposes for such portion of the
Initial Term and Streamline will provide Genco with the performance measures it
proposes for such portion of the Initial Term. Within ten (10) days of said
meeting, the parties will mutually agree upon the budget and performance
measures for the remainder of the Initial Term; PROVIDED that they shall extend
the negotiation period for up to an additional fifteen (15) days during which
they will negotiate in good faith the amount of compensation to be paid by
Streamline to Genco during each year of such remainder of the Initial Term and
the performance measures applicable to the Services during each year of such
remainder of the Initial Term. If they are still not able to agree upon the
budgets and performance measures applicable to the remainder of the Initial Term
by December 31, 1999 and are not willing to extend the period for negotiation,
then Streamline may terminate this Agreement in accordance with this Section
15.01
2.02 RENEWAL. This Agreement shall be renewed for three additional one-year
periods (the RENEWAL TERM(S)) unless, not fewer than 180 days' prior to the
expiration of the Initial Term or any Renewal Term either party notifies the
other party in writing of such party's intention not to renew. If renewed, the
terms and conditions in effect during the preceding 12 months of the Term shall
apply, except for such price changes as are permitted pursuant to ss.6.02.
3. SERVICES
3.01 IMPLEMENTATION SERVICES. Commencing on the Effective Date in accordance
with the Implementation Schedule, Genco will perform the implementation services
described in SCHEDULE 3.01 (the IMPLEMENTATION SERVICES).
<PAGE>
3.02 TRANSACTION SERVICES. Commencing on the Live Date and continuing throughout
the Term, Genco will perform the merchandise processing and picking services as
described in SCHEDULE 3.02 (the TRANSACTION SERVICES).
3.03 MAINTENANCE SERVICES. Commencing on the Live Date and continuing throughout
the Term, Genco will perform the maintenance services described in SCHEDULE 3.03
(the MAINTENANCE SERVICES) without additional charge beyond the Transaction Fees
(except as provided in ss.6.02.)
3.04 OTHER INCLUDED SERVICES. Commencing on the Effective Date, Genco will
perform certain other services, as provided in SCHEDULE 3.04 (the OTHER INCLUDED
SERVICES) without additional charge beyond the Implementation Fees and the
Transaction Fees.
3.05 ADDITIONAL SERVICES.
(a) NEW SERVICES. From time to time, Streamline and Genco may agree that
additional services shall be performed and for each such service (each, an
ADDITIONAL SERVICE), a implementation, price and payment schedule will be
established by mutual agreement (an ADDITIONAL SERVICE SCHEDULE), which shall be
attached as part of SCHEDULE 3.05. Additional Services shall be governed by
ss.13.
(b) AD HOC SERVICES. Upon Streamline's request and subject to the availability
of Genco personnel, Genco will also perform certain Additional Services for a
limited period of time in order to cover a shortage in Streamline's personnel
coverage at the CRC Facility. For Additional Services of this limited duration,
the parties will not enter into an Additional Services Schedule. Instead,
Streamline will pay Genco for such Additional Services a fee equal to the actual
costs of providing such Additional Services PLUS a percentage of such costs
equal to Genco's then current Management Fee (as defined in ss.6.01). Additional
Services that are the subject of this ss.3.05(b) shall not be governed by
ss.13.
3.06 PERMITS & CONSENTS.
(a) CURRENT LAWS & REGULATIONS. Subject to ss.3.06(c), the responsibility for
all licenses, authorizations, and permits (collectively, the PERMITS) required
by currently applicable legislative enactments and regulatory authorizations in
connection with the performance of Services is as follows: (i) insofar as such
Permits relate to merchandise processing and picking services generally or to
other requirements for Genco to perform its obligations under this Agreement,
Genco shall be responsible for obtaining such Permits; and (ii) insofar as such
Permits are specific to Streamline's industry and are not applicable to
merchandise processing and picking services generally, Streamline shall be
responsible for identifying the need for such Permits and cooperating with Genco
in obtaining such Permit.
(b) CHANGES IN LAWS & REGULATIONS. Genco shall identify the impact of changes in
applicable legislative enactments and regulations on the Services. Genco shall
notify Streamline of such changes and shall work with Streamline to identify the
impact of such changes on how Streamline uses the Services. Streamline shall
notify Genco of such changes in applicable legislative enactments and
regulations that Streamline becomes aware of in the ordinary course of its
business using the procedures specified in Section 7.08; and Genco shall, in
accordance with the change control procedures specified in Section 7.08,
promptly make any modifications to the Services as may be reasonably necessary
as a result of such changes (LEGISLATIVE MODIFICATIONS).
(c) COSTS & PENALTIES. Genco shall be responsible for, and shall pay for, the
cost of any such Permits and Legislative Modifications relating to Genco's
business. Streamline shall be
<PAGE>
responsible for the cost of any such Permits and Legislative Modifications
relating to Streamline's business. Genco shall be responsible for any fines and
penalties imposed on Streamline or Genco arising from any noncompliance by
Genco, its subcontractors or agents with the laws and regulations in respect of
the Services. Streamline shall be responsible for any fines and penalties
imposed on Streamline or Genco relating to Genco's provision of the Services
that arise from (i) Streamline's failure to comply with laws and regulations or
(ii) Streamline instructions.
3.07 GENCO SECURITY.
(a) PHYSICAL SECURITY. Genco shall maintain and enforce at the CRC Facility
safety and physical security procedures that are commensurate with industry
standards and at least as rigorous as those procedures in effect at other Genco
consumer resource centers as of the Effective Date.
(b) INVENTORY; SHRINKAGE. Genco will take physical inventories of the
merchandise at the CRC Facility in accordance with the schedule and procedures
agreed upon by the parties. It is understood and agreed that Genco shall only be
responsible for the (i) slot check adjustments; (ii) damaged product; (iii)
damaged during stocking; (iv) cycle counting; and (v) physical inventory
adjustments inventory codes and that Streamline will be responsible for the
eleven other inventory codes used at the CRC Facility. As part of each
inventory, Genco will make a reconciliation of net inventory overages and
shortages since the last inventory based upon the current physical count as
compared to Genco's books and records from the last inventory on a unit basis.
All such net overage and shortages that are covered by the five inventory codes
specified in clauses (i)-(v) shall be charged to Genco at the unit cost of such
merchandise then in effect; provided that no charge shall be made to Genco
unless the shortage exceeds one percent (1%) of the total annual dollar volume
handled in the CRC Facility for the most recently ended Contract Year. All
overage shall accrue to the benefit of Streamline. Such overage shall be carried
forward and used to offset any future shortages that are covered by the five
inventory codes specified in clauses (i)-(v). Damage or other claimed shortages
shall be reconciled as a part of the physical inventory process. Genco will not
be liable for damage caused to merchandise that is received by Genco in other
than its original shipping carton including carton fillers. If, as a result of
the taking of physical inventories, there are shortages that are covered by the
five inventory codes specified in clauses (i)-(v) exceeding one percent (1%) of
the total dollar volume of the merchandise handled in the CRC Facility for the
most recently ended Contract Year, Genco shall reimburse Streamline for such
losses and Streamline and Genco will immediately meet to determine what security
measures shall be implemented to secure the CRC Facility. It is understood that
Genco personnel will make all adjustments to the perpetual inventory and that
Streamline personnel will not make any such adjustments. Genco will bill
Streamline for the time required to perform inventory services pursuant to this
Section 3.07(b), which services shall be considered as an Additional Service.
3.08 DEMURRAGE. Genco will pay all demurrage and detention charges that accrue
in respect of unloading vendor trucks at the CRC Facility except in cases where
unloading is postponed at the direction of Streamline or because of a Force
Majeure Event.
3.09 CONTINUOUS IMPROVEMENT. Genco will use commercially reasonable efforts to
update and improve the quality of its services in a manner that keeps such
services competitive with the industry. Genco will confer with Streamline
regarding Genco's efforts to improve the quality of its services and if
Streamline requests that Genco implement such improvements as part of the
services, Genco shall implement such improvements on a schedule to be mutually
agreed upon.
3.10 RECYCLING. Genco will work in conjunction with Streamline to identify
opportunities to recycle scrap, discards and other disposables created in the
course of the performance of the
<PAGE>
Transaction Services and the Maintenance Services and to take measures to
recycle the same in a cost efficient manner. Genco and Streamline will share any
revenue created from recycling pro rata (50% each).
3.11 HUMAN RESOURCES. Genco will employ certain of Streamline's employees upon
the terms and conditions set forth in SCHEDULE 3.11.
4. IMPLEMENTATION
4.01 SCHEDULE. Genco shall perform the Implementation Services in accordance
with the implementation schedule (the IMPLEMENTATION SCHEDULE), as set forth in
SCHEDULE 4.01. Subject to adjustment pursuant to ss.4.02, Genco agrees to meet
all Milestone Dates set forth in the Implementation Schedule. On or before each
Milestone Date listed in the Implementation Schedule, Genco shall deliver to
Streamline the services and items described in the Implementation Schedule (a
MILESTONE DELIVERY) that meet the corresponding Milestone Requirement(s) set
forth opposite such Milestone Date.
4.02 DATE ADJUSTMENTS. Streamline and Genco each agree to use their best efforts
to perform the tasks assigned to it in the Implementation Schedule. Each party
acknowledges that delays in performance by either party may cause delays in
performance by the other party. Notwithstanding the foregoing, Genco agrees to
exercise all reasonable efforts to keep Streamline on schedule and to notify
Streamline when Genco reasonably believes that Streamline should accelerate
performance to fulfill Streamline's obligations under the Implementation
Schedule. If Streamline's failure to timely meet its obligations under the
Implementation Schedule causes a material delay in Genco's performance, all
dependent Milestone Dates shall be adjusted day-for-day to account for the delay
caused by Streamline.
4.03 REJECTION THRESHOLD. It is understood and agreed that a Milestone Delivery
or Redelivery need not be error-free to have achieved any particular Milestone
Requirement, but Streamline may rightfully reject any Milestone Delivery or
Redelivery that is Materially Nonconforming. Notwithstanding the foregoing,
acceptance of any Milestone Delivery will not relieve Genco of its obligation to
use reasonable commercial efforts to correct Nonconformities in the course of
the Maintenance Services. Streamline will notify Genco within ten (10) days
following delivery of each Milestone Delivery, whether all applicable Milestone
Requirements have been met. If one or more Milestone Requirements are not met,
Streamline shall so notify Genco in writing (PROBLEM NOTICE), stating with
particularity the problems encountered. Genco shall have the time period set
forth in the Implementation Schedule for the applicable Milestone Delivery (the
FIX PERIOD) to cure the problem and to redeliver the failed Milestone Delivery
(a REDELIVERY). If a Critical Milestone Delivery is late or if the Redelivery of
a Critical Milestone Delivery is nonconforming, Streamline may, at its election
terminate this Agreement pursuant to ss.15.02.
5. STREAMLINE RESPONSIBILITIES
5.01 GENERALLY. During the Term, Streamline shall on a timely basis and at its
sole expense be responsible for:
(a) APPOINTMENT OF EXECUTIVE: Appointing the
Streamline Project Executive.
