<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1997
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SHOPPING.COM
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 45411 33-0733679
(STATE OF INCORPORATION) (PRIMARY NO. AMER. INDUSTRY (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
2101 E. COAST HIGHWAY, GARDEN LEVEL, CORONA DEL MAR, CALIFORNIA 92625
(714) 640-4393
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OR
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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KRISTINE E. WEBSTER
SENIOR VICE PRESIDENT & CHIEF FINANCIAL OFFICER
SHOPPING.COM
2101 EAST COAST HIGHWAY, GARDEN LEVEL, CORONA DEL MAR, CALIFORNIA 92625
(714) 640-4393
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
LEON M. COOPER, ESQ. ASHER M. LEIDS, ESQ.
ERIC C. CASTRO, ESQ. DONAHUE, MESEREAU & LEIDS LLP
LEWIS, D'AMATO, BRISBOIS & BISGAARD LLP 1900 AVENUE OF THE STARS, SUITE 2700
221 NORTH FIGUEROA STREET, SUITE 1200 LOS ANGELES, CALIFORNIA 90067
LOS ANGELES, CALIFORNIA 90012 (310) 277-1441
(213) 580-7984
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, 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(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, no par value per share........ 1,610,000 $9.00 $14,490,000 $4,390.91
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</TABLE>
(1) Includes 210,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
COVER GATEFOLD
Caption: Shopping.com offers a 24-hour on-line store located at
http://www.shopping.Com on the Internet's World Wide Web.
Picture: The picture on the first page shows what a person might see when
he/she visits Shopping.Com's Web site on the World Wide Web. It
displays various files that a customer can use to bid on products
that are being offered, plus two Shopping.com advertising logos.
Information contained on the Company's Web site or online services does not
constitute part of this Prospectus.
The Company has filed for U.S. trademark registration for the Shopping.com logo
design. All other trademarks or service marks appearing in this Prospectus are
trademarks or service marks of the respective companies that utilize them.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY
BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING".
LEFT SIDE OF GATEFOLD TO INSIDE FRONT COVER
Graphic: Computer mouse of customer.
Caption: How Shopping.com works.
Caption: From their home or office computer, customers can access the Web site
online at www.shopping.com, 24 hours a day, 365 days a year.
Graphic: Variety of products, such as saw, screw driver, masking tape, ruler.
Caption: Customers can choose from thousands of brand name items, with millions
more on the way, at the lowest prices anywhere. They then put the
selections into their online shopping cart.
Graphic: Picture of two customer service department employees.
Caption: When finish shopping, customers have the option of paying either
online or by telephone by calling the 24-hour customer service
department 1-888-LOVE-2-SHOP.
Graphic: Customer using computer keyboard.
Caption: Customers' orders are placed with Shopping.com electronically and
securely through Verisign, a leading online secure payment
verification technology company.
Graphic: Inside of computer, various electronic connectors.
Caption: Customers are then notified via e-mail of the status of their orders.
Once confirmed, the orders are sent
<PAGE>
electronically to each vendor by Shopping.com either over a Wide Area
Network or the Internet.
Graphic: Picture of plane and truck.
Caption: Merchandise is never stored by Shopping.com but instead is shipped
directly to customers from each vendor's warehouse, thereby passing
the cost savings along to its customers.
Graphic: Two story family dwelling.
Caption: Merchandise arrives at each customer's door. Customers never need to
leave the house or office to shop our online Web site.
RIGHT SIDE OF GATEFOLD TO INSIDE FRONT COVER.
Graphic: List of characteristics of shopping.com's program.
Caption: Program is user friendly, has extensive vendor relationships,
proprietary, state-of-the-art systems architecture, retail company run
by industry experienced retailers, and has the largest selection of
top brand names organized by category . . . online.
Graphic: List of directors.
Caption: Bill Gross, Chairman, Director, Idealab!, Robert J. McNulty, Director,
Chief Executor Officer, Douglas A. Hay, Director, Executive Vice
President, Edward Bradley, Director, Chairman/President, Cannon
Industries and Paul J. Hill, Director, Chairman, Crown Life Insurance
Company
Graphic: Serving huge and growing consumer market.
Caption: The Internet use is projected to grow over 100% in 1997. Over 175
million people use the Internet by the year 2001. Over 160 million
people will use computers, 60 million use e-mail and 28 million
currently use the Internet.
Graphic: Chart showing World wide use of Web.
Caption: The years 1996 to 2001 will witness over 175 million people using the
Internet.
Graphic: Chart showing amount of online commerce.
Caption: From the year 1996 through the year 2001 on-line use will rise to $220
billion.
Graphic: Shopping.com's advertising slogan.
Caption: Concept is so POWERFUL because of its product mix, demand creation and
everyday low prices.
PAGE OPPOSITE GATEFOLD TO INSIDE FRONT COVER.
Graphic: Displayed are various products that can be purchased through
Shopping.com system, such as computers, books, bikes, cosmetics.
Graphic: Shopping.com's advertising logo.
BACKSIDE OF GATEFOLD
LEFTSIDE OF BACK PAGE
No dealer, salesperson or any other person has been authorized by the
Company to give any information or to make any representations other
than those contained in this Prospectus in connection with the
offering made
<PAGE>
hereby, and, if given or made, such information or representations may
not be relied upon. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any securities other than
those specifically offered hereby or an offer to sell, or a
solicitation of an offer to buy, to any person in any jurisdiction in
which such offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no
change in the affairs of the Company since any of the dates as of
which information is furnished or since the date of this Prospectus.
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TABLE OF CONTENTS
<S> <C>
Page
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Prospectus Summary.................................. 3
Risk Factors........................................ 7
Use of Proceeds..................................... 19
Dividend Policy..................................... 19
Capitalization...................................... 20
Dilution............................................ 21
Selected Financial Data............................. 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations....... 23
Business............................................ 26
Management.......................................... 35
Certain Transactions................................ 39
Principal Shareholders.............................. 41
Description of Securities........................... 42
Shares Eligible for Future Sale..................... 44
Underwriting........................................ 46
Legal Matters....................................... 48
Experts............................................. 48
Additional Information.............................. 48
Index to Financial Statements....................... F-1
</TABLE>
Until _____________, 1997 (25 days after the date of this prospectus),
all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligations of
dealers to deliver a Prospectus when acting as Underwriters and with
respect to their unsold allotments or subscriptions.
<PAGE>
RIGHT SIDE OF BACK PAGE
Graphic: Description of number of shares
Caption: $1,400,000 shares. Shown also is Shopping.com's advertising logo,
reference to "common stock", "prospectus", and listing of company
name: Waldron & Co., Inc., 1997
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED SEPTEMBER 24, 1997
1,400,000 SHARES
[LOGO OF SHOPPING.COM]
COMMON STOCK
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All of the shares of common stock, no par value per share (the "Common
Stock"), offered hereby are being offered by Shopping.com ("Shopping.com" or
the "Company"). Prior to this offering, there has been no public market for the
Common Stock and there can be no assurance that such a market will develop
after this offering. It is currently estimated that the initial public offering
price of the Common Stock will be between $8.00 and $9.00 per share. The
initial public offering price of the shares of Common Stock offered hereby will
be determined by negotiation between the Company and Waldron & Co., Inc. (the
"Representative"), as representative of the several underwriters (the
"Underwriters."). See "Underwriting" for information relating to the
determination of the initial public offering price. The Company has applied for
inclusion of its Common Stock, subject to official notice of issuance, on the
Nasdaq SmallCap Market under the symbol "SHPN."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING DIS-
PRICE TO COUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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Per Share...................... $ $ $
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Total(3)....................... $ $ $
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(1) Does not include (a) a non-accountable expense allowance payable to the
Representative and (b) the value of five-year warrants granted to the
Representative to purchase up to 140,000 shares of Common Stock at 120% of
the initial public offering price per share of Common Stock (the
"Representative's Warrants"). For indemnification and contribution
arrangements with the Underwriters, see "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $682,000,
including the Representative's non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 210,000 additional shares of Common Stock, solely to cover over-
allotments (the "Over-Allotment Option"), if any. See "Underwriting." If
all such shares of Common Stock are purchased, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively.
The Common Stock is offered by the Underwriters when, as and if delivered to
and accepted by them and subject to their right to withdraw, cancel or modify
the offering and reject any order in whole or in part. It is expected that
delivery of the certificates for the shares of Common Stock will be made at the
offices of Waldron & Co., Inc., Irvine, California on or about ,
1997.
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WALDRON & CO., INC.
The date of this Prospectus is , 1997
<PAGE>
PICTURE OF SHOPPING.COM
WEBSITE
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and Financial Statements and related
Notes thereto, appearing elsewhere in this Prospectus. Except as otherwise
noted, all information in this Prospectus (i) gives effect to the conversion of
all of the outstanding shares of preferred stock into 1,253,165 shares of
common stock, (ii) gives effect to the reverse stock split of one share of
Common Stock for two shares of existing Common Stock, effective upon the
closing of this offering, (iii) assumes no exercise of the Over-Allotment
Option, (iv) assumes no exercise of warrants issued and outstanding to purchase
1,242,633 shares of Common Stock, (v) assumes no exercise of the
Representative's Warrants and (vi) assumes no exercise of the 250,000 shares of
Common Stock reserved for issuance upon exercise of options outstanding or
available for future grant under the Company's Stock Option Plan of 1997 (the
"Plan"). See "Certain Transactions," "Description of Securities" and
"Underwriting." This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from the results discussed in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those set forth in the section entitled "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
Shopping.com is an innovative Internet-based electronic wholesaler/retailer
("wholetailer") specializing in retail marketing a broad range of products and
services at wholesale prices to both consumer and trade customers. Utilizing
proprietary technology, the Company has designed a fully-scalable systems
architecture for the Internet shopping marketplace. Shopping.com's system is
designed to fully integrate all aspects of retail transaction processing
including, order placement, secure payment verification, inventory control,
order fulfillment and vendor invoicing, in one seamless and automated process.
The Company believes that the principal competitive factors in its market are
price, speed of fulfillment, brand name recognition, wide selection,
personalized services, ease of use, 24-hour accessibility, customer service,
convenience, reliability, quality of search engine tools, and quality of
editorial and other site content. The Company has developed a creative
wholetailing format on the World Wide Web ("Web") that combines a highly
automated infrastructure with a user-friendly interface designed to enhance the
convenience and ease of online shopping.
The Company employs specialized information systems to provide its customers
with access to an automated marketplace of products and services, which consist
of the inventories of multiple manufacturers and distributors, price
comparisons, detailed product descriptions, product availability, available
delivery times, delivery status of products ordered and back-order information.
Product categories currently available on the Company's Web site include:
automotive, books, cigars, collectibles, computer hardware and software,
consumer electronics, cutlery, fragrances, furniture, gifts, gourmet foods,
health and beauty care, home improvements, marine supplies, music CDs, sporting
goods and watches. The Company has, and will continue to enter into,
arrangements with a number of manufacturers and distributors who will ship
their products directly to its customers, avoiding the expense and delay of
inventory maintenance. Although the Company only commenced selling on the
Internet on July 11, 1997, Shopping.com currently offers more than 350,000
Stock Keeping Units ("SKUs") and expects the number of SKUs to increase to over
2,000,000 by October 31, 1997.
Customers order products and services on Shopping.com's Web site and provide
secure payment by either credit card over the Internet through Verisign or by
calling 1-888-LOVE-2-SHOP. Shipments are then made by the manufacturer or
distributor directly to the customer after verification by Shopping.com that
the payment has been properly credited. Because transactions are accomplished
without the need to maintain either inventory, warehouse facilities, retail
store space or attendant personnel, the Company believes it will be able to
obtain market share by passing cost savings along to its customers as a result
of selling its products and services at a discount to typical retail and
warehouse/discount prices. For the same reasons, the Company is also able to
provide a broader merchandise mix than retail stores, warehouse/discount stores
and mail order catalogue operators.
3
<PAGE>
Shopping.com's strategy is to become a dominant low-price leader in
wholetailing on the Internet by utilizing the warehousing, purchasing and
distribution strengths of multiple manufacturers and distributors, rather than
to assume those roles for itself. The Company believes this approach allows
Shopping.com to eliminate many of the risks and costs associated with
maintaining inventory, including the cost of leasing warehouse space, inventory
obsolescence, inventory tracking systems, as well as the increased costs
associated with employing large numbers of personnel for stocking and shipping
duties. By having access to the inventories of multiple manufacturers and
distributors, Shopping.com believes it is able to offer its customers a
competitive combination of price, product availability, order fulfillment and
delivery services and still obtain profitability. Beyond the benefits of a wide
selection, purchasing from Shopping.com can be done conveniently, 24 hours a
day, without requiring a trip to a store.
International Data Corporation ("IDC") estimates that the number of users
accessing the Web will grow from 28 million in 1996 to 175 million in 2001 and
that the amount of commerce conducted over the Web will increase from
approximately $2.6 billion in 1996 to $220 billion in 2001. Growth in Internet
usage has been fueled by a number of factors, including the large and growing
base of personal computers installed in the workplace and home, advances in the
performance and speed of personal computers and modems, improvements in network
infrastructure, easier and cheaper access to the Internet and increased
awareness of the Internet among consumer and trade customers.
The emergence of the Internet as a significant communications medium is
driving the development and adoption of Web content and commerce applications
that offer both convenience and value to consumers, as well as unique marketing
opportunities and reduced operating costs to businesses. A growing number of
consumer and trade customers have begun to conduct business on the Internet
including paying bills, booking airline tickets, trading securities and
purchasing consumer goods (e.g., personal computers, consumer electronics,
compact disks, books, groceries and vehicles). Moreover, online transactions
can be faster, less expensive and more convenient than transactions conducted
through a human intermediary.
The Company commenced operations in February 1996, incorporated in California
on November 22, 1996, and began selling products and services on its Web site
on July 11, 1997. The Company's executive offices are located at 2101 East
Coast Highway, Garden Level, Corona del Mar, California 92625 and the telephone
number is (714) 640-4393. The Company's Web site address is
http://www.shopping.com. Information contained on the Company's Web site or
online services does not constitute part of this Prospectus.
4
<PAGE>
RECENT DEVELOPMENTS
On August 19, 1997 Shopping.com signed an agreement with CitySearch, a market
innovator in providing community-based online information services for the Web,
to provide necessary back office transactions support for CitySearch's new
electronic commerce pilot program. According to the agreement, Shopping.com
will provide "shopping cart" tools, customer credit authentication and
verification, coordination with the merchant that an order has been placed,
communication with the customer when the order will be shipped, collection of
payment from the user and disbursement of payments to the merchant. CitySearch
plans to develop, manage, and monitor the electronic commerce program, select
customers for participation in the pilot program, as well as market the program
through its Austin CitySearch Web site. The pilot program will be launched in
early September and will run for a minimum of two months.
On September 15, 1997, Shopping.com signed an agreement with En Pointe
Technologies, Inc. ("En Pointe"), an electronic online provider of computer
hardware and software products, pursuant to which En Pointe granted
Shopping.com an unlimited world wide license for five years to use the En
Pointe's proprietary EPIC software in connection with the Company's Internet
shopping operations for a consideration of 125,000 shares of Common Stock
valued at $6.00 per share. The license has a five year renewal option. During
the term of the license, the Company will pay En Pointe an annual maintenance
and upgrade fee of $100,000. Further, En Pointe has agreed to provide
customization services to the EPIC software at additional cost to the Company.
En Pointe also loaned the Company $600,000. Such loan is evidenced by a
Promissory Note which is due on the earlier of nine months from its date of
issuance or on the closing of this offering. In connection with such loan, the
Company issued to En Pointe five-year warrants to purchase an aggregate of
199,800 shares of the Company's Common Stock at an exercise price of $4.50 per
share. See "Note 9 to the Company's Financial Statements."
5
<PAGE>
THE OFFERING
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Common Stock Offered by the Company............. 1,400,000 shares(1)
Common Stock Outstanding after the Offering..... 4,068,665(1)(2)
Use of Proceeds................................. For (i) advertising and
marketing, (ii) repayment of
Promissory Notes, (iii)
general and administrative
expenses, (iv) capital
expenditures and systems
architecture development,
(v) personnel (recruiting,
hiring, training),
(vi) facilities, and (vii)
working capital and other
general corporate purposes.
Proposed Nasdaq SmallCap Market Symbol.......... SHPN
</TABLE>
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(1)Does not include 210,000 shares subject to the Over-Allotment Option.
(2) Based on the number of shares outstanding as of September 19, 1997.