(b) REQUIRED EQUIPMENT: Acquiring and maintaining the Required Resources in
accordance with ss.5.02.
(c) CRC FACILITY SPACE: Maintaining a lease for the CRC Facility, located at 27
Dartmouth Street, Westwood, Massachusetts including warehouse and office space
of approximately
<PAGE>
56,000 aggregate square feet. Streamline will also be responsible for providing
utilities (including air conditioning) in connection with such warehouse and
office space. It is understood and agreed that Genco may not provide services to
other customers from CRC Facility. Streamline shall have the option at any time
during the Term of relocating the CRC Facility to another comparable location or
facility.
(d) OTHER RESPONSIBILITIES. Streamline will install at the CRC Facility portions
of the Streamline System necessary or useful for Genco to operate the CRC
Facility and provide the Services to Streamline. Streamline will maintain the
Streamline Software and other portions of the Streamline System, but may require
Genco to assume responsibility for maintenance of certain computer hardware as
part of the Maintenance Services. Genco's use of the Streamline Software and the
Streamline System is subject to compliance with this Agreement, including the ,
including ss.ss.10.01-10.03.
5.02 REQUIRED RESOURCES. Streamline will provide Genco with the equipment
required to deliver the Services at the CRC Facility (REQUIRED RESOURCES). The
Required Resources are specified in SCHEDULE 5.02.
5.03 STREAMLINE TRAINING. Streamline shall provide Genco staff at no charge with
up to 20 person days of technical and operations training with respect to the
Streamline System and its application at the CRC Facility. Once Genco completes
such training to Streamline's satisfaction, Genco will undertake to provide
training to the Dedicated Staff (and replacements for the Dedicated Staff). The
Streamline Information provided Genco personnel in the course of training shall
be subject to the provisions of Section 10.
5.04 STREAMLINE'S USE OF THIRD PARTIES. Streamline shall have the right to
contract with a third party to perform any service outside the scope of, or in
addition to, the Services, including related services to augment or supplement
the Services (collectively, the STREAMLINE THIRD PARTY SERVICES). In the event
Streamline contracts with a third party to perform any Streamline Third Party
Service, Genco shall cooperate with Streamline and any such third party to the
extent reasonably required by Streamline.
6. FEES & PAYMENTS 6.01 FEES. (a) FEES DURING START-UP PERIOD. During the
period between the Effective Date and December 31, 1999, Genco will bill
Streamline for Implementation Services, Transaction Services, Maintenance
Services and Other Included Services provided during the period between the
Effective Date and December 31, 1999, an amount equal to *, as detailed in
Genco's preliminary operating budget for the period from the Effective Date
until December 31, 1999, attached as SCHEDULE 6.01. The costs for Transaction
Services are *and based upon the * and the costs for Implementation Services,
Maintenance Services and Other Included Services are *. Both the * costs are
subject to adjustment as specified in the preliminary budget, which will
serve as the billing guideline for the period between the Effective Date and
December 31, 1999. At the end of each month during the period between the
Effective Date and December 31, 1999, Genco and Streamline shall compare
actual costs for such month against the budget for such month and if actual
costs attributable to * costs are greater than the budgeted costs, Streamline
will pay Genco an amount equal to the overage; PROVIDED that Streamline's
obligation under this clause shall not exceed * of the * costs specified in
the budget for such month. Genco shall be responsible for any overage in
excess of *.
*Confidential Treatment Requested
<PAGE>
(b) TRANSACTION FEES FOLLOWING START-UP PERIOD. For each Contract Year
commencing January 1, 2000, Genco will bill Streamline for Transaction Services,
Maintenance Services and Other Included Services, * of the costs in the budget
for such Contract Year. Genco shall submit a budget for each such Contract Year
not later than sixty (60) days prior to the expiration of the then current
Contract Year. Such budget shall be prepared in accordance with Section 6.02. At
the end of each Contract Year commencing after January 1, 2000, Genco and
Streamline shall compare actual costs for such Contract Year against the budget
for such Contract Year and make the following adjustments: if actual costs are
less than the budgeted costs, Streamline will pay Genco as an *; if actual costs
are greater than the budgeted costs, Genco will pay Streamline an amount equal
to *; PROVIDED that Genco's obligation under this Section 6.01(c) shall not
exceed * for such Contract Year.
(c) ADDITIONAL SERVICE FEES. If Genco provides any Additional Services,
Streamline shall pay the Additional Services Fees as specified in
ss.3.05(a)-(b). Additional Services Fees will not be included in measurements of
Genco's budget performance under ss.6.01(b).
6.02 BUDGET ADJUSTMENTS. Streamline's selection of Genco to provide the Services
is made in reliance on Genco's ability to deliver the Services in a consistent
manner, including management of budgets to minimize volatility. When delivering
budgets for any Contract Year commencing after the first anniversary of the Live
Date, Genco may increase the Transaction Fees and the Additional Service Fees by
a percentage not exceeding the increase, if any, in the CPI for such period.
Except as otherwise agreed by the parties or as provided in this ss.6.02, Genco
shall not increase the budgeted Fees for any Contract Year; PROVIDED, that Genco
may adjust budgeted Fees to reflect the addition of Additional Services in
accordance with ss.3.05(a)-(b). It is understood and agreed that the provisions
of this ss.6.02 are not intended to limit Genco's ability to bill Streamline for
* reflected in the Budget for any Contract Year based upon the *; PROVIDED, that
any such * are based upon the formulae specified in the applicable budget for
the Services actually rendered to Streamline.
6.03 PAYMENT SCHEDULE. Streamline will * on the Live Date, * of Transaction Fees
(calculated using the preliminary operating budget attached as SCHEDULE 6.04) *
the Live Date. Streamline shall pay Implementation Fees, Transaction Fees (not *
pursuant to the preceding sentence) and Additional Service Fees net 10 days from
the date Streamline receives Genco's invoice, which shall be submitted to
Streamline monthly within 15 days after the end of every calendar month during
the Term.
6.04 TAXES. Streamline will pay all state and local sales, use, property or
other taxes (except for taxes on Genco's property or net income) that may be
assessed against Genco or Streamline with respect to this Agreement or the
Services. Streamline shall also be responsible for paying all taxes,
assessments, and other real property-related levies on its owned or leased real
property. All taxes shall be separately itemized on each invoice, indicating the
tax and the charges against which such tax was calculated.
6.05 INVOICES; INTEREST. Genco invoices shall separately itemize and reasonably
identify all fees, charges and taxes assessed in respect of this Agreement.
Streamline will pay all properly itemized invoices within 10 days after the date
of the invoice in United States Dollars at Genco's notice address. All amounts
due Genco under this Agreement shall accrue interest from the first day
following the due date until paid in full at the annual rate (compounded
quarterly) equal to the then-prevailing prime rate as announced from time to
time in the WALL STREET JOURNAL (the INTEREST RATE)
*Confidential Treatment Requested
<PAGE>
6.06 DISPUTED AMOUNTS. In the event either party in good faith disputes the
accuracy or applicability of any Fee, invoice or other amount claimed hereunder,
that party shall notify the other party of the nature and support for such
dispute within a reasonable period after becoming aware of, and performing an
investigation of, the disputed matter. The party contesting its obligations to
pay shall deposit any disputed amount in excess of $10,000 that cannot be
resolved by the Genco Project Executive and the Streamline Project Executive
into an interest-bearing escrow account in the United States bank or depository
specified by the other party. In the event of a dispute pursuant to which a
party in good faith believes it is entitled to withhold payment, such party
shall (1) continue to pay all undisputed amounts to the other party; (2) pay the
disputed amounts into escrow in accordance with this ss.6.06; and (3) diligently
pursue the dispute resolution process as set forth in ss.17. So long as the
party making the escrow deposits performs its obligations in the immediately
preceding sentence, the other party shall continue to perform its obligations
hereunder. Upon resolution of the dispute, the parties shall allocate the money
in the escrow account and any fees relating to opening and maintaining the
escrow account, plus any interest earned on such money, according to the
resolution of the dispute.
6.07 AUDITS.
(a) REGULATORY AUDITS. Upon notice from Streamline, Genco shall provide, and
shall cause its subcontractors to provide, to such auditors and inspectors as
Streamline may from time to time designate, access to the CRC Facility and the
Genco books and records for the purpose of performing audits or inspections of
the Services and the business of Streamline. Genco shall provide, and shall
cause its subcontractors to provide such auditors and inspectors any assistance
that they may require. If any audit by an auditor designated by Streamline or a
regulatory authority results in Genco being notified that it or its
subcontractors are not in compliance with any law, regulation, audit
requirement, or generally accepted accounting principle relating to the
Services, Genco shall, and shall cause its subcontractors to, take actions to
comply with such audit. Streamline shall bear the expense of any such compliance
that is (1) required by a law, regulation, or other audit requirement relating
to Streamline's business or (2) necessary due to Streamline's noncompliance with
any law, regulation, or audit requirement imposed on Streamline. Genco shall
bear the expense of any such response that is (a) required by a law, regulation,
or other audit requirement relating to Genco's business or (b) necessary due to
Genco's noncompliance with any law, regulation, or audit requirement imposed on
Genco.
(b) FEE AUDITS. Genco shall provide, and shall cause its subcontractors to
provide, to Streamline and its designees access to such financial records and
supporting documentation as may be reasonably requested by Streamline. Upon
reasonable notice from Streamline, Streamline may audit the Fees charged to
Streamline to determine that such Fees are accurate and in accordance with this
Agreement. If, as a result of such audit, Streamline determines that Genco has
overcharged Streamline, Streamline shall notify Genco of the amount of such
overcharge and Genco shall promptly pay to Streamline the amount of the
overcharge, plus interest at the Interest Rate, calculated from the date of
receipt by Genco of the overcharged amount until the date of payment to
Streamline. In the event any such audit reveals an overcharge to Streamline
during any audit period exceeding 5% of all amounts charged by Genco since the
previous audit, Genco shall reimburse Streamline for the reasonable costs of
such audit.
(c) RECORD RETENTION. Genco shall (1) retain records and supporting
documentation sufficient to document the Services and the Fees paid or payable
by Streamline under this Agreement for at least 3 years and (2) upon notice from
Streamline, provide Streamline and its designees with reasonable access to such
records and documentation.
<PAGE>
6.08 WAREHOUSEMAN'S LIEN. Genco shall have an enforceable warehouseman's lien
against any and all Streamline merchandise in the CRC Facility to secure payment
of any and all outstanding obligations of Streamline to Genco for the Services
provided by Genco at the CRC Facility.
7. MANAGEMENT
7.01 GENCO PROJECT EXECUTIVE. Genco shall appoint an individual who from the
Effective Date shall serve on a full-time basis as the primary Genco contact
under this Agreement (the GENCO PROJECT EXECUTIVE). The initial Genco Project
Executive shall be Harold Lambert. Except for Permitted Reassignments, Genco
shall not reassign or replace a Genco Project Executive.