Includes the conversion of the Series A and Series B Preferred Stock into
1,253,165 shares of Common Stock. Does not include (i) 250,000 shares of
Common Stock reserved for issuance upon exercise of options outstanding or
available for future grant under the Plan; (ii) 1,242,633 shares of Common
Stock reserved for issuance upon exercise of the Company's warrants; and
(iii) up to 140,000 shares of Common Stock reserved for issuance upon
exercise of the Representative's Warrants.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
<TABLE>
<CAPTION>
FOR YEAR SIX MONTHS QUARTERS ENDED
ENDED ENDED ------------------
JANUARY 31, JULY 31, APRIL 30, JULY 31,
1997 1997 1997 1997
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STATEMENTS OF OPERATIONS DATA:
Net sales............................. $ -- $ 56 $ -- $ 56
Cost of sales......................... -- 51 -- 51
Gross profit.......................... -- 5 -- 5
Operating expenses.................... 202 1,065 346 719
Loss from operations.................. (202) (1,060) (346) (714)
Other expenses........................ -- (6) -- (6)
Net loss.............................. $ (202) $(1,066) $ (346) $ (720)
Net loss per share.................... $(0.06) $ (0.34) $(0.11) $(0.23)
Weighted average shares outstanding... 3,158 3,158 3,158 3,158
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997
--------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 289 $1,348 $ 9,526
Working capital (deficit)...................... (1,040) (831) 9,197
Total assets................................... 1,450 3,579 11,757
Promissory Notes............................... 1,000 1,850 --
Long-term liabilities.......................... 74 74 74
Total shareholders' equity (deficit)........... (69) 1,210 11,238
</TABLE>
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(1) Treats the issuance of an additional 176,498 shares of Series B Preferred
Stock, the issuance of an additional 133,000 shares of Common Stock and the
issuance of $850,000 in Promissory Notes in August and September 1997 as if
such issuances took place on July 31, 1997.
(2) Adjusted to give effect to the sale of 1,400,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $8.50 per share after deducting the estimated underwriting discount and
offering expenses, and the receipt of the net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, investors
should carefully consider the following risk factors before making an
investment decision concerning the Common Stock. All statements, trend
analysis and other information contained in this Prospectus relative to
markets for the Company's products and trends in net sales, gross margin and
anticipated expense levels, as well as other statements including words such
as "anticipate," "believe," "plan," "estimate," "expect," "intend" and other
similar expressions, constitute forward-looking statements. These forward-
looking statements are subject to business and economic risks, and the
Company's actual results of operations may differ materially from those
contained in such forward-looking statements.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES; ABILITY TO
CONTINUE AS A GOING CONCERN
The Company commenced operations in February 1996, was incorporated on
November 22, 1996 and began selling products on its Web site on July 11, 1997.
Accordingly, the Company has a limited operating history on which to base an
evaluation of its business and prospects. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as online commerce. Such
risks for the Company include, but are not limited to, an evolving and
unpredictable business model and the management of growth. To address these
risks, the Company must, among other things, obtain a customer base, implement
and successfully execute its business and marketing strategy, continue to
develop and upgrade its technology and transaction-processing systems, improve
its Web site, provide superior customer service and order fulfillment, respond
to competitive developments, and attract, retain and motivate qualified
personnel. There can be no assurance that the Company will be successful in
addressing such risks, and the failure to do so could have a material adverse
effect on the Company's business, prospects, financial condition and results
of operations.
Since inception, the Company has incurred significant losses, and as of July
31, 1997 had an accumulated deficit of approximately $1.3 million. The Company
believes that its success will depend in large part on its ability to (i)
obtain a brand name position, (ii) provide its customers with outstanding
value and a superior shopping experience through the extensive retail
background of its management team, (iii) achieve sufficient sales volume to
realize economies of scale, and (iv) successfully coordinate the fulfillment
of customer orders without the need to maintain expensive real estate
warehousing facilities and personnel. Accordingly, the Company intends to
invest heavily in marketing and promotion, site development and technology and
operating infrastructure development. The Company also intends to offer
attractive pricing programs, which will reduce its gross margins. Because the
Company has relatively low gross margins, achieving profitability depends upon
the Company's ability to generate and sustain substantially increased sales
levels. As a result, the Company believes that it will incur substantial
operating losses for the foreseeable future, and that the rate at which such
losses will be incurred will increase significantly from current levels.
The Company expects to use a portion of the net proceeds of this offering to
fund its operating losses. If such net proceeds, together with cash generated
by operations, are insufficient to fund future operating losses, the Company
may be required to raise additional funds. There can be no assurance that such
financing will be available, if at all, in amounts or on terms acceptable to
the Company. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company incurred a net loss of $201,697 and had negative cash flows from
operations during the year ended January 31, 1997, and had a shareholders'
deficit of $78,647 as of January 31, 1997. The Company's independent certified
public accountants have included an explanatory paragraph in their report
stating that these factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1 to the Financial Statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements, the related Notes thereto and other
financial information included herein.
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IMPACT UPON FUTURE NET INCOME OR LOSS OF THE COMPANY BY CURRENT ACCOUNTING FOR
DEBT ISSUANCE COSTS
In September 1997, the Company issued a Promissory Note to En Pointe in the
amount of $600,000. In connection with this financing, the Company also issued
to En Pointe 199,800 warrants to purchase the Company's Common Stock for $4.50
per share. The Company has determined that additional financing expense of
$299,700 needs to be recognized in connection with the issuance of these
warrants. The $299,700 of additional financing cost is currently being
amortized over nine months, the term of the Promissory Note. However, upon
completion of the initial public offering, the $600,000 Promissory Note will
be repaid and the unamortized amount of the additional financing costs will be
charged to earnings as an extraordinary loss on debt extinguishment and will
significantly impact the net income or loss of the Company in the quarter in
which the initial public offering is completed.
UNPREDICTABILITY OF FUTURE REVENUES; POTENTIAL FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS; SEASONALITY
As a result of the Company's limited operating history and the emerging
nature of the markets in which it competes, the Company is unable to
accurately forecast its revenues. The Company's current and future expense
levels are based largely on its investment plans and estimates of future
revenues. Sales and operating results generally depend on the volume of,
timing of, and ability to fulfill orders received, which are difficult to
forecast. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to the Company's planned expenditures could
have an immediate adverse effect on the Company's business, prospects,
financial condition and results of operations. Further, as a strategic
response to changes in the competitive environment, the Company may from time
to time make certain pricing, service or marketing decisions that could have a
material adverse effect on its business, prospects, financial condition and
results of operations. See "Business--Competition."
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include: (i) the Company's ability to obtain and
retain customers, attract new customers at a steady rate, maintain customer
satisfaction and establish consumer confidence in conducting transactions on
the Internet environment, (ii) the Company's ability to manage fulfillment
operations electronically and without warehouse facilities and to establish
competitive gross margins, (iii) the announcement or introduction of new Web
sites, services and products by the Company and its competitors, (iv) price
competition or higher vendor prices, (v) the level of use and consumer
acceptance of the Internet and other online services for the purchase of
consumer products such as those offered by the Company, (vi) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner, (vii) the level of traffic on the
Company's Web site, (viii) technical difficulties, systems downtime or
Internet brownouts, (ix) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure, (x) delays in revenue recognition at the end of a fiscal
period as a result of shipping or logistical problems, (xi) the level of
merchandise returns experienced by the Company, (xii) governmental regulation,
(xiii) economic conditions specific to the Internet and online commerce, and
(xiv) general economic conditions.
The Company expects that it will experience seasonality in its business,
reflecting a combination of seasonal fluctuations in Internet usage and
traditional retail seasonality patterns. Internet usage and the rate of
Internet growth may be expected to decline during the summer. Further, sales
in the traditional retail industry are significantly higher in the quarter of
each year ending January 31 than in the preceding three quarters.
Due to the foregoing factors, in one or more future quarters, the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Common Stock would likely
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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RISK OF CAPACITY CONSTRAINTS; RELIANCE ON INTERNALLY DEVELOPED SYSTEMS; SYSTEM
DEVELOPMENT RISKS
A key element of the Company's strategy is to generate a high volume of
traffic on, and use of, its Web site. Accordingly, the satisfactory
performance, reliability and availability of the Company's Web site,
transaction-processing systems and network infrastructure are critical to the
Company's reputation and its ability to attract and retain customers, as well
as maintain adequate customer service levels. The Company's revenues depend on
the number of visitors who shop on its Web site and the volume of orders it
fulfills. Any system interruptions that result in the unavailability of the
Company's Web site or reduced order fulfillment performance would reduce the
volume of goods sold and the attractiveness of the Company's product and
service offerings. The Company may experience periodic system interruptions
from time to time. Any substantial increase in the volume of traffic on the
Company's Web site or the number of orders placed by customers will require the
Company to expand and upgrade further its technology, transaction-processing
systems and network infrastructure. There can be no assurance that the Company
will be able to accurately project the rate or timing of increases, if any, in
the use of its Web site or timely expand and upgrade its systems and
infrastructure to accommodate such increases.
The Company uses an internally developed system for its Web site, search
engine and substantially all aspects of transaction processing, including order
management, cash and credit card processing, purchasing, shipping, accounting
and financial systems. Any substantial disruptions or delays in any of its
systems would have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. See "Business--
Technology."
RISK OF SYSTEM FAILURE; SINGLE SITE AND ORDER INTERFACE
The Company's success, in particular its ability to successfully receive and
fulfill orders and provide high-quality customer service, largely depends on
the efficient and uninterrupted operation of its computer and communications
hardware systems. Substantially all of the Company's computer and
communications hardware is located at a single leased facility in Corona del
Mar, California. Although the Company has redundant and back-up systems onsite
and a disaster recovery plan, the Company's systems and operations may be
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and similar events. The
Company does not carry business interruption insurance sufficient to compensate
fully for any or all losses from any or all such occasions. Despite the
implementation of network security measures by the Company, including a
proprietary firewall, its servers may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and fulfill
customer orders. The occurrence of any of the foregoing risks could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Business-- Facilities" and
"--Technology."
MANAGEMENT OF POTENTIAL GROWTH; NEW MANAGEMENT TEAM; LIMITED SENIOR MANAGEMENT
RESOURCES
The Company has rapidly and significantly expanded its operations, and
anticipates that further significant expansion will be required to address
potential growth in its customer base and market opportunities. This expansion
has placed, and is expected to continue to place, a significant strain on the
Company's management, operations and financial resources. From January 31, 1997
to July 31, 1997, the Company expanded from 4 to 44 employees, respectively.
The majority of the Company's senior management joined the Company within the
last several months, and some officers have no prior senior management
experience at public companies. The Company's new employees include a number of
key managerial, technical and operations personnel who have not yet been fully
integrated into the Company's operations and the Company expects to add
additional key personnel in the near future. To manage the expected growth of
its operations and personnel, the Company will be required to improve existing,
and implement new, transaction-processing, operational and financial systems,
procedures and controls, and to expand, train and manage its already growing
employee base. The Company may also be required to expand its finance,
administrative and operations staff. Further, the Company's management will be
required to maintain and expand its relationships with various manufacturers,
distributors,
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freight companies, other Web sites, other Internet Service Providers and other
third parties necessary to the Company's operations. There can be no assurance
that the Company's current and planned personnel, systems, procedures and
controls will be adequate to support the Company's future operations, that
management will be able to hire, train, retain, motivate and manage required
personnel or that the Company's management will be able to successfully
identify, manage and exploit existing and potential market opportunities. If
the Company is unable to manage growth effectively, its business, prospects,
financial condition and results and operations would be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Employees."
DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE
The Company's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and other
online services as an effective medium of commerce by consumers. Rapid growth
in the use of and interest in the Web, the Internet and other online services
is a recent phenomenon, and there can be no assurance that acceptance and use
will continue to develop or that a sufficiently broad base of consumers will
adopt, and continue to use, the Internet and other online services as a medium
of commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty and there
exist few proven services and products. The Company relies, and will continue
to rely, on consumers who have historically used traditional means of commerce
to purchase merchandise. For the Company to be successful, these consumers must
accept and utilize novel ways of conducting business and exchanging
information.
In addition, the Internet and other online services may not be accepted as a
viable commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. To the
extent that the Internet and other online services continue to experience
significant growth in the number of users, their frequency of use or an
increase in their bandwidth requirements, there can be no assurance that the
infrastructure for the Internet and other online services will be able to
support the demands placed upon them. In addition, the Internet or other online
services could lose their viability due to delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet or other online service activity, or due to increased governmental
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet or other online services also could result in
slower response times and adversely affect usage of the Internet and other
online services generally and Shopping.com in particular. If use of the
Internet and other online services does not continue to grow or grows more
slowly than expected, if the infrastructure for the Internet and other online
services does not effectively support growth that may occur, or if the Internet
and other online services do not become a viable commercial marketplace, the
Company's business, prospects, financial condition and results of operations
would be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of the Shopping.com online store.
The online commerce industry is characterized by rapid technological change,
changes in user and customer requirements and preferences, frequent new product
and service introductions embodying new technologies and the emergence of new
industry standards and practices that could render the Company's existing Web
site and proprietary technology and systems obsolete. The Company's future
success will depend, in part, on its ability to license leading technologies
useful in its business, enhance its existing services, develop new services and
technologies that address the increasingly sophisticated and varied needs of
its prospective customers, and respond to technological advances and emerging
industry standards and practices on a cost-effective and timely basis. The
development of a Web site and other proprietary technology entails significant
technical and business risks. There can be no assurance that the Company will
successfully use new technologies effectively or adapt its Web site,
proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. If the Company is unable, for
technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions or customer requirements, its business,
prospects, financial condition and results of operations would be materially
adversely affected. See "Business--Technology."
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DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The Company's performance is substantially dependent on the continued
services and on the performance of its senior management and other key
personnel, particularly Robert J. McNulty, its President and Chief Executive
Officer, and Mark S. Winkler, its Chief Information and Technology Officer. The
Company's performance also depends on the Company's ability to retain and
motivate its other officers and key employees. The loss of the services of any
of its executive officers or other key employees could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. The Company has recently entered into written employment agreements
with Mr. McNulty for five years and with Mr. Winkler for a period ending May
20, 1998. Additionally, a $1,000,000 "key person" life insurance policy on the
life of Mr. McNulty has been issued to the Company. The Company's future
success depends on its ability to identify, attract, hire, train, retain and
motivate other highly skilled technical, managerial, editorial, merchandising,
marketing and customer service personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to
successfully attract, assimilate and retain sufficiently qualified personnel.
In particular, the Company may encounter difficulties in attracting a
sufficient number of qualified software developers for its Web site and
transaction-processing systems, and there can be no assurance that the Company
will be able to retain and attract such developers. The failure to retain and
attract the necessary technical, managerial, editorial, merchandising,
marketing and customer service personnel could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations. See "Business--Employees" and "Management."
ONLINE COMMERCE SECURITY RISKS
A significant barrier to online commerce and communications is the need for
secure transmission of confidential information over public networks. The
Company relies on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card numbers.
There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data. A party who is able to circumvent the
Company's security measures could misappropriate confidential information or
cause interruptions in the Company's operations. The Company may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. If any such
compromise of the Company's security were to occur, it could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
Concerns over the security of transactions conducted on the Internet and
other online services as well as user's desires for privacy may also inhibit
the growth of the Internet and other online services generally, and the Web in
particular, especially as a means of conducting commercial transactions. The
activities of the Company and third-party contractors involve the storage and
transmission of proprietary information, such as credit card numbers and other
confidential information. Any such security breaches could damage the Company's
reputation and expose the Company to a risk of loss, litigation and/or possible
liability. There can be no assurance that the Company's security measures will
prevent security breaches or that failure to prevent such security breaches
will not have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. See "Business--Technology."
COMPETITION
The online commerce industry, particularly on the Internet, is new, rapidly
evolving and intensely competitive, which the Company expects to intensify in
the future. Barriers to entry are minimal, allowing current and new competitors
to launch new Web sites at a relatively low cost. The Company currently or
potentially competes with a variety of other companies. These competitors
include: (i) various online vendors of other consumer and trade products and
services such as CUC International, Amazon.com., ONSALE, Peapod, NetGrocer,
iMALL, Internet Shopping Network, Micro Warehouse, CD Now, QVC and Home
Shopping
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Network, (ii) a number of indirect competitors that specialize in online
commerce or derive a substantial portion of their revenues from online
commerce, including America Online, Microsoft Network, Prodigy and Compuserve,
(iii) mail order catalogue operators such as Speigel, Lands End, and Sharper
Image, (iv) retail and warehouse/discount store operators such as Wal-Mart,
Home Depot, Target and Price/Costco, and (v) other international retail or
catalogue companies which may enter the online commerce industry. Both Wal-Mart
and Home Depot have announced their intention to devote substantial resources
to online commerce at discount prices, which if successful, could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. However, the Company believes that retail
and warehouse/discount operators will be somewhat restricted in their ability
to lower prices by the need to protect their own pricing strategy to avoid
cannibalizing their store margins.
The Company believes that the principal competitive factors in its market are
price, speed of fulfillment brand name recognition, wide selection,
personalized services, ease of use, 24-hour accessibility, customer service,
convenience, reliability, quality of search engine tools, and quality of
editorial and other site content. Many of the Company's current and potential
competitors have longer operating histories, larger customer bases, greater
brand name recognition and significantly greater financial, marketing and other
resources than the Company. In addition, online retailers may be acquired by,
receive investments from or enter into other commercial relationships with
larger, well-established and well-financed companies as use of the Internet and
other online services increases. Certain of the Company's competitors may be
able to secure merchandise from vendors on more favorable terms, devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
or inventory availability policies and devote substantially more resources to
Web site and systems development than the Company. Increased competition may
result in reduced operating margins, loss of market share and a diminished
franchise value. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, and competitive
pressures faced by the Company may have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Further, as a strategic response to changes in the competitive environment, the
Company may, from time to time, make certain pricing, service or marketing
decisions or acquisitions that could have a material adverse effect on its
business, prospects, financial condition and results of operations. New
technologies and the expansion of existing technologies may increase the
competitive pressures on the Company. In addition, companies that control
access to transactions through network access or Web browsers could promote the
Company's competitors or charge the Company a substantial fee for inclusion.