7.02 DEDICATED STAFF. Subject to the terms of this ss.7, Genco shall appoint and
manage the Dedicated Staff.
7.03 REVIEW MEETINGS. Within 30 days after the Effective Date, Streamline and
Genco shall determine an appropriate set of periodic meetings to be held between
Streamline and Genco. At a minimum these meetings shall include the following:
(1) a monthly management meeting to review the performance report, the project
schedule report, the changes report, and such other matters as appropriate, and
(2) a quarterly senior management meeting to review relevant contract and
performance issues. All meetings shall have a published agenda issued by Genco
sufficiently in advance of the meeting to allow meeting participants a
reasonable opportunity to prepare for the meeting.
7.04 SUBCONTRACTORS. Genco shall be responsible for the work and activities of
each of its subcontractors, including compliance with the terms of this
Agreement. Genco shall be responsible for all payments to its subcontractors.
Before Genco contracts with a third party provider of any Maintenance Services,
Genco will provide Streamline the opportunity to perform such work at
Streamline's expense. Streamline will perform all such work that it agrees to
perform in a timely and workmanlike manner, consistent with the standards
applicable to firms performing such services.
7.05 CONDUCT OF GENCO PERSONNEL. While at the CRC Facility or any other
Streamline property, Genco's personnel, contractors, and subcontractors shall
(1) comply with Streamline's rules, and regulations regarding personal and
professional conduct (including the wearing of an identification badge and
adhering to regulations and general safety practices or procedures) generally
applicable to such Streamline Locations and (2) otherwise conduct themselves in
a businesslike and professional manner. In the event that Streamline determines
in good faith that a particular employee, contractor, or subcontractor is not
conducting himself or herself in accordance with this ss.7.05, Streamline may
provide Genco with notice and documentation in respect of such conduct. Upon
receipt of the notice, Genco shall promptly investigate the matter and take
appropriate action which, unless Genco disputes the notice in good faith, shall
include (a) removing him or her from the Dedicated Staff, (b) providing
Streamline with prompt notice of such removal, and (c) replacing him or her with
a similarly qualified individual. Nothing in this Section 7.05 shall be
construed as requiring Genco to violate any applicable state or federal laws
concerning the operation of the CRC Facility or the delivery of the Services.
7.06 NON-COMPETITION ADDITIONAL CRC'S.
(a) NON-COMPETE OBLIGATION. Subject to the provisions of this ss.7.06, during
the term of this Agreement and for a period of * following any expiration or
termination of this Agreement, Genco will not provide the Services (or similar
services) to any person or entity that is then competitive with Streamline's
business. For purposes of this Agreement, a person or entity shall
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
be "competitive" with Streamline's business if such person or entity offers
customers products or services that are substantially similar to more than
twenty (20%) of the products and services that Streamline provides to its
customers, with such percentage being calculated based upon the contribution of
such products or services to Streamline's net income for the most recently
completed fiscal year.
(b) ADDITIONAL CRC'S. Genco's obligations under ss.7.06(a) is contingent upon
Streamline entering into agreements with Genco providing for Genco to operate at
least: (i) * consumer resource centers by December 31, 1999; (ii) * consumer
resource centers by December 31, 2000; (iii) * consumer resource centers by
December 31, 2001; (iv) * consumer resource centers by December 31, 2002; (v) *
consumer resource centers by December 31, 2003; and (vi) * consumer resource
centers by December 31, 2004. If Genco is not operating at least the number of
consumer resource centers specified in ss.7.06(b)(i)-(vi) on the dates
specified, then the non-competition obligations imposed under ss.7.06(a) shall
not prohibit Genco from providing the Services (or similar services) to persons
and entities that are competitive with Streamline's business (as defined in
ss.7.06(a)) (1) in any Standard Metropolitan Statistical Area where Genco is not
then operating a consumer resource center for Streamline and (2) in any Standard
Metropolitan Statistical Area at any time after the expiration of the * period
commencing on the date that Genco is not operating at least the number of
consumer resource centers specified in ss.7.06(b)(i)-(vi).
(c) NEGOTIATION PROCEDURES. Streamline shall satisfy its obligations under
ss.7.06(b), if it offers Genco the opportunity to operate at least the minimum
number of consumer resource centers specified inss.7.06(b) and the parties
negotiate in good faith a mutually acceptable agreement for such consumer
resource centers, based on the terms of this Agreement, within a 120-day period
following Streamline's notice to Genco of the opportunity to operate such
consumer resource center. If the parties cannot conclude a mutually acceptable
agreement within such period and the parties are not willing to extend the
period for such negotiation, then Streamline may (i) negotiate with a third
party for such opportunity; PROVIDED, HOWEVER, that any agreement that
Streamline enters into with such third party contains terms that are in the
aggregate no more favorable to such third party then the terms offered to Genco
or (ii) operate such consumer resource center for its own account; PROVIDED,
HOWEVER, that Streamline's operation of such consumer resource center is similar
in scale and scope to the consumer resource center opportunity offered to Genco.
7.07 MANAGEMENT PROCEDURES MANUAL. Within 30 days after the Effective Date,
Streamline will provide Genco with documentation covering the procedures
followed by Streamline with respect to the merchandise picking and packing
activities conducted at Streamline's Westwood Massachusetts facility. Within 45
days after the Effective Date, Genco shall deliver to Streamline, for
Streamline's approval as to scope, the Management Procedures Manual, generally
summarizing (1) the Services and (2) the procedures Genco intends to use and the
activities Genco proposes to undertake in order to manage the Services,
including, when appropriate, those direction, supervision, monitoring, staffing,
reporting, planning, and oversight activities normally undertaken at the CRC
Facility. Until such time as the Management Procedures Manual has been approved
as to scope by Streamline and except as otherwise required or permitted by this
Agreement, Genco shall follow and comply with the policies and procedures
followed by and complied with by Streamline as of the Effective Date in respect
of the Services. Genco shall periodically update the Management Procedures
Manual and provide Streamline with an updated copy thereof to reflect any
changes in the operations or procedures described therein promptly after such
changes were made. Except as may be agreed to by the parties pursuant to a
separate acknowledgment, the Management Procedures Manual shall not contradict
the terms of this Agreement.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
*Confidential Treatment Requested
7.08 CHANGE CONTROL PROCEDURES.
(a) CHANGE CONTROL PROCEDURE. Streamline may make amendments to SCHEDULE 3.01,
SCHEDULE 3.02 or SCHEDULE 3.03 to make changes in the Services. Genco may
request amendments to SCHEDULE 3.01, SCHEDULE 3.02 or SCHEDULE 3.03 or in
response to any Streamline decision to make a change. If either party wishes to
make a change it shall notify the other party of the requested change specifying
the change with sufficient details to enable the other party to evaluate it (a
CHANGE REQUEST). Within five days following the date of Genco's receipt of a
Streamline Change Request, Genco shall deliver a document that: (i) assesses the
impact of the change on the cost of the Services (and the schedule if the Change
Request concerns Implementation Services) and (ii) incorporates a description of
the requested change and its cost if any (a CHANGE CONTROL DOCUMENT). If
Streamline accepts the Change Control Document, then the provisions of this
Agreement shall be deemed amended to incorporate such change in accordance with
the Change Control Document. The price stated in the Change Control Document
shall be deemed an increase in the charges specified in this Agreement and Genco
may make a corresponding adjustment to the budget for the applicable Contract
Year. Any Genco Change Request shall include all information specified for a
Change Control Document and the procedure specified in the preceding sentence
shall apply to Streamline's review of same. Streamline is not required to accept
any Genco Change Request and no Genco Change Request shall be implemented
without Streamline's approval except as may be necessary on a temporary basis to
maintain the continuity of the Services as specified in Section 7.08(b).
(b) TEMPORARY CHANGES. Genco shall (1) schedule all changes that are the subject
of a Change Control Document so as not to unreasonably interrupt Streamline's
business operations, (2) prepare and deliver to Streamline a quarterly rolling
schedule for ongoing and planned changes for the next 90-day period, (3) monitor
the status of changes that are the subject of a Change Control Document that has
been accepted by Streamline against the applicable schedule, (4) in the case of
Genco Change Requests performed on a temporary basis to maintain the continuity
of the Services, document and provide to Streamline notification no later than
the next business day after the change is made (which notice may be given orally
provided that such oral notice is confirmed in writing to Streamline within 5
days) of all Genco changes.
(c) COST SAVINGS FROM CHANGES. If changes that become the subject of a Change
Control Document result in a reduction in the costs of providing the Services
then the savings attributable to such changes shall be allocated between Genco
and Streamline in accordance with Section 6.01(b); PROVIDED, that if the savings
is attributable to a change that does not require Genco to alter the content of
the Services it performs but rather alters other expense items in the budget,
then the savings shall be allocated to Streamline alone. Any adjustment pursuant
to Section 6.01(b) shall be made in accordance with this Section 7.08(c).
8. REPRESENTATIONS & WARRANTIES
8.01 BY EACH OF STREAMLINE & GENCO. Each of Streamline and Genco represents and
warrants that: (1) it is a corporation duly incorporated and validly existing
under the laws of the state in which it is organized; (2) it has all the
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement; (3) the execution, delivery, and performance
of this Agreement have been duly authorized by it; (4) no approval,
authorization, or consent of any governmental or regulatory authority is
required to be obtained or made by it in order for it to enter into and perform
its obligations under this Agreement; (5) in connection with its
<PAGE>
obligations under this Agreement, it shall comply with all applicable Federal,
state, and local laws and regulations and shall obtain all applicable permits
and licenses; and (6) it has not disclosed as of the Effective Date any
Confidential Information relating to the other party.
8.02 EXCLUSION. EXCEPT AS SPECIFIED IN THIS ss.8, NEITHER GENCO NOR STREAMLINE
MAKES ANY OTHER WARRANTIES. EACH EXPLICITLY DISCLAIMS ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE IN RESPECT OF THE SERVICES AND THE SYSTEMS THAT
ARE SUBJECT OF THIS AGREEMENT.
9. PERFORMANCE STANDARDS
9.01 STANDARDS & REPORTS. Genco shall provide the Services in accordance with
the Performance Standards. Genco shall provide monthly performance reports to
Streamline in a form agreed upon by Streamline and Genco.
9.02 ADJUSTMENT OF PERFORMANCE STANDARDS. The parties shall review during the
last quarter of every Contract Year and may adjust, as appropriate, the
Performance Standards for the following Contract Year. In addition, either
Streamline or Genco may, at any time upon notice to the other party, initiate
discussions to review and, upon agreement by the parties, adjust any Performance
Standard which such party in good faith believes is inappropriate at that time.
9.03 CAUSE ANALYSIS. After receipt of notice from Streamline in respect of
Genco's failure to provide the Services in accordance with the Performance
Standards, Genco shall within 15 days (1) perform an analysis to identify the
cause of such failure, (2) correct such failure, (3) provide Streamline with a
report detailing the cause of, and procedure for correcting, such failure, and
(4) provide Streamline with reasonable evidence that such failure will not
reoccur.
9.04 PERFORMANCE CREDITS. In the event that the Services fail to meet the
Performance Standards in any calendar month, Genco shall pay to Streamline
liquidated damages equal to the applicable Performance Credits specified in
SCHEDULE 9.01. The parties acknowledge that (i) these liquidated damages are a
reasonable estimate of the actual loss Streamline will suffer if the Services
fail to meet the Performance Standards; (ii) the amount of actual loss cannot be
precisely determined but these liquidated damages are not plainly or grossly
disproportionate to the actual loss; and (iii) these liquidated damages are not
intended as a penalty to compel performance. Liquidated damages finally
determined to be owed by Genco shall be taken as a credit by Streamline against
amounts payable by Streamline under this Agreement.
10. CONFIDENTIALITY & PROPRIETARY RIGHTS
10.01 CONFIDENTIAL INFORMATION.
(a) NONDISCLOSURE. Each party shall use at least the same standard of care in
the protection of Confidential Information of the other party as it uses to
protect its own confidential or proprietary information. Each party shall use
the Confidential Information of the other party only in connection with the
purposes of this Agreement and shall make such Confidential Information
available only to its employees, subcontractors, or agents having a "need to
know" with respect to such purpose. Genco shall advise each such employee,
subcontractor, and agent of Genco's obligations under this Agreement and require
such employees, subcontractors, and agents to execute confidentiality agreements
with terms substantially the same as the terms of this ss.10.1. In the event of
the expiration of this Agreement or termination of this Agreement for any
reason, all Confidential Information of a party disclosed to and all copies
thereof made by the other party shall be returned to the disclosing party or, at
the disclosing party's option, erased or destroyed. The recipient of the
Confidential Information shall provide to the disclosing
<PAGE>
party certificates evidencing such destruction. The obligations in this ss.10.01
shall not restrict any disclosure by a party pursuant to any applicable law, or
by order of any court or government agency (provided that the disclosing party
shall give prompt notice to the non-disclosing party of such law or order).
Confidential Information of a party shall not be afforded the protection of this
Agreement if such data was (1) developed by the other party independently, (2)
rightfully obtained by the other party without obligation to the disclosing
party hereunder, (3) publicly available other than through the fault or
negligence of the other party, or (4) released or disclosed to a third party by
the disclosing party without restriction.
(b) INJUNCTIVE RELIEF. Each party acknowledges and agrees that, in the event of
a breach or threatened breach of any of the foregoing provisions, such party may
have no adequate remedy in damages and, accordingly, shall be entitled to seek
an injunction to prevent such breach or threatened breach; PROVIDED that no
specification of a particular legal or equitable remedy shall be construed as a
waiver, prohibition, or limitation of any legal or equitable remedies in the
event of a breach hereof.
(c) UNAUTHORIZED ACTS. Each party shall: (1) notify the other party promptly of
any unauthorized possession, use, or knowledge, or attempt thereof, of any
Confidential Information by any person or entity which may become known to it,
(2) promptly furnish to the other party full details of the unauthorized
possession, use, or knowledge, or attempt thereof, and use reasonable efforts to
assist the other party in investigating or preventing the reoccurrence of any
unauthorized possession, use, or knowledge, or attempt thereof, of Confidential
Information, (3) cooperate with the other party in any litigation and
investigation against third parties deemed necessary by such party to protect
its proprietary rights, and (4) promptly prevent a reoccurrence of any such
unauthorized possession, use, or knowledge of Confidential Information.
10.02 STREAMLINE INFORMATION
(a) OWNERSHIP OF STREAMLINE INFORMATION. The Streamline Information is and shall
remain the property of Streamline. The Streamline Information shall not be (1)
used by Genco other than in connection with providing the Services, (2)
disclosed, sold, assigned, leased, or otherwise provided to third parties by
Genco (except as provided for in this Agreement and subject to ss.10.01), or (3)
commercially exploited by or on behalf of Genco, its employees, subcontractors,
or agents.
(b) RETURN OF INFORMATION. At no cost to Streamline, Genco shall, upon (1)
request by Streamline at any time, and, (2) the cessation of all Termination
Assistance Services, (a) promptly return to Streamline, in the format and on the
media in use by Genco as of the date of the request, all (or the portion so
designated by Streamline) of the Streamline Information and (b) erase or destroy
all (or the portion so designated by Streamline) of the Streamline Information
in Genco's possession upon the cessation of all Termination Assistance Services.
Archival tapes containing any Streamline Information shall be used solely for
back-up purposes.
10.03 STREAMLINE SOFTWARE. Streamline hereby grants to Genco, solely to provide
the Services, a non-exclusive, non-transferable right to use the Streamline
Software as installed on the computer equipment supplied by Streamline for the
CRC Facility; PROVIDED that Genco may not decompile, disassemble, or otherwise
reverse engineer the Streamline Software. Streamline shall, at no cost to Genco,
provide Genco with access to the relevant portions of the Streamline Software in
the form in use by Streamline as of the Effective Date. Upon the expiration of
this Agreement or the termination of this Agreement for any reason, Genco's
rights to use the Streamline Software shall terminate.
<PAGE>
11. RISK ALLOCATION
11.01 BY STREAMLINE. Subject to the provisions of ss.11.03, Streamline shall
defend, indemnify and hold harmless Genco and the Genco Group from and against
any claim, suit, demand, loss, damage, expense (including reasonable attorney's
fees of the Indemnitee and those that may be asserted by a third party) or
liability (collectively, LOSSES) imposed upon the Genco Group by any third party
arising from or related to: (a) any amounts (including taxes, interest, and
penalties) assessed against Genco which are obligations of Streamline pursuant
to this Agreement, including without limitation such amounts identified in
ss.3.06, ss.5 and ss.6.05 (including taxes, interest, and penalties assessed
against Genco), (b) any inaccuracy or untruthfulness of any representation or
warranty made by Streamline pursuant to ss.8, (c) Streamline Employment Claims
and (d) any negligent or willful acts or omissions by Streamline (employer or
agents) (other than such claims as may be covered by Genco's workers'
compensation). Streamline shall be responsible for any costs and expenses
incurred by Genco in connection with the enforcement of this ss.11.01.
11.02 BY GENCO. Subject to the provisions of ss.11.03, Genco shall indemnify
defend, indemnify and hold harmless Streamline and the Streamline Group from and
against any Losses imposed upon the Streamline Group by any third party arising
from or related to: (a) any amounts (including taxes, interest, and penalties)
assessed against Streamline which are obligations of Genco pursuant to this
Agreement, including without limitation ss.3.06, (b) the inaccuracy or
untruthfulness of any representation or warranty made by Genco pursuant to ss.8,
(c) any breach or violation of Genco's subcontracting arrangements by Genco, (d)
any Genco Employment Claims and (e) any negligent or willful acts or omissions
by Genco employer or agents (other than such claims as may be covered by
Streamline's workers' compensation). Genco shall be responsible for any costs
and expenses incurred by Streamline in connection with the enforcement of this
ss.11.02. The foregoing indemnification action shall not apply in the event and
to the extent that a court of competent jurisdiction determines that such Losses
arose as a result of any member of the Genco Group's negligence, intentional
misconduct or breach of this Agreement.
11.03 PROCEDURES. If any third party makes a claim covered by ss.11.01 or
ss.11.02 against an Indemnitee with respect to which such Indemnitee intends to
seek indemnification under this ss.11, such Indemnitee shall give notice of such
claim to the Indemnitor, including a brief description of the amount and basis
therefor, if known. Upon giving such notice, the Indemnitor shall be obligated
to defend such Indemnitee against such claim, and shall be entitled to assume
control of the defense of the claim with counsel chosen by the Indemnitor,
reasonably satisfactory to the Indemnitee. Indemnitee shall cooperate fully
with, and assist, the Indemnitor in its defense against such claim in all
reasonable respects. The Indemnitor shall keep the Indemnitee fully apprised at
all times as to the status of the defense. Notwithstanding the foregoing, the
Indemnitee shall have the right to employ its own separate counsel in any such
action, but the fees and expenses of such counsel shall be at the expense of
such Indemnitee; PROVIDED (1) if the parties agree that it is advantageous to
the defense for the Indemnitee to employ its own counsel or (2) in the
reasonable judgment of the Indemnitee, based upon an opinion of counsel which
shall be provided to the Indemnitor, representation of both the Indemnitor and
the Indemnitee would be inappropriate under applicable standards of professional
conduct due to actual or potential conflicts of interest between them, then
reasonable fees and expenses of the Indemnitee's counsel shall be at the expense
of the Indemnitor, subject to the Indemnitor's approval of such counsel. Neither
the Indemnitor nor any Indemnitee shall be liable for any settlement of any
action or claim effected without its consent. Notwithstanding the foregoing, the
Indemnitee shall retain, assume, or reassume sole control over, all expenses
relating to, every aspect of the defense that it believes is not the subject of
<PAGE>
the indemnification provided for in ss.11.01 or ss.11.02, as applicable. Until
both (a) the Indemnitee receives notice from the Indemnitor that it will defend
and (b) the Indemnitor assumes such defense, the Indemnitee may, at any time
after 30 days from the date notice of claim is given to the Indemnitor by the
Indemnitee, resist or otherwise defend the claim or, after consultation with and
consent of the Indemnitor, settle or otherwise compromise or pay the claim. The
Indemnitor shall pay all costs of the Indemnitee arising out of or relating to
that defense and any such settlement, compromise, or payment. The Indemnitee
shall keep the Indemnitor fully apprised at all times as to the status of the
defense. Following indemnification as provided in ss.11, the Indemnitor shall be
subrogated to all rights of the Indemnitee with respect to the matters for which
indemnification has been made.
12. INSURANCE
12.01 GENERALLY. During the Term, Genco shall maintain at its own expense
insurance of the type and in the amounts specified: (a) statutory workers
compensation in accordance with all Federal, state, and local requirements; (b)
employee liability in an amount not less than $1,000,000 per occurrence; (c)
comprehensive general public liability (including contractual liability
insurance) in an amount not less than $1,000,000 per occurrence; and (e)
comprehensive automobile liability covering all vehicles that Genco owns, hires,
or leases in an amount not less than $2,000,000 per occurrence for bodily injury
or death and $1,000,000 per occurrence for property damage.
12.02 DOCUMENTATION. Each such insurance policy shall name Streamline as a loss
payee and shall provide for at least 10 days' notice to Streamline in the event
of any modification or cancellation, and in such event, Genco shall secure
replacement insurance to be effective upon expiration or termination of the
earlier policy so that there is no lapse in coverage. Genco will also notify
Streamline at least 30 days in advance if Genco desires to materially modify or
cancel any such insurance. Upon request, Genco shall furnish Streamline with
certificates of insurance to evidence its compliance with the provisions hereof.