See "Business--Competition."
RELIANCE ON CERTAIN SUPPLIERS AND SHIPPERS
Unlike retail and warehouse/discount store operators and certain online
commerce providers, the Company, as a wholetailer, carries no inventory, has no
warehouse employees or facilities, and relies on rapid fulfillment from its
vendors. The Company has no long-term contracts or arrangements with any of its
vendors or shippers that guarantee the availability of merchandise, the
continuation of particular payment terms, the extension of credit limits or
shipping schedules. There can be no assurance that the Company's current
vendors will continue to sell merchandise to, or that shippers will be able to
provide delivery service for, the Company on current terms or that the Company
will be able to establish new, or extend current, vendor and shipper
relationships to insure acquisition and delivery of merchandise in a timely and
efficient manner and on acceptable commercial terms. If the Company were unable
to develop and maintain relationships with vendors and shippers that would
allow it to obtain sufficient quantities of merchandise on acceptable
commercial terms, or in the event of labor disputes or natural catastrophes,
its business, prospects, financial condition and results of operations would be
materially adversely affected. See "Business--Customer Service and Order
Fulfillment."
AVAILABILITY OF MERCHANDISE; VENDOR CREDIT FOR THE COMPANY
Although the Company's merchandising division maintains past relationships
with vendors which it believes will offer competitive sources of supply, and
believes that other sources are available for most merchandise it will sell or
may sell in the future, there can be no assurance that Shopping.com will be
able to obtain the quantity
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or brand quality of items that management believes are optimum. The
unavailability of certain product lines could adversely impact the Company's
operating results. Given its lack of operating history, certain vendors of
products sold by the Company may not be prepared to advance normal levels of
credit to the Company. An unwillingness to extend credit may increase the
amounts of capital required to finance the Company's operations and reduce
returns, if any, on invested capital.
RISKS ASSOCIATED WITH ENTRY INTO NEW BUSINESS AREAS
The Company may choose to expand its operations by developing new Web sites,
promoting new or complementary products or sales formats, expanding the breadth
and depth of products and services offered or expanding its market presence
through relationships with third parties. Although it has no present
understandings, commitments or agreements with respect to any material
acquisitions or investments, the Company may pursue the acquisition of new or
complementary businesses, products or technologies. There can be no assurance
that the Company would be able to expand its efforts and operations in a cost-
effective or timely manner or that any such efforts would increase overall
market acceptance. Furthermore, any new business or Web site launched by the
Company that is not favorably received by consumer or trade customers could
damage the Company's reputation or the Shopping.com brand name. Expansion of
the Company's operations in this manner would also require significant
additional expenses and development, operations and editorial resources and
would strain the Company's management, financial and operational resources. The
lack of market acceptance of such efforts or the Company's inability to
generate satisfactory revenues from such expanded services or products could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards its Shopping.com brand name and related technology as
proprietary and relies primarily on a combination of copyright, trademark,
trade secret and confidential information laws as well as employee and third-
party non-disclosure agreements and other methods to protect its proprietary
rights. There can be no assurance that these protections will be adequate to
protect against technologies that are substantially equivalent or superior to
the Company's technologies. The Company does not currently hold any patents or
have any patent applications pending for itself or its products and has not
obtained Federal registration for any of its trademarks. The Company enters
into non-disclosure and invention assignment agreements with certain of its
employees and also enters into non-disclosure agreements with certain of its
consultants and subcontractors. However, there can be no assurance that such
measures will protect the Company's proprietary technology, or that its
competitors will not develop software with features based upon, or otherwise
similar to, the Company's software or that the Company will be able to prevent
competitors from developing similar software.
The Company believes that its products, trademarks and other proprietary
rights do not infringe on the proprietary rights of third parties. The Company
has been displaying its Web site on the Internet without receiving claims from
third parties that its products or names infringe on any proprietary rights of
other parties. However, the Company is a recent entrant in the sale of
merchandise on the Internet, and there can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products, trademarks or other Company works. Such
assertion may require the Company to enter into royalty arrangements or result
in costly litigation. The Company is also dependent upon obtaining additional
technology related to its operations. To the extent new technological
developments are unavailable to the Company on terms acceptable to it, or at
all, the Company may be unable to continue to implement its business and any
such inability would have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. See "Business--
Intellectual Property."
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access to online
commerce. However, due to the increasing popularity and use of the Internet and
other online services, it is possible that a number of laws and regulations may
be adopted with respect to the Internet or other online
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services covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics and quality of products and services.
Furthermore, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may decrease the growth of the Internet
or other online services, which could, in turn, decrease the demand for the
Company's products and services and increase the Company's cost of doing
business, or otherwise have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. Moreover,
the applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Any such new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to the
Company's business, or the application of existing laws and regulations to the
Internet and other online services could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Permits or licenses may be required from federal, state or local government
authorities to operate or to sell certain products on the Internet. No
assurances can be made that such permits or licenses will be obtainable. The
Company may be required to comply with future national and/or international
legislation and statutes regarding conducting commerce on the Internet in all
or specific countries throughout the world. No assurances can be made that the
Company will be able to comply with such legislation or statutes.
SALES AND OTHER TAXES
The Company does not currently collect sales or other similar taxes with
respect to shipments of goods to consumers into states other than California.
However, one or more states may seek to impose sales tax collection obligations
on out-of-state companies such as the Company which engage in online commerce.
In addition, any new operation in states outside California could subject
shipments into such states to state sales taxes under current or future laws. A
successful assertion by one or more states or any foreign country that the
Company should collect sales or other taxes on the sale of merchandise could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
CONTROL OF COMPANY
Following this offering, the current officers and directors of the Company
and their affiliates will beneficially own or have voting control over
approximately 46.7% of the outstanding shares of Common Stock. Accordingly,
these individuals will have the ability to influence the election of the
Company's Board of Directors and effectively to control corporate decisions.
This concentration of ownership may also have the effect of delaying, deterring
or preventing a change in control of the Company. See "Principal Shareholders."
CONTINUING PUBLICITY
The Company may receive a high degree of media coverage, including coverage
that is not directly attributable to statements by the Company's officers and
employees. Neither the Company, nor any of the Underwriters, have confirmed,
endorsed or adopted any statement for utilization by, or distribution to,
prospective purchasers in this offering. To the extent any statements in any
article, publication or other media report are inconsistent with, or conflict
with, the information contained in this Prospectus, or relate to information
not contained in this Prospectus, they are disclaimed by the Company and the
Underwriters. Accordingly, prospective investors should not rely on the
statements, or any other information not contained in this Prospectus.
POSSIBLE NEED FOR ADDITIONAL CAPITAL; ALLOCATION OF FUNDS
The Company believes, based on currently-proposed plans and assumptions
relating to its operations, that the net proceeds from this offering, together
with existing capital and anticipated funds from operations, should be
sufficient to sustain current operations and finance planned expansion for at
least 15 months after consummation of this offering. However, in the event that
the Company's plans change or its assumptions and
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estimates change or prove to be inaccurate, the Company could be required to
seek additional financing in order to sustain operations or achieve planned
expansion. There can be no assurance that such additional funds will be
available or that, if available, such additional funds will be on terms
acceptable to the Company. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
BROAD DISCRETION OF APPLICATION OF PROCEEDS OF OFFERING
A substantial portion of the proceeds from this offering will be used for
general working capital. Management will have broad discretion as to the use of
such proceeds and management reserves the right to reallocate all proceeds from
this offering to working capital. See "Use of Proceeds."
NO PRIOR PUBLIC MARKET; ARBITRARY OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common Stock.
Although the Company intends to apply for inclusion of its Common Stock on the
Nasdaq SmallCap Market, there can be no assurance that an active trading market
will develop or, if it develops, that it will be sustained. Holders of the
Common Stock may, therefore, have difficulty in selling their securities should
they desire to do so. The initial public offering price will be determined by
negotiations between the Company and the Representative, and may not be
indicative of the market price of the Common Stock after this offering. The
trading price of the Common Stock could also be subject to significant
fluctuation in response to variations in quarterly results of operations,
announcements of technological innovations or new products by the Company or
its competitors, developments or disputes with respect to proprietary rights,
general trends in the industry and overall market conditions and other factors.
The market for securities of early-stage, small-market capitalization companies
has been highly volatile in recent years, often as a result of factors
unrelated to a Company's operations. In addition, the stock market in general,
and the Nasdaq National and SmallCap Markets and the market for Internet-
related and high technology companies in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. The trading
prices of many high technology companies' stocks are at or near historical
highs and reflect price earnings ratios substantially above historical levels.
There can be no assurance that these trading prices and price earnings ratios
will be sustained. These broad market and industry factors may materially and
adversely affect the market price of the Common Stock, regardless of the
Company's operating performance. In the past, following periods of volatility
in the market price of a company's securities, securities class-action
litigation has often been instituted against such company. Such litigation, if
instituted, could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
After completion of this offering, 4,068,665 shares of Common Stock will be
issued and outstanding, assuming no exercise of (i) the Over-Allotment Option,
(ii) 250,000 options available for grant pursuant to the Plan, (iii) warrants
to purchase 1,242,633 shares of Common Stock, or (iv) the Representative's
Warrants. The 2,668,665 shares of Common Stock issued by the Company prior to
this offering, including 1,253,165 shares of Common Stock issued on the
conversion of the Series A and Series B Preferred Stock, will be "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act, and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. Each officer, director or key employee of the
Company, each shareholder of the Common Stock, and each holder of the warrants
issued on the sale of the Preferred Stock and the Promissory Notes has entered
into a "lock-up" agreement providing that such shareholder will not offer,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any shares of the Company's Common Stock or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of the Company's Common Stock for a
period of 12 months after the date of this Prospectus without the prior written
consent of the Representative.
15
<PAGE>
Sales of substantial amounts of shares in the public market following the
expiration of the lock-up agreement or restrictions imposed by Rule 144, or the
prospect of such sales, could adversely affect the market price of the Common
Stock. The Company has also entered into registration rights agreements with
certain shareholders. See "Certain Transactions" and "Description of
Securities--Registration Rights."
EXERCISE OF WARRANTS AND OPTIONS
To the extent that the Representative's Warrants, any options granted under
the Plan, or any other warrants or options are exercised, the ownership
interests of the Company's shareholders may be diluted proportionately. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management--Employee Benefit Plans" and "Underwriting."
DIVIDEND POLICY
The Company has never declared or paid any dividend on its Preferred or
Common Stock and anticipates that for the foreseeable future, all earnings, if
any, will be retained for the operation and expansion of the Company's
business. See "Dividend Policy."
DILUTION
After giving effect to the sale of 1,400,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $8.50 per
share, the issuance of an additional 176,498 shares of Series B Preferred Stock
and 133,000 shares of Common Stock subsequent to July 31, 1997 and the receipt
of the estimated net proceeds therefrom, and the conversion of the Series A and
Series B Preferred Stock and the issuance of 1,253,165 shares of Common Stock
upon conversion thereof, the Company's existing shareholders will experience an
immediate increase in net tangible book value of $2.41 per share and purchasers
of Common Stock in this offering will experience immediate dilution in net
tangible book value of $5.92 per share or approximately 69.6% of their
investment. See "Dilution."
LIMITATIONS ON LIABILITY OF DIRECTORS
The Company's Articles of Incorporation, By-Laws and Indemnification
Agreements substantially limit the liability of the Company's directors to the
Company and its shareholders for breach of fiduciary and other duties to the
Company. See "Management--Limitation of Liability and Indemnification Matters."
RISKS RELATED TO REPRESENTATIVE'S AGREEMENTS WITH THE COMPANY
The Company has agreed to appoint Waldron & Co., Inc. as Representative of
the several underwriters in this offering. In connection with such engagement,
the Company has agreed to appoint the Representative, for a period of three
years, as its exclusive advisor for the purpose of identifying and developing
future merger and acquisition candidates. If, during the term of this
appointment, the Company participates in any merger, acquisition or other
transaction, whether as acquiror or acquiree, including acquisitions of assets
or stock and in which it pays for the acquisition, in whole or in part, with
shares of the Company's Common Stock, then it will be obligated to pay the
Representative a fee for such services which will vary depending upon the size
of the transaction. In addition, the Representative will have the right for a
period of three years following the date of this Prospectus to receive notice
of, and to have an observer present at, meetings of the Board of Directors and
shareholders of the Company, and the Company is obligated to reimburse the
Representative for the costs and expenses reasonably incurred by such observer
in attending such meetings. See "Underwriting."
LACK OF EXPERIENCE OF WALDRON & CO., INC.
While Waldron & Co., Inc. has been in the investment banking business and a
registered NASD member since 1939, it has only recently participated as a
managing underwriter in its first public offering of securities. Prospective
purchasers of shares of Common Stock in this offering should consider the lack
of experience of Waldron & Co., Inc. in evaluating an investment in the
Company. See "Underwriting."
16
<PAGE>
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
It is anticipated that a significant number of the shares of Common Stock
being offered hereby will be sold to clients of the Representative. Although
the Representative has advised the Company that it currently intends to make a
market in the Common Stock following this offering, it has no legal
obligation, contractual or otherwise, to do so. The Representative, if it
becomes a market maker, could be a dominating influence in the market for the
Common Stock, if one develops. The prices and the liquidity of the Common
Stock may be significantly affected by the degree, if any, of the
Representative's participation in such market. There can be no assurance that
any market activities of the Representative, if commenced, will be continued.
POSSIBLE REMOVAL OF SHARES OF COMMON STOCK FROM THE NASDAQ SMALLCAP MARKET
While the Company believes the shares of Common Stock will be included for
quotation on the Nasdaq SmallCap Market, there can be no assurance that this
will actually occur. The Company will have to maintain certain minimum
financial requirements for continued inclusion on the Nasdaq SmallCap Market.
If the Company is unable to satisfy Nasdaq's maintenance requirements, the
Company's securities may be removed from the Nasdaq SmallCap Market. In such
event, trading, if any, in the shares of Common Stock would thereafter be
conducted in the over-the-counter markets in the so-called "pink sheets" or
the NASD's "Electronic Bulletin Board." Consequently, the liquidity of the
Company's securities could be significantly impaired, not only in the number
of securities which could be bought and sold, but also through delays in the
timing of transactions, reductions in securities analysts' and the news
media's coverage of the Company, and lower prices for the Company's securities
than might otherwise result.
RISK OF LOW-PRICE STOCKS
If the Company's securities were to be removed from the Nasdaq SmallCap
Market, they could become subject to Rule 15g-9 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered
by this rule, a broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, the rule may adversely affect the
ability of broker-dealers to sell the Company's securities and may adversely
affect the ability of purchasers in the offering to sell any of the securities
acquired hereby in the secondary market.
Securities and Exchange Commission ("Commission") regulations define a
"penny stock" to be any non-Nasdaq equity security that has a market price (as
therein defined) of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require delivery, prior to
any transaction in a penny stock, of a disclosure schedule prepared by the
Commission relating to the penny stock market. Disclosure is also required to
be made about commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are included on the Nasdaq SmallCap
Market and have certain price and volume information provided on a current and
continuing basis or meet certain public float minimum net tangible assets and
revenue criteria. There can be no assurance that the Company's securities will
qualify for exemption from these restrictions. In any event, even if the
Company's securities were exempt from such restrictions, it would remain
subject to Section 15(b)(6) of the Exchange Act, which gives the Commission
the authority to prohibit any person that is engaged in unlawful conduct while
participating in a distribution of a penny stock from associating with a
broker-dealer or participating in a distribution of a penny stock, if the
Commission finds that such a restriction would be in the
17
<PAGE>
public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
FORWARD-LOOKING STATEMENTS
When used in this Prospectus and the documents incorporated herein by
reference, the words "plan," "estimate," "anticipate," "believe," "intend,"
"expect" and other similar expressions are intended to identify in certain
circumstances, forward-looking statements. Such statements are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those projected, including the risks described in this "Risk
Factors" section. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such statements. The Company
undertakes no obligation to update these forward-looking statements.
The forward-looking statements, which appear in this Prospectus, are based
on the following underlying assumptions. These, in turn, are based upon facts
which management has assumed and amounts it has estimated. All of these are
believed by management to be reasonable based on their current understanding
and best judgment. Notwithstanding this belief, there can be no assurance that
these are either correct under current facts or that the facts upon which
these assumptions are founded will not change. The accuracy of these forward-
looking statements is therefore dependent upon the factors upon which they are
based. Given the subjective nature of those assumptions, each prospective
investor should carefully review each of the underlying assumptions and apply
his own judgment regarding each of those assumptions.
Each prospective investor should further understand that these forward-
looking statements are necessarily based on the limited knowledge currently
available to everyone concerned. Given the fact that many of the assumptions
in this Prospectus will vary from what will actually occur, the prospective
investor should treat the forward looking statements only as illustrations
based upon the assumptions made, and not as the operating results of the
Company as they will probably occur. Among such assumptions are the following:
Products. It is anticipated that the management team of Shopping.com will
use their contacts from previous business dealings with vendors with whom they
have had a previous working relationship, to secure its initial product base.