13. ADDITIONAL SERVICES. Streamline may, from time to time during the Term,
request that Genco perform Additional Services that are outside the scope of the
Services, as then defined. As soon as reasonably practicable after Genco's
receipt of Streamline's request, but not later than thirty (30) days after such
request, Genco shall provide Streamline with (a) a written description of the
work Genco anticipates performing in connection with such Additional Service,
(b) a schedule for commencing the Additional Services (including the date when
such Additional Service will be available to Streamline and its customers), (c)
Genco's prospective charges for such Additional Service (the ADDITIONAL SERVICES
FEES), and (d) when appropriate, acceptance test criteria and procedures in
respect of any Additional Service ((a) through (d) collectively, an ADDITIONAL
SERVICES PROPOSAL). In the event Streamline elects to have Genco perform the
Additional Service, Streamline and Genco shall execute an Additional Services
Schedule containing the information concerning the Additional Services to which
the parties may agree. Genco shall not begin performing any Additional Service
until an Additional Services Schedule in respect of such Additional Service has
been executed on behalf of Streamline and Genco. Upon execution of an Additional
Project Schedule, each party shall perform its obligations thereunder.
14. CONTINUED PROVISION OF SERVICES
14.01 FORCE MAJEURE. Any failure or delay by Streamline or Genco in the
performance of its obligations pursuant to this Agreement shall not be deemed a
default of this Agreement or a ground for termination hereunder (except as
provided in this ss.14.01) if such failure or delay is caused by a Force Majeure
Event, could not have been prevented by reasonable precautions and cannot
reasonably be circumvented by the non-performing party through the use of
<PAGE>
alternate sources, workaround plans, or other commercially reasonable means.
Upon the occurrence of a Force Majeure Event, the non-performing party shall be
excused from any further performance of its obligations pursuant to this
Agreement affected by the Force Majeure Event for as long as (1) such Force
Majeure Event continues and (2) such party continues to use commercially
reasonable efforts to recommence performance whenever and to whatever extent
possible without delay. The party delayed by a Force Majeure Event shall
immediately notify the other party by telephone (to be confirmed in a notice
within one Business Day of the inception of such delay) of the occurrence of a
Force Majeure Event and describe in reasonable detail the nature of the Force
Majeure Event.
14.02 ALLOCATION OF RESOURCES. Whenever a Force Majeure Event causes Genco to
allocate limited resources (but excluding Dedicated Staff) between or among
Genco's customers and affiliates, Streamline shall receive at least the same
priority in respect of such allocation as Genco's affiliates and Genco's other
commercial customers.
15. TERMINATION, DEFAULT & REMEDIES
TERMINATION FOR CONVENIENCE. Genco may terminate this Agreement in its entirety
without cause at any time after the end of the Initial Term upon at least six
(6) months' notice to Streamline. Streamline may terminate this Agreement in its
entirety without cause at any time upon at least three (3) months' notice to
Genco. .
15.02 TERMINATION FOR DEFAULT. A party may terminate this Agreement if the other
party Defaults. DEFAULT means any of the following:
(a) FAILURE TO PROVIDE THE CRITICAL SERVICES. Any failure by Genco to provide
the Services that results in a failure of a Critical Service (other than arising
from a Force Majeure Event) that Genco does not, within one day of its receipt
of a notice (which may be given verbally but shall be subsequently confirmed in
writing) of the failure of such Critical Service cure; provided that 4 or more
separate failures to provide Critical Services in any 12-month period during the
Term shall be a Default irrespective of Genco's timely cure;
(b) PAYMENT DEFAULT. Any failure by either party to pay any amount due
hereunder, if such failure is not cured within 10 days after notice of such
default; PROVIDED that (i) this clause shall not be construed to deprive either
party of its dispute rights under ss.6.07 and (ii) clause (i) of this proviso
shall not be available to a non-paying party unless it meets all of its
obligations under ss.6.07;
(c) INSOLVENCY, ETC. Any federal or state bankruptcy, insolvency or receivership
proceeding or the like (including out-of-court arrangements involving a party
that cannot pay its debts as they mature) is commenced by or against such party
unless, in the case of an involuntary proceeding, it is dismissed within sixty
(60) days;
PERFORMANCE CREDIT EXCESS. If more than * in Performance Credits accrue in any
12-month period after the Live Date;
(d) MATERIAL DEFAULT. Any failure by a party to perform of any of its material
obligations under this Agreement, if such default is not cured within 30 days
after notice is received by the defaulting party specifying, in reasonable
detail, the nature of the default.
15.03 PERFORMANCE CREDITS. In the event of a termination by Streamline after a
Default by Genco, Genco shall pay to Streamline an amount equal to any unused
Performance Credits.
*Confidential Treatment Requested
<PAGE>
15.04 EXCLUSION OF DAMAGES. Neither Streamline nor Genco shall be liable for,
nor will the measure of damages include, any Consequential Damages. EXCEPT FOR
DAMAGES ARISING UNDER ss.10 (PROPRIETARY RIGHTS) OR PAYABLE IN RESPECT OF A
THIRD PARTY INDEMNIFICATION CLAIM UNDER ss.11, IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR SIMILAR
DAMAGES OF ANY KIND INCLUDING WITHOUT LIMITATION, LOSS OF PROFITS, LOSS OF
BUSINESS OR INTERRUPTION OF BUSINESS, WHETHER SUCH LIABILITY IS PREDICATED ON
CONTRACT, STRICT LIABILITY OR ANY OTHER THEORY AND IRRESPECTIVE OF WHETHER SUCH
PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
16. TRANSITION SERVICES
16.01 TERMINATION ASSISTANCE. Genco shall perform the Termination Assistance
Services for up to 90 days prior to the expiration or termination of this
Agreement and, upon the written request of Streamline, for up to one year
following the expiration or termination of this Agreement. During such period,
the Fees shall be payable as if this Agreement had not terminated.
16.02 OTHER EXIT PROVISIONS. Upon the expiration of this Agreement or the
termination of this Agreement for any reason, Genco shall provide the
Termination Assistance Services in accordance with ss.16.01.
17. DISPUTE RESOLUTION
17.01 PROJECT EXECUTIVES. All disputes shall initially be referred jointly to
the Genco Project Executive and the Streamline Project Executive. If the Project
Executives are unable to resolve the dispute within 10 business days after
referral of the matter to them, the parties shall submit the dispute to senior
management of Genco and Streamline for resolution.
17.02 SENIOR MANAGEMENT. Either party may, upon notice and within 10 business
days of receipt of a notice from the Genco Project Executive and the Streamline
Project Executive pursuant to ss.17.01, elect to convene a hearing. The hearing
shall occur no more than 10 business days after a party serves notice to
commence the procedure set forth in this ss.17.02. Each party may be represented
at the hearing by lawyers. If the matter cannot be resolved at such hearing by
such senior executives, the neutral adviser, if one has been agreed upon, may be
asked to assist such senior executives in evaluating the strengths and
weaknesses of each party's position on the merits of the dispute. Thereafter,
such senior executives shall meet and try again to resolve the matter. If the
matter cannot be resolved at such meeting, such senior executives shall inform
their respective senior management and the proceedings occurring pursuant to
this ss.17.02 will have been without prejudice to the legal position of either
party. Each of the parties shall bear its respective costs incurred in
connection with the procedure set forth in this ss.17.02, except that they shall
share equally the fees and expenses of the neutral adviser, if any, and the
costs of the facility for the hearing.
17.03 ARBITRATION. If a dispute is not resolved pursuant to ss.17.02, then
either party may upon notice within 10 business days after the completion of the
procedures set forth in ss.17.02, submit any dispute to binding arbitration in
accordance with this ss.17.03.
(a) PLACE. The arbitration shall be held in Boston, Massachusetts before a panel
of three arbitrators. Either Streamline or Genco may, by notice to the other
party, demand arbitration, by serving on the other party a statement of the
dispute, controversy, or claim, and the facts relating or giving rise thereto,
in reasonable detail, and the name of the arbitrator selected by it.
<PAGE>
(b) ARBITRATORS. Within 30 days after receipt of such notice, the other party
shall name its arbitrator, and the two arbitrators named by the parties shall,
within 30 days after the date of such notice, select the third arbitrator.
(c) RULES. The arbitration shall be governed by the Commercial Arbitration Rules
of the AAA, except as expressly provided in this ss.17.03; PROVIDED that the
arbitration shall be administered by any organization agreed upon by the
parties. The arbitrators may not amend or disregard any provision of this
ss.17.03.
(d) DISCOVERY. The arbitrators shall allow such discovery as is appropriate to
the purposes of arbitration in accomplishing fair, speedy, and cost-effective
resolution of disputes. The arbitrators shall reference the rules of evidence of
the Federal Rules of Civil Procedure then in effect in setting the scope and
direction of such discovery. The arbitrators shall not be required to make
findings of fact or render opinions of law.
(e) AWARD. Any award rendered by the arbitrators shall be final and binding upon
the parties hereto. Judgment upon the award may be entered in any court of
record of competent jurisdiction. Nothing herein shall prevent the parties from
settling any dispute by mutual agreement at any time. The final arbitration
award shall award to the prevailing party pre-award interest as is equitable or
just (and if awarded, such interest shall be calculated at the Interest Rate),
and may grant equitable relief as is just and provided by the Commercial
Arbitration Rules, in each case except as specifically provided to the contrary
herein. The arbitrators shall have no authority to award damages that are
excluded or limited in this Agreement.
17.05 INSTITUTION OF LEGAL PROCEEDINGS. The parties agree not to institute legal
proceeding against each other until after the procedures provided in ss.17.01
through ss.17.03 have been exercised, except for an action to seek injunctive
relief to prevent or stay a breach of any provision of ss.10.
18. GENERAL PROVISIONS
18.01 ASSIGNMENT. Neither party may assign this Agreement or any of its rights
or obligations hereunder without the consent of the other party and any such
attempted assignment shall be void, except upon a merger, corporate
reorganization or sale of all or substantially all of such party's assets. Any
assignment in contravention of this ss.18.01 shall be deemed null and void.
18.02 NOTICES. Except as otherwise specified in this Agreement, all notices,
requests, consents, approvals, and other communications required or permitted
under this Agreement shall be in writing and shall be sent by fax to the number
specified below. A copy of any such notice shall also be sent by registered
express air mail on the date such notice is transmitted by fax to the address
specified below:
In the case of Streamline:
Streamline.com, Inc.
27 Dartmouth Street
Westwood, MA 02090
Fax: (617) 407.1946
Attn: David K. Blakelock
In the case of Genco:
Genco Development System, Inc.
100 Papercraft Park
<PAGE>
Pittsburgh, PA 15238
Fax: (412) 826.0856
Attention: Jerry Davis
Either party may change its address or fax number for notification purposes by
giving the other party notice of the new address or fax number and the date upon
which it will become effective.
18.03 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one single agreement
between the parties.
18.04 CONSTRUCTION & INTERPRETATION OF DOCUMENTS. The captions of the sections
and subsections of this Agreement are for reference purposes only and do not
constitute terms or conditions of this Agreement, and shall not limit or affect
the terms and conditions hereof. Words such as HEREIN, HEREINAFTER, HEREOF and
HEREUNDER refer to this Agreement as a whole and not merely to a section or
paragraph in which such words appear, unless the context otherwise requires. The
singular shall include the plural and each masculine, feminine and neuter
reference shall include and refer also to the others, unless the context
otherwise requires.
18.05 RELATIONSHIP. The performance by Genco of its duties and obligations under
this Agreement shall be that of an independent contractor and nothing contained
in this Agreement, except for the limited agency expressly provided for herein,
shall create or imply an agency relationship between Streamline and Genco, nor
shall this Agreement be deemed to constitute a joint venture or partnership
between Streamline and Genco. Genco agrees and represents that it is an
independent contractor and its personnel are not Streamline's agents or
employees for federal tax purposes, and are not entitled to any Streamline
employee benefits. Genco assumes sole and full responsibility for its acts and
the acts of its personnel. Genco and its personnel have no authority to make
commitments or enter into contracts on behalf of, bind, or otherwise obligate
Streamline in any manner whatsoever, except for the limited agency expressly
provided for herein.
18.06 CONSENTS, APPROVALS AND REQUESTS. Unless otherwise specified in this
Agreement, all consents and approvals, acceptances, or similar actions to be
given by either party under this Agreement shall not be unreasonably withheld or
delayed.
18.07 SEVERABILITY. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, then the remaining provisions of
this Agreement or the application of such provision to persons or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each such provision of this Agreement shall be valid and
enforceable to the extent granted by law.
18.08 WAIVER. No delay or omission by either party to exercise any right or
power it has under this Agreement shall impair or be construed as a waiver of
such right or power. A waiver by any party of any breach or covenant shall not
be construed to be a waiver of any succeeding breach or any other covenant. All
waivers must be in writing and signed by the party waiving its rights.
18.09 PUBLICITY. Neither party shall use the other party's name, trademarks, or
service marks or refer to the other party directly or indirectly in any media
release, public announcement, or public disclosure relating to this Agreement or
its subject matter, including, but not limited to, in any promotional or
marketing materials, customer lists, or business presentations without obtaining
prior consent from the other party for each such use or release.
<PAGE>
18.10 ENTIRE AGREEMENT. This Agreement, together with the Schedules, which are
hereby incorporated by reference into this Agreement, is the entire agreement
between the parties with respect to its subject matter, and there are no other
representations, understandings, or agreements between the parties relative to
such subject matter.
18.11 AMENDMENTS. No amendment to, or change, waiver, or discharge of, any
provision of this Agreement shall be valid unless in writing and signed by an
authorized representative of the party against which such amendment, change,
waiver, or discharge is sought to be enforced.
18.12 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
SUBSTANTIVE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD FOR ANY
CHOICE OR CONFLICT OF LAWS RULE OR PROVISION THAT WOULD RESULT IN THE
APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
18.13 SURVIVAL. Accrued payment obligations and the following Sections of this
Agreement shall survive the expiration or termination of this Agreement for any
reason: ss.1, ss.10, ss.11, ss.15, ss.16, ss.17 and ss.18.
18.14 THIRD PARTY BENEFICIARIES. Each party intends that this Agreement shall
not benefit, or create any right or cause of action in or on behalf of, any
person or entity other than Streamline or Genco.
18.15 ACKNOWLEDGMENT. Streamline and Genco each acknowledge that the limitations
and exclusions contained in this Agreement have been the subject of active and
complete negotiation between the parties and represent the parties' agreement
based upon the level of risk to Streamline and Genco associated with their
respective obligations under this Agreement and the payments to be made to Genco
and credits to be issued to Streamline pursuant to this Agreement. The parties
agree that the terms and conditions of this Agreement shall not be construed in
favor of or against any party by reason of the extent to which any party or its
professional advisors participated in the preparation of this Agreement.
18.16 COVENANT OF FURTHER ASSURANCES. Streamline and Genco covenant and agree
that, subsequent to the execution and delivery of this Agreement and without any
additional consideration, each of Streamline and Genco will execute and deliver
any further legal instruments and perform any acts which are or may become
reasonably necessary to effectuate the purposes of this Agreement.
<PAGE>
18.17 SOLICITATION. Genco will not solicit or hire an employee of Streamline
during the Term and for 12 months after the expiration of such employee's
employment with Streamline, without the written consent of Streamline.
IN WITNESS WHEREOF, each of Streamline and Genco have each caused this Agreement
to be executed and delivered by its duly authorized representative.
STREAMLINE.COM, INC.
/s/ Timothy A. Demello
--------------------------
BY:
TITLE:
GENCO I, INC.
/s/ Jerry Davis
---------------------------
BY:
TITLE:
<PAGE>
SCHEDULE 1
DEFINITIONS
For purposes of the Agreement to which this Schedule is attached, the following
defined terms shall have the meanings specified below:
AAA means the American Arbitration Association.
ADDITIONAL SERVICES has the meaning set forth in ss.3.01.
ADDITIONAL SERVICES FEES means as to any Additional Services, the fees for such
Additional Services, as identified in Section 3.05(a)-(b).
ADDITIONAL SERVICES PROPOSAL has the meaning set forth in ss.13.
ADDITIONAL SERVICES SCHEDULE has the meaning set forth in ss.3.01.
AGREEMENT means this Agreement, dated as of May 6, 1999, by and between
Streamline and Genco, as it may be supplemented or amended and in effect from
time to time.
BUSINESS DAY means any weekday (Monday through Friday) excluding Streamline
holidays: New Years Day, Martin Luther King Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas , as the holidays may be specified by
Streamline no less than sixty (60) days before the beginning of each calendar
year during the Term.
CHANGE CONTROL DOCUMENT has the meaning set forth in ss.7.08.
CHANGE REQUEST has the meaning set forth in ss.7.08.
CONFIDENTIAL INFORMATION of a party means all confidential or proprietary
information and documentation of such party that is so marked (or in the case of
information disclosed orally or visually, summarized in a writing within 10 days
after such disclosure), including (a) with respect to Streamline, all Streamline
Information and other information of Streamline or its customers that is not
permitted to be disclosed to third parties under local laws and regulations and
(b) the terms of this Agreement.
CONSEQUENTIAL DAMAGES means any indirect, special or consequential damages or
amounts for loss of income, profits, or savings arising out of or relating to
Streamline's or Genco's performance under this Agreement.
CONTRACT YEAR means each 12-month period commencing on the Live Date or any
anniversary of the Live Date during the Term; provided that the Contract Year
that commences on the first anniversary of the Live Date may be greater or less
than 12-months in duration in order to ensure that such Contract Year (and each
succeeding Contract Year) ends on December 31.
CRC FACILITY has the meaning set forth in the recitals.
CRITICAL MILESTONE DELIVERY means a Milestone Delivery that is so designated on
the Implementation Schedule.
CRITICAL SERVICES means those Services so identified in SCHEDULE 3.02.
<PAGE>
DEDICATED STAFF means the individuals appointed by Genco with suitable training
and skills to provide the Services.
DEFAULT has the meaning set forth in ss.15.02.
DOCUMENTATION means all documentation, written materials, work papers,
configurations, manuals (including the Management Procedures Manual), and other
work product prepared by or on behalf of Genco or otherwise used by Genco, its
subcontractors or agents in connection with providing the Services, other than
the Streamline Information and information produced using the Streamline
Information.
EFFECTIVE DATE has the meaning set forth in the recitals hereto.
EMPLOYMENT CLAIMS means as to either party, (i) any violation of Federal, state,
or other laws or regulations for the protection of persons or members of a
protected class or category of persons by such party or its employees,
subcontractors or agents, (ii) sexual discrimination or harassment by such
party, its employees, subcontractors or agents, (iii) work-related injury except
as may be covered by the other party's workers' compensation, or death caused by
such party, its employees, subcontractors, or agents, and (iv) any
representations, oral or written, made by such party to its employees,
subcontractors or agents.
FEES means the Implementation Fees, the Transaction Fees and the Additional
Services Fees, collectively.
FORCE MAJEURE EVENT means any failure or delay caused, directly or indirectly,
by fire, flood, earthquake, elements of nature or acts of God, acts of war,
terrorism, riots, civil disorders, rebellions or revolutions in the United
States, strikes, lockouts, or labor difficulties, court order, third party
nonperformance (except the non-performing party's subcontractors or agents), or
any other similar cause beyond the reasonable control of such party and without
the fault or negligence of such party.
GENCO means Genco I, Inc. a Delaware corporation.
GENCO GROUP means Genco, its subsidiaries, parent corporations, affiliates,
officers, directors, independent contractors, partners, shareholders, employees,
agents, customers and successors and permitted assigns.
GENCO PROJECT EXECUTIVE has the meaning set forth in ss.7.02.
IMPLEMENTATION SCHEDULE means SCHEDULE 4.01.
IMPLEMENTATION SERVICES has the meaning set forth in ss.3.01.
INCLUDED TRAINING means the training described in SCHEDULE 3.01 that is intended
to prepare Streamline staff to use the Transaction Services.
INDEMNITOR means as to claims under ss.11.01, Streamline, and as to claims under
ss.11.02, Genco.
INDEMNITEE means as to claims under ss.11.01, Genco Group, and as to claims
under ss.11.02, Streamline Group.
<PAGE>
INITIAL TERM has the meaning set forth in ss.2.01.
INTEREST RATE has the meaning set forth in ss.6.06.
LEGISLATIVE MODIFICATIONS has the meaning set forth in ss.3.06.
LIVE DATE means the date upon which Genco commences processing of Streamline's
customer orders at the CRC Facility.
MANAGEMENT FEE has the meaning set forth in ss.6.01.
MANAGEMENT PROCEDURES MANUAL means the management procedures manual prepared by
Genco in the form and scope agreed upon by Streamline and Genco, which
establishes the procedures pursuant to which policies of Streamline and Genco
will implemented during the Term.
MATERIAL NONCONFORMITY or MATERIALLY NONCONFORMING means, as to any Milestone
Delivery, or any Services, a Nonconformity or Nonconformities that (i)
individually or in the aggregate, materially and adversely affect Streamline's
ability to perform the business functions that are represented by or are within
the scope of the applicable Milestone Delivery or Services; and (ii) are not
cured within the applicable Fix Period or cure period, as applicable.
MILESTONE DATE means as to any Milestone Delivery, the date by which such
Milestone Delivery is due to Streamline, as set forth in the applicable
Implementation Schedule.
MILESTONE DELIVERY has the meaning assigned thereto in ss.4.01.
MILESTONE REQUIREMENT means as to any Milestone Delivery, the specifications and
requirements associated with such Milestone Delivery, as set forth in the
applicable Implementation Schedule.
NONCONFORMITY means any failure of any Delivery or Services to meet the
applicable Milestone Requirements or Performance Standards.
ORDER means a consumer order for Streamline goods or services that is processed
by Genco at the CRC Facility; PROVIDED, that no Streamline customer will be
charged with more than one (1) Order per day and consumer orders that do not
include goods or services for which the Streamline customer may be charged
(e.g., $0 order; $30 order; negative orders as credits returns and incorrect
orders) shall be excluded.
PERFORMANCE CREDIT(S) has the meaning set forth in ss.9.04.