It is also anticipated that with presentations to additional vendors, the
Company will be able to demonstrate the opportunities for the vendors to
conduct business with the Company on the Internet. Additional vendors will be
contacted by Shopping.com's marketing/merchandising division with a formal
demonstration of the sales, operating procedures and rewards from being a
major value added reseller on the Internet. It is assumed that from these
demonstrations, a sufficient interest and understanding will be obtained which
will produce and establish additional vendor representation by the Company on
its Web site.
Market Penetration. The Company believes that it can secure a substantial
share of the mass merchandise business currently being generated on the
Internet. Because of the experience and retail background of the Company's
officers and the technical team organized, the Company believes that it will
have generated a substantial lead over any other mass merchandiser planning to
conduct business on the Internet.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,400,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$8.50 per share, are estimated to be approximately $10.0 million (approximately
$11.6 million if the Underwriters' Over-Allotment Option is exercised in full)
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
The Company intends to utilize the net proceeds from the Offering
approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
DOLLAR PERCENTAGE OF
AMOUNT NET PROCEEDS
----------- -------------
<S> <C> <C>
Advertising and marketing......................... $ 4,000,000 40.0%
Repayment of Promissory Notes..................... 1,850,000 18.5%
General and administrative expenses............... 2,200,000 22.0%
Capital expenditures and systems architecture
development...................................... 700,000 7.0%
Personnel (recruiting, hiring, training and other
associated costs)................................ 200,000 2.0%
Facilities (rent, capital improvements)........... 100,000 1.0%
Working capital and other general corporate
purposes......................................... 950,000 9.5%
----------- -----
TOTAL........................................... $10,000,000 100.0%
=========== =====
</TABLE>
The foregoing represents the Company's best estimate of the allocation of the
net proceeds of the offering, based on the expected utilization of funds
necessary to finance the Company's existing activities in accordance with
management's current objectives and market conditions. The amounts actually
expended by the Company for each purpose will vary significantly depending on a
number of factors, such as the amount of cash used or generated by the
Company's operations and management's assessment of the Company's specific
needs. The Company may also use a portion of the net proceeds of this offering
to acquire new technologies, businesses or vendors which will result in a
reallocation of the estimated amounts set forth in the table above (which
reallocation may be substantial). While the Company from time to time may
evaluate such potential acquisitions, the Company has no present agreements or
commitments with respect to any such possible acquisition, nor are any
negotiations regarding any such possible acquisitions currently ongoing.
Pending such uses, the Company intends to invest the net proceeds of the
offering in short-term investment grade, interest bearing obligations. See
"Risk Factors--Limited Operating History; Accumulated Deficit; Anticipated
Losses; Ability to Continue as a Going Concern," "--Possible Need for
Additional Capital; Allocation of Funds," "--Broad Discretion of Application of
Proceeds of Offering," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
DIVIDEND POLICY
The Company has never declared or paid any dividend on its Preferred or
Common Stock and does not expect to declare or pay dividends for the
foreseeable future. The Company currently intends to retain future earnings, if
any, to finance the development and operation of its business. Any future
declarations and payments of dividends shall be at the sole discretion of the
Company's Board of Directors. Payment of dividends on the Common Stock would be
subject to the prior payment of all accrued and unpaid dividends on any shares
of Preferred Stock the Company may issue in the future in its sole discretion.
See "Risk Factors--Dividend Policy" and "Description of Securities."
19
<PAGE>
CAPITALIZATION
The following table sets forth at July 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company giving effect to the issuance, after July 31, 1997, of an additional
176,498 shares of Series B Preferred Stock at $3.00 per share, the issuance of
an additional 133,000 shares of Common Stock for software licensing rights and
consulting services valued at $6.00 per share, and the issuance of an
additional $850,000 in Promissory Notes after July 31, 1997. Further, the pro
forma capitalization of the Company gives effect to the conversion of the
Series A and Series B Preferred Stock into 1,253,165 shares of Common Stock
upon the closing of this offering and gives effect to the reverse stock split
of one share of common stock for two shares of existing common stock,
effective upon the closing of this offering, and (iii) the pro forma
capitalization as adjusted to reflect the issuance and sale of 1,400,000
shares of Common Stock offered by the Company at an assumed initial public
offering price of $8.50 per share, less estimated underwriting discounts and
commissions and offering expenses, payable by the Company, and the application
of the estimated net proceeds therefrom. See "Use of Proceeds." This table
should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
-----------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Promissory Notes................................ $ 1,000 $ 1,850 $ --
Shareholders' equity:(1)
Series A Preferred Stock, no par value
(1,500,000 shares authorized; 750,000 issued
and outstanding actual; 0 shares issued and
outstanding Pro Forma; and 0 shares issued and
outstanding Pro Forma As Adjusted.............. 300 -- --
Series B Preferred Stock, no par value
(4,000,000 shares authorized; 326,667 shares
issued and outstanding actual; 0 shares issued
and outstanding Pro Forma; and 0 shares issued
and outstanding Pro Forma As Adjusted)......... 873 -- --
Common Stock, no par value
(8,000,000 shares authorized; 1,282,500 shares
issued and outstanding actual; 2,668,665 shares
issued and outstanding Pro Forma; 4,068,665
shares issued and outstanding Pro Forma As
Adjusted....................................... 26 2,526 12,854
Deficit accumulated during development stage.... (1,268) (1,316) (1,616)
Total Shareholders' equity (deficit).......... (69) 1,210 11,238
------- ------- --------
Total capitalization........................ $ 931 $ 3,060 $ 11,238
======= ======= ========
</TABLE>
- --------
(1) Excludes (i) 210,000 shares of Common Stock reserved for issuance subject
to the Over-Allotment Option plan; (ii) 250,000 shares of Common Stock
reserved for issuance upon exercise of options outstanding or available
for future grant under the Plan; (iii) 1,242,633 shares of Common Stock
reserved for issuance on exercise of outstanding warrants; and (iv)
140,000 shares of Common Stock reserved for issuance upon exercise of the
Representative's Warrants.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of July 31, 1997,
after giving effect to the issuance of an additional 176,498 shares of Series
B Preferred Stock and 133,000 shares of Common Stock subsequent to July 31,
1997 and the conversion of the Series A and B Preferred Stock, was $460,416 or
approximately $0.17 per share of Common Stock. Pro forma net tangible book
value per share of Common Stock is equal to the Company's total pro forma
tangible assets less total liabilities, divided by the total number of shares
of Common Stock outstanding assuming the conversion of the Series A and B
Preferred Stock. After giving effect to the sale of the 1,400,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $8.50 per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company, the
pro forma as adjusted net tangible book value of the Company at such date
would have been approximately $10,488,416 or approximately $2.58 per share.
This represents an immediate increase in tangible book value of $2.41 per
share to existing shareholders and an immediate dilution of $5.92 per share to
new purchasers of shares in the Offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $8.50
Pro forma net tangible book value per share of Common Stock
before the Offering.......................................... $0.17
Increase per share attributable to new investors.............. 2.41
-----
Pro forma as adjusted net tangible book value per share of
Common Stock after the Offering................................ 2.58
-----
Dilution per share to new investors............................. $5.92
=====
</TABLE>
The following table summarizes as of July 31, 1997, on a pro forma adjusted
basis after giving effect to the conversion of the Series A and B Preferred
Stock and the Offering, the difference between existing shareholders and new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total cash or other consideration paid to the Company, and
the average price per share paid by existing shareholders and by the
purchasers of the shares offered by the Company hereby (at an assumed initial
public offering price of $8.50 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........ 2,668,665 65.6% $ 2,633,145 18.1% $0.99
New Investors................ 1,400,000 34.4 11,900,000 81.9 8.50
--------- ----- ----------- -----
Total...................... 4,068,665 100.0% $14,533,145 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of (i) 210,000 shares of Common
Stock reserved for issuance subject to the Over-Allotment Option; (ii) 250,000
shares of Common Stock reserved for issuance upon exercise of options
outstanding or available for future grant under the Plan; (iii) 1,242,633
shares of Common Stock reserved for issuance on exercise of outstanding
warrants and (iv) 140,000 shares of Common Stock reserved for issuance upon
exercise of the Representative's Warrants.
21
<PAGE>
SELECTED FINANCIAL DATA
The data set forth below is qualified by reference to, and should be read in
conjunction with, the Financial Statements of the Company and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The following
selected financial data of the Company for the fiscal year ended January 31,
1997 are derived from the financial statements of the Company audited by
Singer Lewak Greenbaum & Goldstein LLP, independent certified public
accountants. The balance sheet at January 31, 1997 and the related statements
of operations, shareholders' equity (deficit) and cash flows for the fiscal
year ended January 31, 1997 and notes thereto are included elsewhere in this
Prospectus. The selected financial data as of July 31, 1997, and for the six-
month period ended July 31, 1997 have been derived from the Company's
unaudited financial statements which, in the opinion of management, reflect
all adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the results of operations for such periods. The results of the
interim periods are not necessarily indicative of the results of a full year.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS QUARTERS ENDED
YEAR ENDED ENDED ------------------
JANUARY 31, JULY 31, APRIL 30, JULY 31,
1997 1997 1997 1997
----------- ---------- --------- --------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................. $ -- $ 56 $ -- $ 56
Cost of sales......................... -- 51 -- 51
------ ------- ------ ------
Gross profit.......................... -- 5 -- 5
Operating expenses:
Advertising and marketing........... -- 12 -- 12
Product development................. 83 265 57 208
General and administrative.......... 119 788 289 499
------ ------- ------ ------
Total operating expenses.......... 202 1,065 346 719
------ ------- ------ ------
Loss from operations.................. (202) (1,060) (346) (714)
Other expenses........................ -- (6) -- (6)
------ ------- ------ ------
Net loss.............................. $ (202) $(1,066) $ (346) $ (720)
====== ======= ====== ======
Net loss per share.................... $(0.06) $ (0.34) $(0.11) $(0.23)
====== ======= ====== ======
Weighted average shares outstanding... 3,158 3,158 3,158 3,158
====== ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997
---------------------------------
AS PRO
FORMA
ACTUAL PRO FORMA(1) ADJUSTED(2)
------- ------------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 289 $1,348 $ 9,526
Working capital (deficit)..................... (1,040) (831) 9,197
Total assets.................................. 1,450 3,579 11,757
Promissory Notes.............................. 1,000 1,850 --
Long-term liabilities......................... 74 74 74
Total shareholders' equity (deficit).......... (69) 1,210 11,238
</TABLE>
- --------
(1) Treats the issuance of an additional 176,498 shares of Series B Preferred
Stock, the issuance of an additional 133,000 shares of Common Stock and
the issuance of $850,000 in Promissory Notes in August and September 1997
as if such issuances took place on July 31, 1997.
(2) Adjusted to give effect to the sale of 1,400,000 shares of Common Stock
offered hereby by the Company at an assumed initial public offering price
of $8.50 per share after deducting the estimated underwriting discount and
offering expenses, and the receipt of the net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
financial statements and the related notes thereto appearing elsewhere herein.
OVERVIEW
Shopping.com began operations in February 1996, was incorporated on November
22, 1996 and commenced selling on the Internet on July 11, 1997. The Company
is an innovative Internet-based electronic wholetailer specializing in retail
marketing a broad range of products and services at wholesale prices to both
consumer and trade customers. Utilizing proprietary technology, the Company
has designed a fully-scalable systems architecture for the Internet shopping
marketplace.
The Company has assembled an experienced management team to design, develop
and implement the Company's strategic business plan. This group combines the
experiences of:
. Executives with extensive background in both retail and
warehouse/discount store formats.
. Executives who have experience in computer and information systems
design and development.
. Directors with entrepreneurial skills who currently oversee and manage
their own existing companies.
The Company has only recently begun generating sales, thus making an
evaluation of the Company and its prospects difficult to calculate. The
Company anticipates that sales from the Company's Web site will constitute
substantially all of the Company's sales. Since the Company anticipates that
its operations will incur significant operating losses for the foreseeable
future, the Company believes that its success will depend upon its ability to
obtain sales on its Web site, which cannot be assured. The Company's ability
to generate sales is subject to substantial uncertainty. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets such as online
commerce. Such risks for the Company include, but are not limited to, an
evolving and unpredictable business model and the management of growth. To
address these risks, the Company must, among other things, obtain a customer
base, implement and successfully execute its business and marketing strategy,
continue to develop and upgrade its technology and transaction-processing
systems, improve its Web site, provide superior customer service and order
fulfillment, respond to competitive developments, and attract, retain and
motivate qualified personnel. There can be no assurance that the Company will
be successful in addressing such risks, and the failure to do so could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. Additionally, the Company's lack of an
operating history makes predictions of future operating results difficult to
ascertain. Accordingly, there can be no assurance that the Company will be
able to generate sales, or that the Company will be able to achieve or
maintain profitability. Since inception, the Company has incurred significant
losses and, as of July 31, 1997, had an accumulated deficit of approximately
$1.3 million. Upon completion of this offering, the Company intends to
substantially increase its operating expenses in order to, among other things,
fund increased advertising and marketing efforts, expand and improve its
Internet operations and user support capabilities, and develop new Internet
content and applications. The Company expects to continue to incur significant
operating losses on a quarterly and annual basis for the foreseeable future.
To the extent such increases in operating expenses are not offset by revenues,
the Company will incur greater losses than anticipated. See "Risk Factors--
Limited Operating History; Accumulated Deficit; Anticipated Losses; Ability to
Continue as a Going Concern" and "Use or Proceeds."
The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors many of which are outside of the Company's
control. Factors that may adversely affect the Company's quarterly
23
<PAGE>
operating results include: (i) the Company's ability to obtain and retain
customers, attract new customers at a steady rate, maintain customer
satisfaction and to establish consumer confidence in conducting transactions
on the Internet environment, (ii) the Company's ability to manage fulfillment
operations electronically and without warehouse facilities and establish
competitive gross margins, (iii) the announcement or introduction of new Web
sites, services and products by the Company and its competitors, (iv) price
competition or higher vendor prices, (v) the level of use and consumer
acceptance of the Internet and other online services for the purchase of
consumer products such as those offered by the Company, (vi) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner, (vii) the level of traffic on the
Company's Web site, (viii) technical difficulties, systems downtime or
Internet brownouts, (ix) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure, (x) delays in revenue recognition at the end of a fiscal
period as a result of shipping or logistical problems, (xi) the level of
merchandise returns experienced by the Company, (xii) governmental regulation,
(xiii) economic conditions specific to the Internet and online commerce, and
(xiv) general economic conditions. In seeking to effectively implement its
business plan, the Company may elect, from time to time, to make certain
marketing or acquisition decisions that could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations. The Company believes that period-to-period comparisons of its
results of operations are not meaningful and should not be relied upon for an
indication of future performance. Due to all of the foregoing factors, it is
likely that in some future quarters, the Company's results of operations may
be below the expectations of securities analysts and shareholders. In such
event, the price of the Company's Common Stock could be materially adversely
affected. See "Risk Factors-- Unpredictability of Future Revenues; Potential
Fluctuations in Quarterly Operating Results; Seasonality."
RESULTS OF OPERATIONS
The following is a discussion of the results of operations from the date of
inception through July 31, 1997. The Company is not providing any comparisons
of its results of operations because the Company was in an early stage of
development, and such comparisons would not be meaningful.
Net Sales
Although the Company commenced operations in February 1996, it did not begin
selling products and services on its Web site until July 11, 1997 prior to
which time it was still in the process of evaluating the technical features of
its Web site. From the date of inception through July 31, 1997, the Company
has generated limited sales. The Company records sales at the time products
are shipped to customers which includes the retail sales price of the product
and any shipping and handling charges billed to its customers. The Company
estimates its sales return and allowance at the end of each reporting period
based on historical amounts of product returns. The sole source of funds for
the Company from the date of inception through July 31, 1997, other than the
sale of equity and debt securities, has been from sales of products in the
amount of $55,541. See "Risk Factors--Limited Operating History; Accumulated
Deficit; Anticipated Losses; Ability to Continue as a Going Concern."
Cost of Sales
Cost of sales include the actual cost the Company pays its vendors for the
products and the actual shipping and handling charges incurred by the Company
to ship products to its customers. The cost of sales from the date of
inception through July 31, 1997 was $50,509, or approximately 90.9% of net
sales. The Company's gross profit margin was approximately 9.1% of net sales
from the date of inception through July 31, 1997. The failure to generate
sales with sufficient margins to cover its operating expenses will result in
losses and could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
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Advertising and Marketing Expenses
Advertising and marketing expenses consist primarily of public relations,
media advertising, travel and costs of marketing literature. Advertising and
marketing expenses incurred by the Company from the date of inception through
July 31, 1997 were $11,603, or approximately 20.9% of net sales. The Company
intends to significantly increase its advertising and marketing expenses in
future periods. See "Use of Proceeds."
Product Development Expenses
Product development expenses consist primarily of expenses incurred by the
Company during the initial development and creation of its Web site. Product
development expenses include compensation and related expenses, depreciation
and amortization of computer hardware and software, and the cost of acquiring,
designing, developing and editing Web site content. All of the costs from the
date of inception through July 31, 1997 in connection with the development of
the Company's Web site have been expensed. Product development expenses
incurred by the Company from the date of inception through July 31, 1997 were
approximately $348,050 or approximately 627% of net sales. The Company
believes that significant investments in enhancing its Web site will be
necessary to become and remain competitive. As a result, the Company may
continue to incur, or increase the level of, product development expenses. See
"Use of Proceeds."