PERFORMANCE STANDARDS means the performance standards set forth in SCHEDULE
9.01, as they may be amended from time to time pursuant to ss.9.
PERMIT has the meaning set forth in ss.3.06.
PERMITTED REASSIGNMENT means, in respect of the Genco Project Executive, the
reassignment or replacement by Genco of such Genco Project Executive (a) at any
time after the 4th anniversary of such person's assignment to work with
Streamline; (b) upon Streamline's consent to such reassignment or replacement;
PROVIDED that Streamline shall not unreasonably withhold consent if Genco
demonstrates that such reassignment will not have a material adverse impact on
the Services; or (c) upon such person's voluntary resignation from Genco or
inability to work
<PAGE>
due to a death or disability or (d) upon the dismissal of such person by Genco
for (i) misconduct (e.g., fraud, drug abuse, theft) or (ii) unsatisfactory
performance as determined by Genco in respect of his or her duties and
responsibilities to Streamline pursuant to this Agreement; PROVIDED that in all
cases other than Streamline's consent, Genco shall provide written notice to
Streamline of the Permitted Reassignment and the reason therefor.
PROBLEM NOTICE has the meaning set forth in ss.4.03.
REDELIVERY has the meaning set forth in ss.4.03
RENEWAL TERM(S) has the meaning set forth in ss.2.02.
REQUIRED RESOURCES has the meaning set forth in ss.4.02.
SERVICES means collectively, the Implementation Services, the Transaction
Services, the Maintenance Services, the Other Included Services and such
Additional Services, if any, as may be agreed between the parties pursuant to
ss.13 from time to time.
STREAMLINE means Streamline.com, Inc., a Delaware corporation.
STREAMLINE GROUP means Streamline, its subsidiaries, parent corporations,
affiliates, officers, directors, independent contractors, partners,
shareholders, employees, agents, customers and successors and permitted assigns.
STREAMLINE INFORMATION means all data and information provided to Genco by
Streamline in connection with the Services, including all materials concerning
(a) the policies and procedures used by Streamline for merchandise processing
and picking and (b) the Streamline System or Streamline Software.
STREAMLINE PROJECT EXECUTIVE means the individual who is appointed by Streamline
who will act as the primary point of contact for Blizzard with respect to each
party's obligations under this Agreement and who will be authorized to issue all
consents or approvals and make all requests on behalf of Streamline.
STREAMLINE SOFTWARE means (a) the software owned by Streamline, as identified in
SCHEDULE 10.3A and (b) the software licensed or leased by Streamline from a
third party, as identified in SCHEDULE 10.3B, as such software described in
clauses (a) and (b) may be updated from time to time during the Term; and (c)
all related documentation in Streamline's possession during the Term.
STREAMLINE SYSTEM means the version of Streamline's system for merchandise
processing and picking services (including all Streamline Information concerning
warehouse layout, logistics and procedures and all Streamline Software, computer
hardware and communications equipment), as it is configured and implemented on
the Effective Date and subject to ss.5.02, as it may be modified or replaced
from time to time during the Term.
STREAMLINE THIRD PARTY SERVICES has the meaning set forth in ss.5.03.
TERM means the Initial Term and all Renewal Terms, collectively.
TERMINATION ASSISTANCE SERVICES means (1) the cooperation of Genco with
Streamline in effecting the orderly transfer of the Services to a third party or
the resumption of the Services by
<PAGE>
Streamline upon request by Streamline and (2) the performance by Genco of such
services as may be requested by Streamline in accordance with ss.16.01, in
connection with the transfer of the Services to a third party.
TRANSACTION FEES means the fees identified in the budget attached as SCHEDULE
6.01 in respect of the Transaction Services which fees shall equal Genco's costs
for such Transaction Services.
TRANSACTION SERVICES has the meaning set forth in ss.3.01.
SCHEDULE 3.012.4
IMPLEMENTATION SERVICES
(1) Genco will complete Streamline training concerning operation of the CRC
Facility using the Streamline System.
(2) Genco will deliver a Management Procedures Manual to Streamline within the
time period specified in Section 7.07
SCHEDULE 3.02
TRANSACTION SERVICES
(1) Genco will receive all shipments of Streamline merchandise at the CRC
Facility as scheduled by Streamline. No Streamline merchandise shall be
delivered to the CRC Facility or transferred from the CRC Facility except
under the guidelines established by Streamline as set forth in the
Management Procedures Manual. The Management Procedures Manual will also
detail the procedures for handling, storage, and disposal for any
Streamline merchandise that requires any special handling (e.g., produce
and other perishable goods). Streamline will notify Genco of any
merchandise being shipped to the CRC Facility requiring any special
handling, storage, disposal, or DOT regulatory requirements.
Genco may remove merchandise of a nature that is not specified in the
Management Procedures Manual from the CRC Facility (with notice to
Streamline) if such merchandise is a hazard to the CRC Facility property
or the personnel operating the CRC Facility without incurring any
liability whatsoever to Streamline
(2) Genco will unload, sort, and store in the CRC Facility all shipments of
Streamline merchandise using the procedures set forth in the Management
Procedures Manual. This is a Critical Service; if Genco does not complete
the unloading, sorting and storage of all shipments of Streamline
merchandise within 8 hours after the delivery of such merchandise to the
CRC Facility, then Genco will have failed to deliver a Critical Service
for purposes of Section 15.0
(3) Genco will, when storing Streamline merchandise in the CRC Facility, scan
[or key enter] UPC or SKU numbers on all such merchandise using the
Streamline Software and the procedures set forth in the Management
Procedures Manual. This is a Critical Service; if Genco does not achieve
at least a * accuracy with respect to scanning or entering UPC or SKU
numbers on all merchandise it stores at the CRC Facility, then Genco will
have failed to deliver a Critical Service for purposes of Section 15.02.
(4) Upon receipt of Streamline customer orders at the CRC Facility, Genco
will remove the required quantities of the designated Streamline
merchandise from the inventory maintained at the CRC Facility, mark and
"bin" such selected merchandise as specified in
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
the Management procedures Manual and load the bins in the Streamline
delivery trucks in accordance with procedures specified in the Management
Procedures Manual. This is a Critical Service; if Genco does not achieve
at least a * "pick accuracy" (as defined in SCHEDULE 9.01) and does not
complete the loading of any delivery truck within four (4) hours of the
scheduled completion time, then Genco will have failed to deliver a
Critical Service for purposes of Section 15.02.
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE 3.03
MAINTENANCE SERVICES
(1) Maintaining the CRC Facility security, sanitation, equipment, and
Streamline Merchandise in a condition consistent with that of a
reasonable public warehouseman's practices.
(2) Purchasing supplies necessary for the delivery of the Transaction
Services (and the Maintenance Services)
(3) The other maintenance services detailed in the Management Procedures
Manual
SCHEDULE 3.04
OTHER INCLUDED SERVICES
NONE.
<PAGE>
SCHEDULE 3.04
ADDITIONAL SERVICES
NONE.
<PAGE>
SCHEDULE 3.11
HUMAN RESOURCES
The following terms and conditions shall apply to the transitioning of employees
from Streamline to Genco:
1. OFFERS. Genco shall extend offers of employment according to the terms of
this Schedule and in accordance with the procedures described in ANNEX 1
attached hereto to those Streamline employees identified in ANNEX 2 attached
hereto (collectively, the STREAMLINE EMPLOYEES; each, a STREAMLINE EMPLOYEE)
with an employment start date (the START DATE) of no later than May 16, 1999,
unless the Streamline Employee is then on an approved leave pursuant to any of
Streamline's leave policies, in which event it shall be the date the Streamline
Employee returns to work.
2. HIRING REQUIREMENTS. Genco shall hire those Streamline Employees who:
(a) are employed by Streamline and have not been reassigned to an
out-of-scope position within Streamline as of the date the offer is
made;
(b) accept the offer of employment from Genco within five business days
from the date the offer is made; and
(c) if requested by Streamline, sign a release substantially in the form
set forth in ANNEX 3 attached hereto (conditions 2(a) through 2(c)
collectively, the HIRING REQUIREMENTS; and the Streamline Employees
hired by Genco collectively, the TRANSITIONED EMPLOYEES; each, a
TRANSITIONED EMPLOYEE).
Genco shall make hiring decisions regarding the Streamline Employees based on
the Hiring Requirements. Genco shall be solely responsible for making such
hiring decisions, subject to the provisions of this Section.
3. TERMS OF EMPLOYMENT. Genco's offer of employment to each Streamline Employee
shall include the following:
(a) BASE SALARY. Each offer of employment to a Streamline Employee who
currently receives a salary shall include an initial base salary of
not less than the base salary that each such Streamline Employee
received from Streamline as of the Effective Date, with any
adjustments thereto made by Streamline in accordance with Streamline's
normal salary adjustment policies. The Streamline Employees' base
salaries as of the Effective Date, are set forth in ANNEX 3.
(b) HOURLY WAGE. Each offer of employment to a Streamline Employee who is
employed on an hourly basis shall include an initial hourly wage of
not less than the hourly wage that each such Streamline Employee
received from Streamline as of the Effective Date, with any
adjustments thereto made by Streamline in accordance with Streamline's
normal hourly wage adjustment policies. The Streamline Employees'
hourly wage rates as of the Effective Date, are set forth in ANNEX 4.
(c) POSITIONS. Genco shall offer employment to the Streamline Employees
for positions comparable to the positions in which such Streamline
Employees are employed as of the Agreement Date. Each offer to a
Streamline Employee shall include a benefits package of not less than
the benefits package (i) that such Streamline Employee received from
Streamline as of the Effective Date and (ii) available to
<PAGE>
similarly situated Genco employees. Genco shall not discharge any
Streamline Employee except for cause for a period of at least 90 days
following such Streamline Employee's employment by Genco.
(d) HEALTH CARE BENEFITS. Each Streamline Employee shall be eligible as of
June 1, 1999 for enrollment in Genco's health care plans, including
major medical, life insurance, hospitalization, dental, vision, long
term disability, pharmacy, and personal accident coverage. Genco shall
provide each Streamline Employee with health care coverage so that on
the Start Date for the Streamline Employee, he or she (and any family
and dependents) is/are covered by such health care plans and all
pre-existing condition exceptions and exclusionary provisions and
waiting periods are waived with respect to the Streamline Employee
(and any family and dependents). Genco shall be responsible for any
medical or health expenses incurred by the Transitioned Employees
incurred on or after the Start Date. During the first calendar year
following the Start Date, Genco will reimburse each Streamline
Employee an amount equal to the loss (if any) by the Streamline
Employee in respect of employee contributions to health care plans as
a result of the transfer of such Streamline Employee to the Grandis
health care plans.
(e) VACATION. Genco shall calculate time off for paid vacation and sick
leave purposes for each Streamline Employee using each Streamline
Employee's length of service with Streamline and Genco; it being
understood that Streamline Employee's receive 15 days of paid time off
(including both vacation and sick leave), which paid time off accrues
at the rate of 10 hours per month. The number of days of paid time off
accrued during a Streamline Employee's time at Streamline shall be
credited to such Streamline Employee by Genco.