General and Administrative Expenses
General and administrative expenses not otherwise attributable to product
development and advertising and marketing expenses consist primarily of
compensation, rent expense, fees for professional services and other general
corporate purposes. General and administrative expenses incurred by the
Company from the date of inception through July 31, 1997 were $906,852, or
approximately 1,633% of net sales. The Company expects general and
administrative expenses to significantly increase in future periods as a
result of, among other things, increased hiring and expansion of facilities.
See "Use of Proceeds."
Interest Expense
Interest expense from the date of inception through July 31, 1997 was
$6,538, or 11.8% of net sales and is primarily attributable to the Promissory
Notes issued by the Company in May through July 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity were cash and cash equivalents
derived from private sales of the Company's equity and debt securities. See
"Use of Proceeds," "Certain Transactions" and "Description of Securities."
Capital expenditures from the date of inception through July 31, 1997 were
approximately $735,862. The Company has no material commitments for capital
expenditures other than a capital lease obligation for certain office
equipment as of July 31, 1997, the aggregate amount of which is $90,193. The
Company anticipates a substantial increase in its capital expenditures in 1998
consistent with its anticipated growth. See "Use of Proceeds."
The Company currently believes that available funds, cash flows (if any)
expected to be generated from operations and the net proceeds of this offering
will be sufficient to fund its working capital requirements for the 15 months
following completion of this offering. Thereafter, the Company may need to
raise additional funds. The Company's ability to grow will depend in part on
the Company's ability to expand and improve its Internet user support
capabilities and develop new Web site content material. In connection
therewith, the Company may need to raise additional capital in the foreseeable
future from public or private equity or debt sources in order to finance such
possible growth. In addition, the Company may need to raise additional funds
in order to avail itself of unanticipated opportunities (such as more rapid
expansion, acquisitions of complementary businesses or the development of new
products or services), to react to unforeseen difficulties (such as the loss
of key personnel
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or the rejection by Internet users of the Company's Web site content) or to
otherwise respond to unanticipated competitive pressures. If additional funds
are raised through the issuance of equity securities, the percentage ownership
of the Company's then existing shareholders will be reduced. Moreover,
shareholders may experience additional and significant dilution, and such
equity securities may have rights, preferences or privileges senior to those
of the Company's Common Stock. There can be no assurance that additional
financing will be available on terms acceptable to the Company. The Company
may be unable to implement its business, sales or marketing plan, respond to
competitive forces or take advantage of perceived business opportunities,
which inability could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. See "Risk
Factors--Possible Need for Additional Capital; Allocation of Funds."
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BUSINESS
GENERAL
Shopping.com is an innovative Internet-based electronic wholetailer
specializing in retail marketing a broad range of products and services at
wholesale prices to both consumer and trade customers. Utilizing proprietary
technology, the Company has designed a fully-scalable systems architecture for
the Internet shopping marketplace. Shopping.com's system is designed to fully
integrate all aspects of retail transaction processing including, order
placement, secure payment verification, inventory control, order fulfillment
and vendor invoicing, in one seamless and automated process. The Company
believes that the principal competitive factors in its market are price, speed
of fulfillment, brand name recognition, wide selection, personalized services,
ease of use, 24-hour accessibility, customer service, convenience,
reliability, quality of search engine tools, and quality of editorial and
other site content. The Company has developed a creative wholetailing format
on the Web that combines a highly automated infrastructure with a user-
friendly interface designed to enhance the convenience and ease of online
shopping.
The Company employs specialized information systems to provide its customers
with access to an automated marketplace of products and services, which
consist of the inventories of multiple manufacturers and distributors, price
comparisons, detailed product descriptions, product availability, available
delivery times, delivery status of products ordered and back-order
information. Product categories currently available on the Company's Web site
include: automotive, books, cigars, collectibles, computer hardware and
software, consumer electronics, cutlery, fragrances, furniture, gifts, gourmet
foods, health and beauty care, home improvements, marine supplies, music CDs,
sporting goods and watches. The Company has, and will continue to enter into,
arrangements with a number of manufacturers and distributors who will ship
their products directly to its customers, avoiding the expense and delay of
inventory maintenance. Although the Company only commenced selling on the
Internet on July 11, 1997, Shopping.com currently offers more than 350,000
Stock Keeping Units ("SKUs") and expects the number of SKUs to increase to
over 2,000,000 by October 31, 1997.
Customers order products and services on Shopping.com's Web site and provide
secure payment by either credit card over the Internet through Verisign or by
calling 1-888-LOVE-2-SHOP. Shipments are then made by the manufacturer or
distributor directly to the customer after verification by Shopping.com that
the payment has been properly credited. Because transactions are accomplished
without the need to maintain either inventory, warehouse facilities, retail
store space or attendant personnel, the Company believes it will be able to
obtain market share by passing cost savings along to its customers as a result
of selling its products and services at a discount to typical retail and
warehouse/discount prices. For the same reasons, the Company is also able to
provide a broader merchandise mix than retail stores, warehouse/discount
stores and mail order catalogue operators.
Shopping.com's strategy is to become a dominant low-price leader in
wholetailing on the Internet by utilizing the warehousing, purchasing and
distribution strengths of multiple manufacturers and distributors, rather than
to assume those roles for itself. The Company believes this approach allows
Shopping.com to eliminate many of the risks and costs associated with
maintaining inventory, including the cost of leasing warehouse space,
inventory obsolescence, inventory tracking systems, and the increased costs
associated with employing large numbers of personnel for stocking and shipping
duties. By having access to the inventories of multiple manufacturers and
distributors, Shopping.com believes it is able to offer its customers a
competitive combination of price, product availability, order fulfillment and
delivery services and still obtain profitability. Beyond the benefits of a
wide selection, purchasing from Shopping.com can be done conveniently, 24
hours a day, without requiring a trip to a store.
INDUSTRY BACKGROUND
IDC estimates that the number of users accessing the Web will grow from 28
million in 1996 to 175 million in 2001 and that the amount of commerce
conducted over the Web will increase from approximately $2.6 billion
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in 1996 to $220 billion in 2001. Growth in Internet usage has been fueled by a
number of factors, including the large and growing base of personal computers
installed in the workplace and home, advances in the performance and speed of
personal computers and modems, improvements in network infrastructure, easier
and cheaper access to the Internet and increased awareness of the Internet
among consumer and trade customers.
The emergence of the Internet as a significant communications medium is
driving the development and adoption of Web content and commerce applications
that offer both convenience and value to consumers, as well as unique
marketing opportunities and reduced operating costs to businesses. A growing
number of consumer and trade customers have begun to conduct business on the
Internet including paying bills, booking airline tickets, trading securities
and purchasing consumer goods (e.g., personal computers, consumer electronics,
compact disks, books, groceries and vehicles). Moreover, online transactions
can be faster, less expensive and more convenient than transactions conducted
through a human intermediary.
THE SHOPPING.COM SOLUTION
Shopping.com focuses on exploiting an existing and expanding customer base
that is and will become Internet connected. The Shopping.com solution is based
on eliminating the retail store intermediary and passing along associated cost
savings to both consumer and trade customers in the form of lower pricing on
comparable goods and services. The Company provides its solution because
transactions are accomplished without the need to maintain inventory,
warehouse establishments, retail or discount store buildings and attendant
personnel.
Key to the success of Shopping.com will be the rapid implementation of an
advertising and marketing program that will introduce the availability of
Shopping.com as an entertaining, intelligent and cost-effective alternative to
traditional shopping venues. Selection of initial product offerings, pricing,
delivery mechanisms, customer service philosophy and a number of other factors
are integrally related to the success of the Company. Unlike other retail and
warehouse/discount stores which risk showcasing new products which may not
achieve market acceptance, the Company is not as much "at risk" when
introducing new products and services or when creating consumer demand because
it is able to do so without maintaining expensive inventory. Further, the
Company is able to create increased consumer demand by showcasing related
products and services to its customers and more accurately gauging their
market acceptance. Shopping.com will base its success on its commitment to
providing excellence at all operating levels and aggressively bringing its
advantages to the attention of the consumer and vendor.
BUSINESS STRATEGY
The Company's objective is to become a dominant wholetailer on the Internet
by pursuing the following key strategies:
Increase Market Awareness and Brand Recognition. The Company believes that
Shopping.com is well positioned to become a leading brand name in Internet
commerce due to its management team's strong background and experience
operating large retail and discount store formats combined with its expertise
in information systems programming. The Company operates in a market in which
its brand name franchise is critical to attracting high quality vendors and a
high level of customer traffic. Accordingly, the Company's strategy is to
promote, advertise and increase its visibility through a variety of marketing
and promotional techniques, including advertising on leading Internet sites
and in printed media, conducting an ongoing public relations campaign and
obtaining links from other Web sites.
Provide Compelling Wholetailing Experience for Customers. The Company
believes buyers are attracted by bargain prices and desired merchandise in a
user-friendly and entertaining environment. Accordingly, the Company intends
to continue offering its customers a wide array of opportunities to buy
desired merchandise at low prices through a visually stimulating and user-
friendly interface which is rich in both product SKUs and product description
content.
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Expand and Strengthen Long-Term Vendor Relationships. The Company's ability
to attract, secure and obtain large quantities of branded merchandise for its
Web site is key to its success. The Company is aggressively building its
merchandising staff to facilitate securing long-term relationships with a
variety of vendors. The Company intends to strengthen its vendor relationships
by offering better purchasing terms and more convenient services through
automated order processing and superior logistics. The Internet provides a
low-cost venue to test new products and concepts, which the Company believes
will appeal to vendors who may wish to showcase new products via the Internet.
Relationships with such vendors for showcasing and introducing new product
lines may offer Shopping.com additional revenue opportunities, and may provide
an innovative and entertaining aspect to its merchandise mix that can
potentially enhance general consumer appeal and help to differentiate
Shopping.com from its competitors.
Leverage Low Cost Structure. The Company is not required to pay the expenses
necessary to support a traditional retail operation which requires inventory,
warehouse facilities, retail store space and attendant personnel. The Company
establishes its vendor relationships where it acts as a principal and arranges
the order fulfillment, payment verification, shipping functions and customer
support, which enables it to take advantage of the savings from eliminating
those traditional retail expenses. By purchasing merchandise and undertaking
these functions, the Company believes it will be able to control its gross
margins, monitor its customer service and reduce its costs.
Develop Incremental Revenue Opportunities. The Company believes that a
significant opportunity exists to develop incremental revenue opportunities,
including expanding its product mix with other products and enabling vendors
to showcase new products that are well suited for its Web site. The Company
also believes that the anticipated high level of traffic on its Web site will
provide an attractive alternative for other companies advertising on its Web
site. In addition, the Company is considering expanding its sales to
international customers.
Build on Leading Technology. The Company believes that one of its
competitive advantages is its internally developed proprietary technology,
which enables the Company to conduct automated sales with thousands of
customers simultaneously, process orders, record payments, coordinate order
fulfillment and provide customer support functions integrated with the
Company's accounting and financial systems. The Company intends to further
enhance its proprietary technology to provide an even more compelling shopping
experience, as well as to streamline its order processing, distribution, and
customer support functions as new technology develops.
MERCHANDISING STRATEGY
Shopping.com's merchandise strategy is designed to appeal to all classes of
consumer and trade customers. Shopping.com intends to become a one-stop
shopping service by virtue of its broad merchandise mix and expects to provide
the Internet shopper with a selection of variety and pricing unmatched by
other current retail leaders. With effective user-friendly search engine
tools, the Shopping.com customer enjoys a wide array of categories and
specialty products and services not typically offered to the general public
under one store roof, while at the same time allowing its customers the
virtual ease of shopping from either home or office, as well as substantial
price discounts.
Shopping.com's merchandise strategy also emphasizes what the Company
believes to be a competitive advantage--the combination of identifiably low
pricing with broad product selection. The Shopping.com merchandise strategy
builds upon the proven-as-effective broader selection/lower price method of
retailing initiated in the warehouse/discount market of the 1980's and early
1990's. Shopping.com's strategy is designed to allow the Company to compete
with major retail leaders including warehouse/discount stores, traditional
retail chains, and mail order catalog operators by:
. offering lower prices;
. offering a broader merchandise mix;
. providing a low cost venue for vendors to test market acceptance of new
products and services; and
. eliminating the expenses of inventory, warehouse facilities, retail
store space and attendant personnel.
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Shopping.com has made arrangements with a number of manufacturers and
distributors represented in its "Key Product Category List." Building upon the
previous business relationships of Shopping.com's management team, the
Company's vendors include those who can offer regional warehouse shipping
points to meet customers' shipping needs and thereby reduce long-haul shipping
costs. In addition to meeting the criteria of product selection within a
product category, any potential Shopping.com vendor must also meet stringent
standards for quality control, product selection, packaging and shipping
logistics.
The following represent Shopping.com's "Key Product Category List":
Current Product Categories available on Shopping.com's Web site:
<TABLE>
<S> <C> <C>
Automotive Cutlery Home Improvements
Books Fragrances Marine Supplies
Cigars Furniture Music CDs
Collectibles Gifts Sporting Goods
Computer Hardware & Software Gourmet Foods Watches
Consumer Electronics Health & Beauty Care
Future Product Categories expected to be offered on the Shopping.com's Web
site:
Appliances Medical Supplies Pet Supplies
Baby/Nursery Motorcycle Supplies Photography
Housewares Musical Instruments Tools/Equipment
Kitchen & Bath Office Supplies Videos
Lawn & Garden Outdoor Living Vitamins
</TABLE>
MARKETING AND PROMOTION
The Company believes that an immediate and rapidly expanding market
opportunity exists for Internet-based providers who can offer the consumer and
trade customer an almost limitless selection of products and services at low
prices via online venues. Although retail stores, warehouse/discount stores,
mail order catalogue operators and other providers using alternate forms of
media to sell products and services all represent significant market segments,
no single distribution channel of consumer products and services presently
dominates the entire market.
Shopping.com's marketing strategy is designed to promote the Shopping.com
brand name, increase customer traffic to its Web site, build strong customer
loyalty, maximize repeat purchases and develop incremental revenue
opportunities.
Shopping.com intends to build strong customer loyalty through the use of
customized offering to its customers through the use of extensive customer
preference and behavioral data obtained as a result of monitoring its
customers' activities online. The Company's proprietary technology allows for
rapid product experimentation, customer buying pattern analysis, instant user
feedback and customized data-based marketing for each of its customers, all of
which the Company incorporates in its merchandising. In contrast to
traditional direct-marketing efforts, Shopping.com's personalized notification
services send customers information updating its prices as well as its new
product and service offerings. By offering customers a compelling and
personalized value proposition, the Company seeks to increase the number of
visitors who make a purchase, encourage repeat visits and purchases and extend
customer retention. Loyal, satisfied customers also generate word-of-mouth
advertising and awareness and are able to reach thousands of other customers
and potential customers because of the reach of online communication.
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The Company employs a variety of media, product development, business
development and promotional activities to achieve the following goals:
Online Service and Internet Advertising. The Company intends to place
advertisements on various high-profile and high-traffic Web sites. These
advertisements usually take the form of banners that encourage readers to
click through directly to Shopping.com's Web site.
Traditional Advertising and Public Relations. The Company will engage in a
coordinated program of print advertising in both specialized industry trade
magazines and general circulation newspapers and magazines including The New
York Times, Los Angeles Times, Chicago Tribune, and U.S.A. Today. In the
future, the Company may begin advertising in other media such as radio and
television.
Link Program. The Link Program is a hyperlink automatically connecting
another company's Web site to Shopping.com's Web site. The Company may extend
its market presence through the Link Program enabling other Web sites to offer
products and services for fulfillment by Shopping.com such as City Search's
new electronic commerce pilot program and En Pointe's Information Connection
system. See "Summary--Recent Developments."
Personalized Shopping Services. The Company offers personalized notification
and shopping services and intends to add a collaborative filtering service to
its personalized service offerings in the future.
Customer Gifts. The Company may in the future send gifts to its customers.
These gifts will be designed to increase customer loyalty and provide
customers with a continuing reminder of the Shopping.com Web site.
CUSTOMER SERVICE AND ORDER FULFILLMENT
Retail shopping as currently conducted requires significant investments of
time, effort and associated costs on the part of the consumer, generally
requiring the consumer to opt for either (1) limited selection/lower price or
(2) broad selection/higher price. The Company believes that the provider who
can offer the consumer a broad selection/lower price alternative should be
well positioned to capture a significant portion of the online shopping
market.
The Company believes that traditional retail concepts apply to online
retailing. Consumers expect online shopping to be entertaining, compelling and
enjoyable. To be successful, the Company believes that an online store must
also be fast, offer a wide product selection targeted to each individual
customer and provide excellent customer service.
The Company enjoys the cost benefits generally achieved by mail order
catalogue operators and other types of media providers, without the associated
limitations of narrow selection and product information. The Company enjoys a
significant cost advantage over typical retail providers by eliminating many
of the major costs associated with store facilities (including rent,
utilities, employees and inventory), requiring only a reliable and rapid
product delivery service that can closely approximate the consumer appeal of
the "carry-out" aspect of retail and discount store shopping.
The Company believes that its ability to establish and maintain long-term
relationships with its customers and encourage repeat visits and purchases
depends, in part, on the strength of its customer support and service
operations and staff. Shopping.com encourages frequent communication with, and
feedback from, its customers in order to continually improve its product and
service offerings. Shopping.com offers an e-mail address to enable customers
to request information, and to encourage feedback and suggestions. The team of
customer support and service personnel are responsible for handling general
customer inquiries, answering customer questions about the ordering process,
and investigating the status of orders, shipments and payments. Shopping.com
also offers a toll-free line for customers (1-888-LOVE-2-SHOP) who are
reluctant to enter their credit card numbers over the Internet. The Company
has automated the tools used by its customer support and service staff and
intends to actively pursue enhancements to, and further the automation of, its
customer support and service systems and operations.
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Shopping.com's immediate goal is to exploit the market opportunity for
online shopping by establishing itself as a dominant low-price leader
providing a broad range of products and services over the Internet prior to
the arrival of competitors marketing similar offerings. While the Internet
presently offers an increasing amount of products, these offerings are
generally limited to specialty providers offering limited product and service
categories (e.g., airline tickets, books, music CDs, flowers and groceries).
In addition, the Company believes that its proprietary technology will afford
a major advantage over existing and potential Internet providers. Once
established, the Company will seek to dominate online shopping by being
"first" in price, selection, delivery and service, thus making future
competitor market entry more difficult. See "Risk Factors--Competition."
The transmission, data presentation and shipping of the vast merchandise
categories wholetailed by the Company involves the maintenance, continued
development and efficient use of the Company's proprietary technology and well
trained customer service associates. Since the delivery of merchandise sold to
the customer is not within the direct control of the Company, logistics in
securing, transmitting and finalizing information necessary for delivery in a
manner which will satisfy the Shopping.com customer is important to the
success of the Company. The Company utilizes automated interfaces for sorting
and organizing its orders to enable it to achieve the most rapid and economic
purchase and delivery terms possible. The Company's proprietary systems
architecture selects the orders that can be filled quickly via electronic
interfaces with vendors. Under the Company's arrangements with its
manufacturers and distributors, electronically ordered products often are
shipped by the vendor within days and sometimes within hours of receipt of an
order from Shopping.com. The Company has also developed customized information
systems and dedicated ordering personnel that specialize in searching special
orders for customers.
TECHNOLOGY
Shopping.com brings to the Internet commerce industry a combination of (i)
strong retail management experience and (ii) computer and information systems
design, development, implementation and operation expertise.
Shopping.com's operating system offers the Internet shopper the ability to
browse dynamically, securely select and purchase a number of products and
services offered in Shopping.com's Key Product Category List. Management has
also addressed any anticipated or potential systems downtime by developing and
implementing a back-up response to all of its information systems. The
developed and designed systems architecture accommodates peak transaction
loads and will "scale up" appropriately as transaction volume increases with
the expected growth in online shopping. The system possesses a sophisticated
back-end system which processes and tracks orders quickly and efficiently with
a minimum of human intervention. Receipt confirmation logic is built into all
its modules to ensure delivery of all transactions. In addition, the database-
oriented design allows for new media technologies to be quickly introduced
into the system without the need for extensive programming.
Shopping.com's database engines search the database for items that meet an
individual customer's search criteria, and then builds a Web page "on the fly"
to present the desired products. The information systems allow for the
capturing and storing of the Company's online customer activity for the
purpose of monitoring such activity.
Shopping.com employs a client/server based suite of financial systems to
perform the functions of accounts receivable, accounts payable, general ledger
and fixed assets. Interfaces exist from the transaction server to track all
sales by individual vendor and produce the necessary settlement documents and
reports as well as required financial documents.
The technology and systems are protected by sophisticated methods
specifically designed to assure continuity of operation in the event of
natural catastrophes or local shutdown of power or communications. Internally
the Shopping.com employs protective equipment for its systems. In addition,
on-site back-up and redundancy is provided. A disaster plan has been
formulated. Daily, the information is downloaded and stored in locked
containers off-site. For security, a firewall with special protection has been
created to avoid invasion by
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hackers or competitors. Security is also afforded the customers through the
use of a Secured Socket Layer (S.S.L.) key with Verisign to protect credit
card information. See "Risks--Capacity Constraints; Reliance or Internally
Develops Systems; System Development Risks"; "--Risk of System Failure; Single
Site and Order Interface"; "--Online Commerce Security Risks."
INTELLECTUAL PROPERTY
The Company regards its Shopping.com brand name and related software as
proprietary and relies primarily on a combination of copyright, trademark,
trade secret and confidential information laws and employee and third-party
non-disclosure agreements and other methods to protect its proprietary rights.
There can be no assurance that these protections will be adequate to protect
against technologies that are substantially equivalent or superior to the
Company's technologies. The Company does not currently hold any patents or
have any patent applications pending for itself or its products and has not
obtained Federal registration for any of its trademarks. The Company enters
into non-disclosure and invention assignment agreements with certain of its
employees and enters into non-disclosure agreements with certain of its
consultants and subcontractors. However, there can be no assurance that such
measures will protect the Company's proprietary technology, or that its
competitors will not develop software with features based upon, or otherwise
similar to, the Company's software or that the Company will be able to prevent
competitors from developing similar software.
The Company believes that its products, trademarks and other proprietary
rights do not infringe on the proprietary rights of third parties. The Company
has been displaying its Web site on the Internet without receiving claims from
third parties that its products or names infringe on any proprietary rights of
other parties. However, the Company is a recent entrant in the sale of
merchandise on the Internet, and there can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products, trademarks or other Company works. Such
assertion may require the Company to enter into royalty arrangements or result
in costly litigation. The Company is also dependent upon obtaining existing
technology related to its operations. To the extent new technological
developments are unavailable to the Company on terms acceptable to it, or at
all, the Company may be unable to continue to implement its business which
would have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. See "Risk Factors--Limited
Protection of Intellectual Property and Proprietary Rights."
COMPETITION
The online commerce industry, particularly on the Internet, is new, rapidly
evolving and intensely competitive, which the Company expects to intensify in
the future. Barriers to entry are minimal, allowing current and new
competitors to launch new Web sites at a relatively low cost. The Company
currently or potentially competes with a variety of other companies. These
competitors include: (i) various online vendors of other consumer and trade
products and services including CUC International, Amazon.com., ONSALE,
Peapod, NetGrocer, iMALL, Internet Shopping Network, Micro Warehouse, CD Now,
QVC and Home Shopping Network, (ii) a number of indirect competitors that
specialize in online commerce or derive a substantial portion of their
revenues from online commerce, including America Online, Microsoft Network,
Prodigy and Compuserve, (iii) mail order catalogue operators such as Speigel,
Lands End, and Sharper Image, (iv) retail and warehouse/discount store
operators such as Wal-Mart, Home Depot, Target and Price/Costco, and (v) other
international retail or catalogue companies which may enter the online
commerce industry. Both Wal-Mart and Home Depot have announced their intention
to devote substantial resources to online commerce at discount prices, which
if successful, could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. However, the Company
believes that retail and warehouse/discount operators will be somewhat
restricted in their ability to lower prices by the need to protect their own
pricing strategy to avoid cannibalizing their store margins.
The Company believes that the principal competitive factors in its market
are price, speed of fulfillment, brand name recognition, wide selection,
personalized services, ease of use, 24-hour accessibility, customer
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service, convenience, reliability, quality of search engine tools, and quality
of editorial and other site content. Many of the Company's current and
potential competitors have longer operating histories, larger customer bases,
greater brand name recognition and significantly greater financial, marketing
and other resources than the Company. In addition, online retailers may be
acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Certain of the Company's
competitors may be able to secure merchandise from vendors on more favorable
terms, devote greater resources to marketing and promotional campaigns, adopt
more aggressive pricing or inventory availability policies and devote
substantially more resources to Web site and systems development than the
Company. Increased competition may result in reduced operating margins, loss
of market share and a diminished franchise value. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and competitive pressures faced by the Company may have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to
changes in the competitive environment, the Company may, from time to time,
make certain pricing, service or marketing decisions or acquisitions that
could have a material adverse effect on its business, prospects, financial
condition and results of operations. New technologies and the expansion of
existing technologies may increase the competitive pressures on the Company.
In addition, companies that control access to transactions through network
access or web browsers could promote the Company's competitors or charge the
Company a substantial fee for inclusion. See "Risk Factors--Competition."
FACILITIES
The Company's principal administrative, engineering, marketing and customer
service facilities are located in an office building in Corona del Mar,
California encompassing approximately 8,000 square feet. The Company expects
to outgrow its current space within the next two years. In such event, the
Company expects it will be able to find suitable facilities at commercially
reasonable prices, although no assurances can be given. The space occupied by
the Company is under a triple net lease which will expire on February 28,
2002. The lease provides for monthly rental of approximately $9,690 for the
first year with annual increases.
EMPLOYEES
As of July 31, 1997, the Company employed 34 full time and 10 part time
employees, including nine in Management Information Systems and Research and
Development, two in Marketing and five in Accounting and Administration. Two
employees hold doctorate degrees in science, engineering or other disciplines.
Two additional employees hold masters degrees. The Company believes that its
future success will depend in part on its ability to attract hire and maintain
qualified personnel. Competition for such personnel in the on line industry is
intense. None of the Company's employees is represented by a labor union, and
the Company has never experienced a work stoppage. The Company believes its
relationship with its employees to be good. See "Risk Factors--Dependence on
Key Personnel; Need for Additional Personnel."
LEGAL PROCEEDINGS
In July 1997, a former consultant filed a lawsuit seeking damages for
termination of an alleged contractual relationship. The complaint against the
Company and a senior manager alleges breach of consulting agreement, breach of
employment agreement, breach of implied covenant of good faith and fair
dealing and violation of the California Labor Code. The Company intends to
cause certain claims for damages to be stricken and to vigorously defend
against the remaining claims. The Company commenced an action in the Superior
Court for Orange County, California on July 1997 against C-Systems, Inc., a
software consulting firm for breach of contract, fraud and damages.
Thereafter, in August 1997, C-Systems, Inc. filed a lawsuit in federal court
in Massachusetts for breach of contract, copyright infringement and fraud. The
Company's attorneys are moving to remove the Massachusetts case to California.
The Company and the Company's senior management may in the future be involved
in other suits and actions incidental to the Company's business. The Company
does not believe that the resolution of the current suits will result in any
material adverse effect on the financial condition, results of operations or
cash flows of the Company.
34
<PAGE>
MANAGEMENT
The following table sets forth the names, ages and positions of the
executive officers, directors, and certain significant employees of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
EXECUTIVE OFFICERS AND
DIRECTORS:
Bill Gross(1)(2)............... 38 Chairman of the Board
Robert J. McNulty.............. 51 President, Chief Executive Officer and
Director
Kristine E. Webster............ 28 Senior Vice President, Chief Financial
Officer and Secretary
Mark S. Winkler................ 38 Chief Information and Technology
Officer
Douglas Hay.................... 43 Executive Vice President and Director
Paul J. Hill(1)................ 51 Director
Edward F. Bradley(2)........... 57 Director
CERTAIN SIGNIFICANT EMPLOYEES:
Ogden M. Forbes, Ed.D. ........ 40 Chief of Knowledge and Research
Thomas R. Benson............... 47 Director of Commercial Sales
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
BILL GROSS. Mr. Gross joined Shopping.com on February 1, 1997 as its
Chairman of the Board. He is also Founder and Chairman of Bill Gross' idealab!
("idealab!"), an incubator established to start, fund and build innovative,
cutting-edge Internet technology companies. From October 1991 to January 1997,
he was Chairman of the Board of Knowledge Adventure, an educational software
company which was sold to CUC International in January 1997. In October 1995,
Mr. Gross co-founded CitySearch, a web-based city directory which operates in
eight cities, and has served on its Board since such time. Since December 1994
Mr. Gross has also founded various software companies and serves on the Board
of many of them. In 1995, Mr. Gross was elected to the Board of Trustees of
the California Institute of Technology as the first Young Alumni Trustee. He
received a Bachelor of Science degree in Engineering and Applied Science from
the California Institute of Technology in 1981.
ROBERT J. MCNULTY. In November 1996 Mr. McNulty founded Shopping.com and has
been its President, Chief Executive Officer and a member of its Board of
Directors since its inception. Mr. McNulty founded Cyber Depot, Shopping.com's
predecessor of Internet shopping, in February 1996, and is currently its
President and Chief Executive Officer. From early 1992 to February 1996, Mr.
McNulty was involved in consulting for various companies in the retail
industry. In 1983 Mr. McNulty founded and served as Chief Executive Officer of
HomeClub (now known as Home Base), until its merger with Zayre Corp. in 1986.
Mr. McNulty has also founded and been involved with several other retail
companies, both public and private, in a broad range of merchandise categories
including sporting goods, home improvement, hardware, office products and
automotive. Without admitting or denying the allegations of a complaint, Mr.
McNulty consented to an entry of a final decree in the U.S. District Court on
October 10, 1995, instructing him to not violate certain provisions of the
federal securities laws. He also serves as Chairman of the Board of Directors
of U.S. Forest Industries, Inc., a forest products company.
KRISTINE E. WEBSTER. Ms. Webster joined the Company in July 1997 as its
Senior Vice President, Chief Financial Officer and Secretary. From July 1995
to August 1997, Ms. Webster served as an Assistant Professor of Accounting at
La Sierra University, a private four year university and as an adjunct
professor at California State University, San Bernardino. From April 1993 to
July 1995 Ms. Webster served as the Controller of National Xpress Logistics, a
transportation logistics brokerage company and a wholly-owned subsidiary of US
Xpress Enterprises, Inc. Prior to that she was with Ernst & Young LLP from
January 1988 to April 1992. From May 1992 to March 1993, she was a consultant
and contract professor. In addition, since December 1990 Ms. Webster has owned
Plaza Travel, a travel agency specializing in group travel. Ms. Webster
received her
35
<PAGE>
Bachelor of Business Administration degree, summa cum laude, from Loma Linda
University in 1989 and her Master of Business Administration degree from La
Sierra University in 1991. She is a Certified Public Accountant in the State
of California.
MARK S. WINKLER. Mr. Winkler joined the Company in May 1997 as its Chief
Information and Technology Officer. From 1978 to April 1997, Mr. Winkler
founded and served as Chief Executive Officer of Winkler & Associates, a
software consulting company which provided consulting services for various
companies including Warner Brothers, IBM, Inc.--Broadcast Solutions Division,
Pacificare HMO, American Express Company, Los Angeles Times, Air Freight
Forwarding Company, Inc., Jefferies & Company, Inc., Alliance Logistics
Resources Inc., Bank of America State Trust Company, TRW, Inc. and Jet
Propulsion Laboratory. Mr. Winkler received his Bachelor of Science degree in
Computer Science from the University of California, Santa Barbara in 1981.
DOUGLAS HAY. Mr. Hay joined the Company in May 1997 as its Executive Vice
President and was elected as a member of its Board of Directors in July 1997.
Mr. Hay has spent over 25 years in the field of marketing consumer products
and services. From 1990 to April 1997, Mr. Hay was General Manager of Projects
Et Al Inc., a business consulting firm that developed marketing and
merchandising programs for some of the nations leading retail companies. Mr.
Hay has also served as Vice President of Marketing for Northern Automotive,
Inc., an automotive parts retail company.
EDWARD F. BRADLEY. Mr. Bradley joined the Company as a member of its Board
of Directors in April 1997. From December 1996 to the present, Mr. Bradley has
been President and Chairman of Cannon Industries, Inc., a business development
and venture capital firm. Prior to joining Cannon Industries, Inc., from
January 1993 to December 1996, Mr. Bradley was the Corporate Director of
Quality of Geneva Steel Corp., an integrated steel manufacturer. From 1985 to
January 1993, Mr. Bradley carried on a management consulting business. From
1972 to 1985, Mr. Bradley was President of his environmental consulting
company with regional offices in New York, Washington D.C., Chicago, Detroit
and Milwaukee. Mr. Bradley has also functioned as a Special Consultant to the
U.S. Environmental Protection Agency in Washington, D.C. Mr. Bradley received
both a Bachelor of Science degree in Civil Engineering in 1961 and a Master of
Science degree in Civil Engineering in 1964 from the University of Notre Dame,
and is a Registered Professional Engineer. From 1988 to June 1996, Mr. Bradley
was a Adjunct Professor in Engineering Economics at the University of Utah.
PAUL J. HILL. Mr. Hill joined the Company as a member of its Board of
Directors in April 1997. He brings over 25 years of experience in managing
diversified integrated companies operating in areas such as insurance, real
estate, communications, resources and manufacturing. From June 1994 to the
present, Mr. Hill has served as Chairman of Crown Life Insurance Company. Mr.
Hill has participated as a board member and co-officer of many public and
private companies in both the United States and Canada. From 1978 to the
present Mr. Hill has also been President of McCallum Hill Companies, a
diversified company with operations in real estate, oil and gas and brokerage.
Mr. Hill received both a Bachelor of Science and Bachelor of Arts degree from
Georgetown University in 1967 and a Master of Business Administration degree
from the University of Western Ontario in 1969.