(f) SAVINGS PLANS. Genco shall allow the Streamline Employee, at the
Streamline Employee's option, to transfer his or her pre-tax benefits
in the Streamline 401K Savings Plan to the Genco 401K Savings Plan
through (i) a direct transfer from the Streamline 401K Savings Plan to
the Genco 401K Savings Plan or (ii) a transfer from the Genco 401K
Savings Plan to the Streamline Employee and a transfer from the
Streamline Employee to the Genco 401K Savings Plan. Genco represents
to Streamline, and shall provide such evidence and information as
Streamline may reasonably request to confirm, that the Genco 401K
Savings Plan is in full force and effect and meets all the applicable
requirements for qualifications under the Internal Revenue Code.
(g) SERVICE CREDIT. Except with respect to those plans for which the
Streamline Employee shall immediately vest pursuant to this Schedule,
the Streamline Employee shall be eligible for Genco's vacation and
holiday program, disability plan, and retiree health plan and other
welfare plans based on the Streamline Employee's "service date" with
Streamline.
(h) LOCATION. The Streamline Employee shall be offered a position as of
the Start Date that is at the CRC Facility.
4. INTENTIONALLY OMITTED.
5. FINANCIAL AND ADMINISTRATIVE RESPONSIBILITIES.
(a) INTENTIONALLY OMITTED.
<PAGE>
(b) Streamline shall continue to pay wages, provide benefits, and make
employer contributions on behalf of the Streamline Employees until the
Start Date. Streamline's obligation to continue to pay wages, provide
benefits, and make employer's contributions shall terminate on the
Start Date.
6. REPLACEMENTS. Genco shall be responsible for filling the positions of any
Streamline Employees not hired by Genco pursuant to this Schedule at comparable
skill levels. Genco shall be responsible for the salary and benefits for such
replacements.
7. HUMAN RESOURCES REPRESENTATIVE. The Genco representatives responsible for the
transition of the Streamline Employees from Streamline to Genco shall be Donna
Mitchell or such other representatives as Genco may specify in a notice to
Streamline (the HR REPRESENTATIVE). The HR Representative shall be located at 27
Dartmouth Street, Westwood, Massachusetts. Genco shall not replace or reassign
the HR Representative until thirty (30) days after the Start Date without
Streamline's consent (except by reason of death or disability). There shall be
no additional charge for the services of Genco's human resources team.
<TABLE>
<CAPTION>
NAME START DATE TITLE SHIFT WAGE DIFFERENTIAL PTO BALANCE
- ---- ---------- ----- ----- ---- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
* 11/1/98 * * * 0.25 0
12/8/98 0
3/24/99 0.25 0
1/26/99 0.25 6
1/3/99 0.25 -4
2/9/99 0
2/1/99 0
3/25/99 0.5 0
1/24/99 0.5 0
11/17/98 0.5 10
11/16/98 12
3/29/99 0
2/17/99 0
9/15/99 0.25 20
1/20/98 0.25 0
3/23/99 0
11/4/98 0.25 2
12/10/97 0.5 0
4/1/99 0.5 0
11/4/97 0.5 0
1/31/99 0.5 2
5/3/99 0
1/16/98 8
7/13/98 0
3/15/98 0.5 14
10/20/97 0.5 10
11/11/98 0
10/11/98 0.5 10
3/2/99 0.5 0
1/10/99 0.5 12
11/23/98 16
10/27/97 0
12/15/97 0.5 21
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
* 1/25/99 * * * 0
4/28/99 0.5 0
10/23/98 0
8/10/98 0.5 0
3/15/99 * 0
3/1/99 0
4/1/99 0
5/2/99 0.5 0
5/2/99 0.5 0
4/28/99 0.5 0
2/15/99 0
2/4/99 0
3/7/99 0.5 0
1/8/98 78
3/3/99 0
12/23/98 0
9/2/97 0
3/16/99 0
3/25/99 0.5 0
10/22/97 0
10/5/97 0.5 60
9/23/96 21
1/28/99 0.25 0
3/28/99 0.5 0
3/15/99 0
6/24/98 23
2/21/99 0.25 10
1/10/99 0.5 0
11/4/98 0
3/23/99 0
3/28/99 0.5 0
11/15/98 0.5 2
11/4/98 0.5 0
3/28/99 0.5 0
1/26/99 0
8/19/98 0
3/3/99 0.5 0
8/25/97 0.25 22
</TABLE>
*Confidential Treatment Requested
<PAGE>
SCHEDULE 4.01
IMPLEMENTATION SCHEDULE
1. Genco personnel to complete Streamline training by 5/14/99
2. Genco to offeremployment to Streamline CRC personnel by 5/10/99
3. Genco to complete hiring of CRC personnel to complete staffing for CRC
Facility by 5/14/99
4. Genco to commence operation of CRC Facility by 5/16/99
5. Streamline to deliver to Genco within 30 days following Effective Date
6. Genco to deliver Management Procedures Manual to Streamline within 45 days of
Effective Date
<PAGE>
SCHEDULE 5.02
REQUIRED RESOURCES
The following equipment presently used at the CRC Facility by Streamline:
1. Racking
2. Pallet Jacks
3. Radiofrequency Devices
4. U Boats
5. Picking Carts
6. Personal Computers
<PAGE>
SCHEDULE 6.01
PRELIMINARY BUDGET
<TABLE>
<CAPTION>
May-99 Jun-99 Jul-99 Aug-99 Sep-99 Oct-99 Nov-99
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customers * * * * * * *
Orders * * * * * * *
* * * * * * * *
* * * * * * * *
</TABLE>
*Confidential Treatment Requested
<PAGE>
SCHEDULE 9.01
PERFORMANCE STANDARDS
1. LOAD RATE:
Genco shall load the * of Streamline delivery trucks (# trucks) by * each
morning
Genco shall load the * of Streamline delivery trucks (# trucks) by * each
morning
Genco shall load the * of Streamline delivery trucks (# trucks) by * each
morning
Streamline will test Genco's satisfaction of the Load Rate Performance
Standard on a monthly basis and shall record Genco's performance as "in
compliance" or "out of compliance" for each month. Genco will be "in
compliance" if at least * of the Streamline delivery trucks in each wave
handled during such month are loaded within the applicable timeframe. At
the end of every month commencing with the first full month after the
anniversary of the Live Date, Streamline will calculate the percentage of
delivery trucks for which Genco was "in compliance" with the Load Rate
Performance Standard during such month by dividing the number of delivery
trucks for which Genco was in compliance by the total number of delivery
trucks loaded during such month and if such percentage is less than * then
Genco shall pay Streamline a * Performance Credit for such month.
2. PICK ACCURACY:
Genco shall perform merchandise picking operations so that it maintains a *
accuracy rate. Accuracy rate will equal (x) 1 minus (y) the quotient of:
(A) the number of units of merchandise selected in a 24-hour period that do
not conform with the Streamline customer order for which they are "binned"
by Genco divided by (B) the aggregate number of units of merchandise
ordered by Streamline customers and delivered in such 24-hour period.
Streamline will test Genco's satisfaction of the Pick Accuracy Performance
Standard on a daily basis by taking a random sample of "binned" customer
orders, which sample size shall be established by Streamline in accordance
with Streamline's then current sampling practices and shall record Genco's
performance as "in compliance" or "out of compliance" for each day the CRC
Facility is operating. Genco will be "in compliance" if the accuracy rate
equals or exceeds * for the daily sample. At the end of every month
commencing with the first full month after anniversary of the Live Date,
Streamline will calculate the percentage of days that Genco was "in
compliance" with the Pick Accuracy Performance Standard for such month by
dividing the number of days Genco was in compliance by the total number of
days the CRC Facility operated and if such percentage is less than * then
Genco shall pay Streamline a * Performance Credit for such month.
3. FORCE MAJEURE:
When testing Genco's performance against the Load Rate Performance Standard
and the Pick Accuracy Performance Standard, Streamline will adjust its
measurement to exclude and delay or failure caused by fire, flood,
earthquake, elements of nature or acts of God, acts of war, terrorism,
riots, civil disorders, rebellions or revolutions in the United States,
strikes, lockouts, or labor difficulties, court order, or third party
nonperformance (except Genco's subcontractors or agents), or any other
similar cause beyond the reasonable control of Genco and without the fault
or negligence of Genco.
*Confidential Treatment Requested
<PAGE>
SCHEDULE 10.3A
STREAMLINE SOFTWARE
1. * Warehouse Management System
SCHEDULE 10.3B
STREAMLINE SOFTWARE
1. Microsoft Office
2. Microsoft Outlook
3. Windows 95
*Confidential Treatment Requested
<PAGE>
Exhibit 21.1
Subsidiaries
NAME PLACE OF INCORPORATION
- ----------------------------- ----------------------
Streamline Mid-Atlantic, Inc. Delaware
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on
Form S-1 Amendment No. 1, of our report dated April 13, 1999, on our
audits of the consolidated financial statements of Streamline.com, Inc. as
of December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998. We also consent to the reference to our firm under
the captions "Experts" and "Selected Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
May 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001042091
<NAME> STREAMLINE, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,593,160
<SECURITIES> 0
<RECEIVABLES> 87,779
<ALLOWANCES> 0
<INVENTORY> 323,656
<CURRENT-ASSETS> 13,153,290
<PP&E> 5,113,056
<DEPRECIATION> (1,449,575)
<TOTAL-ASSETS> 20,065,818
<CURRENT-LIABILITIES> 1,092,172
<BONDS> 0
37,185,765
0
<COMMON> 36,995
<OTHER-SE> (18,629,865)
<TOTAL-LIABILITY-AND-EQUITY> 20,065,818
<SALES> 0
<TOTAL-REVENUES> 6,946,290
<CGS> 0
<TOTAL-COSTS> 17,383,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (568,834)
<INCOME-PRETAX> (10,767,388)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,767,388)
<DISCONTINUED> 0
<EXTRAORDINARY> 744,418
<CHANGES> 0
<NET-INCOME> (11,373,208)
<EPS-PRIMARY> (3.32)
<EPS-DILUTED> (3.32)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001042091
<NAME> STREAMLINE, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,316,736
<SECURITIES> 0
<RECEIVABLES> 620,935
<ALLOWANCES> (25,000)
<INVENTORY> 338,799
<CURRENT-ASSETS> 10,650,466
<PP&E> 5,917,419
<DEPRECIATION> (1,687,916)
<TOTAL-ASSETS> 18,306,837
<CURRENT-LIABILITIES> 2,373,273
<BONDS> 0
37,471,478
0
<COMMON> 36,995
<OTHER-SE> (22,103,602)
<TOTAL-LIABILITY-AND-EQUITY> 18,306,837
<SALES> 0
<TOTAL-REVENUES> 2,986,646
<CGS> 0
<TOTAL-COSTS> 6,355,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,656)
<INCOME-PRETAX> (3,262,014)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,262,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,262,014)
<EPS-PRIMARY> (.97)
<EPS-DILUTED> (.97)
</TABLE>