OGDEN M. FORBES, ED.D. Dr. Forbes brings to the Company an extensive
background and a significant level of experience in Internet research,
analysis, development, testing and marketing. From 1994 to 1997, Dr. Forbes
was Vice President of Research for Logon Data Corp., an Internet software
company and an Information Specialist at Pepperdine University. Dr. Forbes'
responsibilities have included identification of specific Internet markets,
trends, tracking competition, authoring of technical documents, specific and
general Internet research, and executive advisement. Dr. Forbes received a
Bachelor of Arts degree in English from the University of California, Davis in
1979, a Master of Arts degree in English from the Claremont Graduate School in
1985, a Master of Arts degree in Education from the University of San
Francisco in 1995 and a Doctorate in Education from the University of
San Francisco in 1995.
THOMAS R. BENSON. Mr. Benson brings to the Company more than 20 years of
sales and market development experience in Fortune 500 companies. He is
currently a full-time consultant to the Company, and
36
<PAGE>
the Company anticipates that he will become an employee in November 1997. Mr.
Benson's experience has included design, development, and management of new
commercial and consumer sales channels as well as the creation of programs to
develop commercial, government, international and Internet sales using direct
response and telemarketing. Most recently, Mr. Benson was Vice President,
Sales for CRM Film, a management training and development company. His
responsibilities included the development of marketing strategies and segment
specific campaigns to expand new sales venues and improve market penetration
of the domestic and international customer base. Mr. Benson received a
Bachelor of Business degree from Western Illinois University in 1972 and is
currently enrolled at University of Southern California in the Advanced
Executive Development Program.
SPECIAL BY-LAW PROVISIONS REGARDING NUMBER AND QUALIFICATION OF DIRECTORS
The authorized number of directors of the Company is seven. There are
currently two vacancies on the Board, and the Company does not intend to fill
such vacancies. Further, the Company's By-laws provide that, when the Company
becomes a "listed corporation," the Company's Board will be divided into two
classes to serve for terms of two years and to eliminate cumulative voting.
Pursuant to Section 301.5 of the California Corporations Code a listed
corporation is one with (i) outstanding shares listed on the New York Stock
Exchange or America Stock Exchange or (ii) outstanding securities designated
as qualified for trading as a national market system security on NASDAQ. After
completion of this offering the Company will not be a listed corporation as
such term is defined.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established a Compensation Committee
and an Audit Committee. The Compensation Committee reviews and recommends the
compensation arrangements for all officers, approves such arrangements for
other senior level employees and administers and takes such other action as
may be required in connection with certain compensation and incentive plans of
the Company (including the grant of stock options). The Audit Committee
recommends the independent accounting firm to audit the Company's financial
statements and to perform services related to the audit, reviews the scope and
results of the audit with the independent accountants, reviews with management
and the independent accountants the Company's year-end operating results and
considers the adequacy of the internal accounting procedures.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Mr. Gross and Mr. Bradley.
In April 1997, idealab!, a company controlled by Mr. Gross, purchased 500,000
shares of the Company's Series A Preferred Stock at $0.40 per share and
100,000 shares of the Company's Common Stock at $0.02 per share.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their services
as directors or members of committees of the Board of Directors, but are
reimbursed for their reasonable expenses incurred in connection with attending
meetings of the Board of Directors. In July 1997, the Company granted each of
the directors a stock option to purchase 25,000 shares of Common Stock at an
exercise price of $3.00 per share. For Messrs. Gross, Hill and Bradley, the
options were nonqualified stock options while for Messrs. McNulty and Hay the
options were qualified stock options. All of the options were granted pursuant
to the Plan and vested immediately. The Company currently intends to make
comparable option grants to directors in the future. See "Certain
Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Articles of Incorporation limit the liability of
directors to the full extent permitted by California law. California law
provides that a corporation's articles of incorporation may contain a
provision eliminating or limiting the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors, except for
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the corporation or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) for
37
<PAGE>
any transaction from which a director derived an improper personal benefit,
(iv) for acts or omissions that show a reckless disregard for the director's
duty to the corporation or its shareholders, (v) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication
of the director's duty, (vi) for certain transactions between the director and
the corporation or for certain distributions, loans or guarantees. The
Company's Bylaws provide that the Company shall indemnify its directors and
officers and may indemnify its employees and agents to the fullest extent
permitted by law.
The Company has entered into agreements to indemnify its directors and
executive officers. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such persons in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers. The Company has obtained a policy insuring
the directors and officers for the liability described above.
At present, the only pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted is the lawsuit by the former consultant. See
"Business--Legal Proceedings."
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual
compensation received for services rendered to the Company in all capacities
by the Company's executives. No executive officer of the Company who held
office at January 31, 1997 met the definition of "highly compensated" within
the meaning of the Commission's executive compensation disclosure rules.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION TABLE
--------------------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)
------------------ --------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Robert J. McNulty,
President and Chief
Executive Officer...... $53,883 -- -- --
</TABLE>
- --------
(1) All other compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of such perquisites
and other personal benefits constituted the lesser of $50,000 or 10% of
the total annual salary and bonus of the Named Executive for such year.
EMPLOYMENT AGREEMENTS
Mr. McNulty's employment agreement requires him to perform the duties of
President and Chief Executive Officer at an initial annual salary of $75,000
and a review by the Compensation Committee to adjust his salary to an industry
standard, but in no event less than his current annual salary, as well as a
bonus to be determined by the Compensation Committee and the Board of
Directors. The employment agreement also provides that if he is terminated
without cause he would receive severance pay in the amount of two years,
11 months and 28 days of compensation. He is also entitled to participate in
the Plan and to receive the same benefits afforded to other executives. Mr.
McNulty's employment agreement terminates on May 1, 2002 with a rolling five
year term.
Mr. Winkler's employment agreement requires him to perform duties of Chief
Information and Technology Officer at an initial annual salary of $200,000 and
a bonus to be determined by the Compensation Committee and the Board of
Directors. The employment agreement also provides that if he is terminated
without cause he would receive severance pay in the amount of 18 months of
compensation. Mr. Winkler holds 25,000 shares of Common Stock of the Company.
He has signed a Shareholder's Agreement under which his stock is subject to
repurchase pursuant to a vesting schedule as follows: 100% at the first
anniversary of his employment, 66 2/3% up to the second anniversary, 33 1/3%
up to the third anniversary and thereafter 0%.
38
<PAGE>
EMPLOYEE BENEFIT PLANS
Stock Option Plan of 1997 (the "Plan"). The Company's Board of Directors has
adopted the Plan and reserved an aggregate of 250,000 shares of Common Stock
for grants of stock options under the Plan. The purpose of the Plan is to
enhance the long-term shareholder value of the Company by offering
opportunities to employees, directors, officers, consultants, agents, advisors
and independent contractors of the Company to participate in the Company's
growth and success, and to encourage them to remain in the service of the
Company and acquire and maintain stock ownership in the Company.
As of July 31, 1997, options to purchase 178,000 shares of Common Stock were
outstanding under the Plan with an exercise price of $3.00 per share, options
to purchase 72,000 shares were available for grant and no options had been
exercised.
The Plan is administered by the Compensation Committee, which has the
authority to select individuals who are to receive options under the Plan and
to specify the terms and conditions of each option so granted (qualified or
nonqualified), the vesting provisions, the option term and the exercise price.
Unless otherwise provided by the Compensation Committee, an option granted
under the Plan expires 10 years from the date of grant (five years in the case
of a qualified Stock option granted to a holder of 10% or more of the shares
of the Company's outstanding capital stock) or, if earlier, three months after
the optionee's termination of employment or service other than termination for
cause, one year after the optionee's retirement, early retirement at the
Company's request, death or disability, or immediately upon notification to an
optionee of termination for cause. Non-qualified options granted to non-
employee directors or consultants will not have the limitations and
restrictions described in the previous sentence. Options granted under the
Plan are not generally transferable by the optionee except by will or the laws
of descent and distribution and generally are exercisable during the lifetime
of the optionee only by such optionee. The Plan is subject to the approval of
the shareholders within 12 months from the date of its adoption.
In the event of (i) a merger or consolidation of the Company in which it is
not the surviving corporation, or pursuant to which shares of Common Stock are
converted into cash, securities or other property (other than a merger in
which holders of Common Stock immediately before a merger have the same
proportionate ownership of the capital stock of the surviving corporation
immediately after a merger), (ii) the sale, lease, exchange or other transfer
of all or substantially all of the Company's assets (other than a transfer to
a majority-owned subsidiary), or (iii) the approval by the holders of Common
Stock of any plan or proposal for the Company's liquidation or dissolution
(each, a "Corporate Transaction"), the Compensation Committee will determine
whether provision will be made in connection with the Corporate Transactions
for assumption of the options under the Plan or substitution of appropriate
new options covering the stock of the successor corporation, or an affiliate
of the successor corporation. If the Compensation Committee determines that no
such assumption or substitution will be made, each outstanding option under
the Plan shall automatically accelerate so that it will become 100% vested and
exercisable immediately before the Corporate Transaction, except that
acceleration will not occur if, in the option of the Company's accountants, it
would render unavailable "pooling of interest" accounting for the Corporate
Transaction.
Repurchase Rights Under the Plan. With respect to the Plan, the Compensation
Committee has the discretion to authorize the issuance of unvested shares of
Common Stock pursuant to the exercise of a stock option. If the optionee
ceases to be employed by or provide services to the Company, all shares of
Common Stock issued on exercise of a stock option which are unvested at the
time of cessation shall be subject to repurchase by the Company at the
exercise price paid for such shares. The terms and conditions upon which the
repurchase rights are exercisable by the Company are determined by the
Compensation Committee and set forth in the agreement evidencing such right.
The Compensation Committee has discretionary authority to cancel the Company's
outstanding repurchase rights with respect to one or more shares purchased or
purchasable under an option granted pursuant to the Plan. In the event of a
terminating event or a Corporate Transaction under the Plan, if vesting of the
options accelerates, the repurchase rights of the Company with respect to
shares previously acquired on exercise of options granted under the Plan shall
terminate.
39
<PAGE>
CERTAIN TRANSACTIONS
In November 1996, Mr. McNulty subscribed to purchase 1,150,000 shares of the
Common Stock at $0.02 per share. In March 1997, the Company issued 250,000
shares of its Series A Preferred Stock to Cyber Depot, Inc., in exchange for
certain assets and liabilities of Cyber Depot, Inc., relating to Internet
shopping including hardware, software and certain furniture and fixtures. Mr.
McNulty is the controlling shareholder of Cyber Depot, Inc. and is also the
President, Chief Executive Officer and a Director of the Company. In
connection with such transaction, Mr. McNulty was issued five year warrants to
purchase 187,500 shares of Common Stock with an excise price of $3.00 per
share, as well as registration rights providing for one demand and unlimited
piggy-back registration rights. See "Description of Securities--Warrants" and
"--Registration Rights."
In April 1997, the Company sold 500,000 shares of its Series A Preferred
Stock in a private placement at a price of $0.40 per share and also sold
100,000 shares of its Common Stock at $0.02 per share to idealab!, which is
controlled by Bill Gross, the Company's Chairman of the Board. In connection
therewith, Mr. Gross was issued five year warrants to purchase 187,500 shares
of Common Stock with an exercise price of $3.00 per share, as well as
registration rights providing for one demand and unlimited piggy back
registration rights. See "Description of Securities--Warrants" and "--
Registration Rights."
In May 1997, the Company sold 66,667 shares of its Series B Preferred Stock
in a private placement at a price of $3.00 per share to Kipling Isle, Ltd., a
company controlled by Paul J. Hill, a Director of the Company. In connection
therewith, Kipling Isle, Ltd. was issued five year warrants to purchase 33,333
shares of Common Stock with an exercise price of $3.00 per share as well as
registration rights providing for one demand and unlimited piggy back
registration rights. See "Description of Securities--Warrants" and "--
Registration Rights."
In May 1997, the Company sold 100,000 shares of Series B Preferred Stock in
a private placement at a price of $3.00 per share to Christopher B. Cannon who
controls Cannon Industries, Inc., in which Edward Bradley, a Director of the
Company, is an executive officer. Mr. Cannon was issued five year warrants to
purchase 50,000 shares of Common Stock with an exercise price of $3.00, as
well as registration rights providing for one demand and unlimited piggy back
registration rights. See "Description of Securities--Warrants" and "--
Registration Rights."
In June 1997, the Company, through idealab!, purchased its domain name,
Shopping.com, from Magdalena Yesil. As consideration, Ms. Yesil received
30,000 shares of the common stock of idealab!, 30,000 shares of Common Stock
of the Company and $30,000 from the Company.
In August 1997, the Company sold 8,333 shares of its Series B Preferred
Stock in a private placement at a price of $3.00 per share to Ms. Webster, the
Company's Chief Financial Officer and Secretary. In connection therewith, Ms.
Webster was issued five year warrants to purchase 4,166 shares of Common Stock
with an exercise price of $3.00 per share as well as registration rights
providing for one demand and unlimited piggy-back registration rights. See
"Description of Securities--Warrants" and "--Registration Rights."
The Company has entered into employment agreements with Robert J. McNulty
and Mark S. Winkler. See "Management--Employment Agreements."
See "Management--Directors Compensation" for a description of certain
options granted members of the Company's Board.
Certain employees of the Company have entered into shareholder agreements
with Mr. McNulty and the Company and have given irrevocable proxies to Mr.
McNulty. See "Description of Securities--Shareholder Agreements."
40
<PAGE>
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained on an
arms-length basis from unaffiliated third parties. The Company has adopted a
policy pursuant to which all transactions (including, without limitation, the
borrowing of money) between the Company and its officers, directors and
affiliates will be on terms no less favorable for the Company than could be
obtained on an arms-length basis from unrelated third parties and will be
approved by a majority of the independent and disinterested members of the
Company's Board of Directors.
41
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 19, 1997 and as
adjusted to reflect the sale of 1,400,000 shares of Common Stock offered
hereby, (i) by each person who is known to the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) by each director
and executive officer of the Company and (iii) by all directors and executive
officers of the Company as a group. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERING(1) OFFERING(2)
NAME AND ADDRESS OF BENEFICIAL --------------------------------------------
OWNER(3) NUMBER PERCENT NUMBER PERCENT
------------------------------ ----------- --------------------- ----------
<S> <C> <C> <C> <C>
Robert J. McNulty(4)............... 1,325,000 49.65% 1,110,000 27.28%
idealab! .......................... 600,000 22.48 600,000 14.75
Bill Gross(5)...................... 600,000 22.48 600,000 14.75
Douglas Hay........................ 70,000 2.62 70,000 1.72
Kipling Isle, Ltd. ................ 66,667 2.50 66,667 1.64
Paul J. Hill(6).................... 66,667 2.50 66,667 1.64
Mark S. Winkler.................... 25,000 * 25,000 *
Kristine E. Webster................ 28,333 1.06 28,333 *
Edward F. Bradley(7)............... 0 * 0 *
En Pointe Technologies, Inc. ...... 125,000 4.68 125,000 3.07
----------- -----------
All directors and executive
officers as a group (7 persons)... 2,240,000 83.94% 2,025,000 49.77%
</TABLE>
- --------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options held by that person that are currently exercisable, or
become exercisable within 60 days from the date hereof, are deemed
outstanding. However, such shares are not deemed outstanding for purposes
of computing the percentage ownership of any other person. Percentage
ownership is based on 2,668,665 shares of Common Stock outstanding prior
to this offering (giving effect to the conversion of the Company's Series
A and Series B Preferred Stock into shares of Common Stock) and 4,068,665
shares of Common Stock outstanding after this offering.
(2) Assumes no exercise of any portion of the Underwriters' Over-Allotment
Option to purchase up to an aggregate of 210,000 shares of Common Stock.
Assumes no exercise of warrants issued and outstanding to purchase
1,242,633 shares of Common Stock which warrants are not exercisable for a
period of 90 days following the date of this Prospectus. See "Description
of Securities--Warrants."
(3) The address of each of the Beneficial Owners is 2101 East Coast Highway,
Garden Level, Corona del Mar, CA 92625 except for En Pointe Technologies,
Inc. whose address is 100 North Sepulveda Blvd., 19th Floor, El Segundo,
CA 90245.
(4) Includes the 250,000 shares of Common Stock which are subject to
irrevocable proxies held by Mr. McNulty, and includes 250,000 shares of
Series A Preferred Stock owned by Cyber Depot, Inc. Proxies representing
215,000 shares of Common Stock terminate upon the closing of this
offering. See "Description of Securities--Shareholder Agreements."
(5) Includes 600,000 shares of Common Stock held by idealab!, a California
corporation controlled by Mr. Gross.
(6) Includes 66,667 shares of Common Stock held by Kipling Isle, Ltd., a
corporation controlled by Paul J. Hill.
(7) Does not include shares of Common Stock held by Christopher B. Cannon in
which stock, Mr. Bradley claims no beneficial interest.
42
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Amended and Restated Articles of Incorporation currently
authorizes 8,000,000 shares of which 1,415,500 shares are currently issued and
outstanding without giving effect to the conversion of Preferred Stock,
1,158,000 shares of which have been issued to employees and consultants of the
Company. The holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders, except
that, upon giving notice required by law, shareholders may cumulate their
votes in the election of directors. Under cumulative voting, each shareholder
may give any one candidate whose name is placed in nomination prior to the
commencement of voting a number of votes equal to the number of directors to
be elected, multiplied by the number of votes to which the shareholder's
shares are normally entitled, or distribute such number of votes among as many
candidates as the shareholder sees fit. The effect of cumulative voting is
that the holders of a majority of the outstanding shares of Common Stock may
not be able to elect all of the Company's directors. Holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding senior
securities. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, when issued, validly issued, fully paid and nonassessable.
After completion of this offering, the Company will file a new Amended and
Restated Articles of Incorporation which will authorize 20,000,000 shares of
Common Stock, of which 4,068,665 shares of Common Stock will be issued and
outstanding (assuming no exercise of the Over-Allotment Option and the
Representative's Warrants), with all of the rights discussed above.
PREFERRED STOCK
The Company is authorized to issue 5,500,000 shares of Preferred Stock.
1,500,000 shares of Series A Convertible Preferred Stock are authorized of
which 750,000 shares of the Series A Preferred Stock have been issued and are
outstanding. 4,000,000 shares of the Series B Preferred Stock are authorized
of which 503,165 shares are issued and outstanding. The Preferred Stock
carries certain rights, preferences and privileges including liquidation,
conversion and dividend preferences. However, upon the effective date of this
offering, all of the issued and outstanding Preferred Stock will be
automatically converted to Common Stock on a one share of Preferred Stock for
one share of Common Stock basis. After the completion of this offering, the
Amended and Restated Articles of Incorporation will not authorize the issuance
of any shares of Preferred Stock.
WARRANTS
In the private placements of the Company's Series A and Series B Preferred
Stock, one warrant exercisable until May 31, 2002 at an exercise price of
$3.00 for one share of Common Stock was issued with each two shares of
preferred stock purchased for an aggregate of 626,583 shares. In the private
placement of the Promissory Notes, warrants to purchase 33,300 were issued for
each $100,000 principal of a Promissory Note, which warrants are exercisable
until May 31, 2002 at an exercise price of $6.00 per share of Common Stock,
for an aggregate of 416,250 shares. In connection with the Company's agreement
with En Pointe, the Company issued warrants exercisable for a five year term
at an exercise price of $4.50 per share of Common Stock, for an aggregate of
199,800 shares. The warrants are transferable separately from the Series A and
Series B Preferred Stock and the Promissory Notes, but the warrants are not
exercisable for a period equal to the earlier of 90 days following the date of
this Prospectus or June 30, 1998.
The warrants may be exercised for the shares of Common Stock which is not
registered and the transfer of which is restricted, unless registered upon
surrender of the certificate(s) therefor on or prior to the expiration or the
redemption date (as explained above) at the offices of the Company's warrant
agent (the "Warrant Agent") with the form of "Election to Purchase" completed
and executed as indicated, accompanied by payment (in the form of certified or
cashier's check payable to the order of the Company or assignment of certain
securities) of the full exercise price or value for the number of warrants
being exercised.
43
<PAGE>
The warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price per share and the number of
shares issuable upon exercise thereof upon the occurrence of certain events,
including issuances of Common Stock (or securities convertible, exchangeable
or exercisable into Common Stock) at less than market value, stock dividends,
stock splits, mergers, a sale of substantially all of the Company's assets,
and for other extraordinary events; provided, however, that no such adjustment
shall be made upon among other things, (i) the issuance or exercise of options
or other securities under the Company's Plan or other employee benefit plans,
or (ii) the sale or exercise of outstanding options or warrants.
The Company is not required to issue fractional shares of Common Stock, and
in lieu thereof, will make a cash payment based upon the current market value
of such fractional shares. A holder of Warrants will not possess any rights as
a stockholder of the Company unless and until the Warrants are exercised.
See "Underwriting" for a description of the Representative's Warrants.
PROMISSORY NOTES
The Company has issued $1,850,000 of Promissory Notes, which have a due date
of nine months from the date of issuance or on the closing of this offering,
whichever is earlier. The Promissory Notes are unsecured, subordinated and
carry an interest rate of 10% per annum.
REGISTRATIONS RIGHTS
Registration Rights for Common Stock Shareholders
The shareholders of the existing Common Stock have piggyback registration
rights pursuant to a registration rights agreement. The piggyback registration
rights will be permitted only on registrations following this offering and
then subject to the determination by the underwriter or the Company of the
registration as to the appropriateness of the amount of the registration of
the Common Stock to be registered thereby.
Registration Rights for the Existing Series A and Series B Preferred Stock
Shareholders and Holders of the Warrants
The shareholders of Series A and Series B Preferred Stock and holders of the
warrants have registration rights pursuant to registration rights agreement
which allows at least fifty percent of the holders of said Preferred Stock and
warrants to make one demand for registration of the Common Stock held by them
after conversion of their Preferred Stock or exercise of their warrants, as
applicable, only after this offering and then subject to certain limitations
in connection with the approval of an underwriter. The registration rights
agreements also provide for piggyback rights on subsequent registration of
securities of the Company following this offering and subject to the approval
of the underwriter or the Company.
See "Certain Transactions" for a description of Registration Rights granted
to the Company's officers and directors.
SHAREHOLDER AGREEMENTS
Certain of the employees of the Company who are holders of the Common Stock
of the Company have entered into shareholder agreements in which they have
agreed to be subject to repurchase covenants by the Company and Mr. McNulty in
the event of, among other situations, their death, disability and termination
of employment. There are vesting provisions, which vary for each shareholder,
pursuant to which Mr. McNulty may purchase their stock at a price set by the
Board of Directors. The shareholder agreements also provides for a right of
first refusal in favor of the Company and Mr. McNulty in the event that the
holder of the Common Stock desires to sell or transfer the Common Stock. The
shareholder agreements are terminated after the effective date of this
offering. Certain of the employees who are also shareholders of the Company
have given to Mr. McNulty irrevocable proxies to vote their shares which
proxies terminate on the earlier of 10 years from their date of grant or on
the date of this Prospectus. Of such proxies, proxies representing 215,000
shares terminate on the date of this Prospectus and proxies representing
35,000 shares do not terminate.
44
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Transfer agent and Registrar for the Common Stock and the Warrants of
the company is U.S. Stock Transfer Company, Glendale, California.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of this offering, 4,068,665 shares of Common Stock will be
issued and outstanding after giving effect to the automatic conversion of the
Preferred Stock and assuming no exercise of (i) the Underwriters' Over-
Allotment Option or (ii) the Representative's Warrant. The 1,400,000 shares of
Common Stock sold in this offering registered on the Registration Statement of
which this Prospectus forms a part will be freely transferable without
restriction or further registration under the Securities Act by persons other
than "affiliates" of the Company (as that term is defined in Rule 144 under
the Securities Act). The remaining 2,668,665 shares of Common Stock issued by
the Company prior to this offering will be "restricted securities," as that
term is defined under Rule 144 promulgated under the Securities Act, and may
be publicly sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration such as Rule 144.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one year, but less than
two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock (approximately 40,667 shares immediately after
completion of this offering) or (ii) the average weekly trading volume during
the four calendar weeks immediately preceding the date on which notice of the
sale is filed with the Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned his or her shares for at least two years would be
entitled to sell such shares pursuant to Rule 144(k) without regard to the
volume limitation, manner of sale provisions, notice or other requirements of
Rule 144.
In addition, restricted securities issued and sold by the Company in
reliance on Rule 701 of the Securities Act may be resold under Rule 144
without compliance with certain of Rule 144's requirements. Subject to certain
limitations on the aggregate offering price of a transaction and other
conditions, Rule 701 may be relied upon by the Company with respect to certain
sales of shares of Common Stock by the Company to its employees, directors,
officers, consultants or advisors, pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons, such
as the Plan. Securities issued in reliance on Rule 701 are restricted
securities and, beginning 90 days after the effective date of this Prospectus,
may be sold pursuant to Rule 144 by persons other than affiliates of the
Company subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its two-year minimum holding
period requirements.
Each holder of Common Stock who is an officer, director or key employee of
the Company and each holder of Preferred Stock has entered into a "lock-up"
agreement providing that such shareholder will not offer, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of the Company's Common Stock or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of the Company's Common Stock for a period of 12
months from the date of this Prospectus without the prior written consent of
the Representative. 1,400,000 shares of Common Stock will be eligible for sale
after the effective date of this offering, an additional 768,665 shares of
Common Stock will be eligible for sale 12 months from the date of this
Prospectus and an additional 1,900,000 shares of Common Stock will be eligible
for sale from April 1999 through August 1999, subject to satisfaction of the
applicable conditions of Rule 144.
45
<PAGE>
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made of the effect, if any, that
future sales of restricted shares or the availability of restricted shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the restricted shares of Common Stock in the
public market could adversely affect the then prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
46
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through the Representative, Waldron & Co., Inc. have
severally agreed to purchase from the Company the following respective number
of shares at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus and the Company has
agreed to sell to the Underwriters named below 1,400,000 shares of Common
Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Waldron & Co., Inc...............................................
---------
Total ....................................................... 1,400,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all Shares offered hereby, if any of such Shares are purchased. The
Company has been advised by the Representative that (i) the Underwriters
propose to offer the Shares purchased by them directly to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers at a price that represents a concession of per Share, or % per
Share and (ii) none of the Underwriters intends to sell any Shares to accounts
for which such Underwriter exercises discretionary authority. After the
initial public offering of the Shares, the offering price and the selling
terms may be changed by the Underwriters.
The Company has granted the Underwriters the Over-Allotment Option,
exercisable for 45 days from the effective date of this offering, to purchase
up to 210,000 Shares at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of Shares to be purchased by it shown in
the above table represents to the total shown, and the Company will be
obligated, pursuant to the option, to sell such Shares to the Underwriters.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of the Shares offered hereby. If purchased, such
additional Shares will be sold by the Underwriters on the same terms as those
on which the 1,400,000 Shares are being offered.
The Company has agreed to pay the Representative a non-accountable expense
allowance in the amount of 3% of the offering proceeds received from the sale
of the Shares, which is estimated at $357,000 or $410,550 if the Over-
Allotment Option is exercised.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act. Insofar as indemnification for
liabilities arises under the Securities Act that may be permitted to
directors, officers, and controlling persons of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
At the closing of this offering, the Company will issue as to the
Representative, for $100, a warrant (the "Representative's Warrants") to
purchase a number of shares (the "Representative's Shares") equal to 10% of
the Shares sold in the offering, excluding any Shares sold upon exercise of
the Over-Allotment Option. The Representative's Warrants will be exercisable
for a four-year period commencing one year from the date of this
47
<PAGE>
Prospectus at an exercise price equal to 120% of the price per Share in this
offering. The Representative's Warrants does not entitle the Representative to
any rights as a shareholder of the Company until such warrant is exercised.
The Representative's Warrants may not be transferred for one year from the
date of this Prospectus except to officers of the Representative or by will or
operation of law. After one year from the date of this Prospectus, if a
transfer of the Representative's Warrant occurs to a party not an officer or
partner of the Representative, then the Representative's Warrants so
transferred must be immediately exercised.
For the period during which the Representative's Warrant is exercisable, the
holder(s) will have the opportunity to profit from a rise in the market value
of the Common Stock, with a resulting dilution in the interests of the other
shareholders of the Company. The holder(s) of the Representative's Warrant can
be expected to exercise it at a time when the Company would, in all
likelihood, be able to obtain any needed capital from an offering of its
unissued Common Stock on terms more favorable to the Company than those
provided for in the Representative's Warrants. Such facts may adversely affect
the terms on which the Company can obtain additional financing.
The Company must file all necessary undertakings required by the Commission
in connection with the registration of the shares and warrants issuable upon
exercise of the Representative's Warrant. Upon the Representative's demand,
the Company will file a registration statement or post-effective amendment so
as to permit the Representative's Warrants. The Company will bear all costs of
one such registration statement or post-effective amendment.
The Company has also agreed to appoint the Representative, for a period of
three years, as its exclusive advisor for the purpose of identifying and
developing future merger and acquisition candidates. If, during the term of
this appointment, the Company participates in any merger, acquisition or other
transaction, whether as acquiror or acquiree, including an acquisition of
assets or stock and in which it pays for the acquisition, in whole or in part,
with shares of the Company's Common Stock, then it will pay for the
Representative's services an amount equal to 5% of the first million dollars
of value involved in the transaction, 4% of the second million, 3% of the
third million, 2% of the fourth million and 1% of all such value above
$4,000,000.
The officers, directors and key employees of the Company have agreed not to
offer, sell or otherwise dispose of any shares of Common Stock owned or
hereafter acquired by them for one year following the date of this Prospectus
without the Representative's prior written consent. See "Shares Eligible For
Future Sale."
The Representative will have the right, for a period of three years
following the date of this Prospectus, to receive notice of, and to have an
observer present at, meetings of the Board of Directors and shareholders of
the Company and the Company is obligated to reimburse the Representative for
the costs and expenses reasonably incurred by such observer in attending such
meetings. The Underwriting Agreement also provides that the Representative has
a right of first refusal for a period of three years from the date of this
Prospectus with respect to any sale of securities by the Company or any of its
subsidiaries or successors and to sell for the account of the Company's
officers, directors and 10% or greater shareholders any securities owned by
such person that such person desires to sell, whether privately, pursuant to a
registered offering, pursuant to Rule 144 promulgated pursuant to the
Securities Act or otherwise: provided, however, that such right shall not
apply if the Company proposes to conduct, subsequent to the date hereof, a
secondary public offering that is underwritten by a major-tier investment
banking firm.
In connection with the private placement of securities by the Company, the
Company paid Waldron & Co., Inc., as placement agent, a commission in the
amount of $170,000 and a non-accountable expense allowance of $51,000.
Further, the Company owes Waldron & Co., Inc. an additional $60,000 in
commissions and $18,000 in non-accountable expenses. The Company also issued
to Waldron & Co., Inc. warrants (the "Placement Agent Warrants") to purchase
75,000 shares of Common Stock at an exercise price of $3.00 per share
exercisable for a period of five years. The Placement Agent Warrants will be
canceled prior to consummation of this offering.
While Waldron & Co., Inc. has been in the investment banking business and a
registered NASD member since 1939, it has only recently participated as a
managing underwriter in its first public offering of securities.
48
<PAGE>
Prospective purchasers of Common Stock in this offering should consider the
lack of experience of Waldron & Co., Inc. in evaluating an investment in the
Company, See "Risk Factors--Lack of Experience of Waldron & Co., Inc."
Prior to this offering, there has been no public market for any securities
of the Company. Consequently, the initial public offering price for the Shares
will be determined by negotiation between the Company and the Representative.
Among the factors considered in such negotiations will be prevailing market
conditions, the results of operations of the Company in recent periods, the
price-to-earnings ratios of publicly traded companies that the Company and the
Representative believe to be comparable to the Company, the revenues and
earnings of the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant. The offering price does not necessarily bear any direct relation to
current market price, asset value or net book value of the Company.
The Representative has indicated its intention to make a market in the
Company's Common Stock after the offering made hereby. In connection with that
activity, the Representative may, but shall not be required to, effect
transactions which stabilize or maintain the market price of the Common Stock
offered hereby at a level above that which might otherwise prevail in the open
market. Such stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon
for the Company by Lewis, D'Amato, Brisbois & Bisgaard LLP, Los Angeles,
California. Leon M. Cooper, a partner of Lewis, D'Amato, is the beneficial
owner of 20,000 shares of Common Stock of the Company and 100,000 shares (10%)
of the common stock in Cyber Depot, Inc., the controlling shareholder of which
is Robert J. McNulty and which holds 250,000 shares of the Company's Series A
Preferred Stock. Certain matters will be passed upon for the Underwriters by
Donahue, Mesereau & Leids LLP, Los Angeles, California.
EXPERTS
The balance sheet of the Company as of January 31, 1997 and the related
statements of operations, shareholders' equity (deficit) and cash flows for
the fiscal year ended January 31, 1997, included elsewhere in this Prospectus,
have been included in reliance on the report of Singer Lewak Greenbaum &
Goldstein LLP, independent certified public accountants, given on the
authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Washington, D.C. Office of the Commission, a
Registration Statement on Form SB-2 under the Securities Act, with respect to
the securities offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in
such Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding
the contents of any contract or any other document referred to are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission, each such statement being
qualified in all respects by such reference. The Registration Statement and
the exhibits and schedules thereto may be inspected, without charge, and
copies may be obtained at prescribed rates, at the public reference facility
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at its regional offices located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661, and copies of all or
any part thereof may be obtained from such offices upon the payment of the
fees prescribed by the Commission. The Company is not subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
49
<PAGE>
Upon completion of this offering, the Company will be subject to the
information requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information may be inspected at the
public references facility of the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W. 20549, and at its regional offices located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Commission at such
address. Such reports, proxy statements and other information can also be
inspected at the Commission's regional offices at the addresses indicated
above.
50
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................... F-2
FINANCIAL HIGHLIGHTS
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Shareholders' Equity (Deficit)............................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Shopping.com
We have audited the accompanying balance sheet of Shopping.com (a
development stage company) as of January 31, 1997, and the related statements
of operations, shareholders' equity (deficit), and cash flows for the year
then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shopping.com as of January
31, 1997, and the results of its operations and cash flows for the year then
ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $201,697 and had negative cash
flows from operations for the year ended January 31, 1997, and had a
shareholders' deficit at January 31, 1997. These factors, among others, as
discussed in Note 1 to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
June 17, 1997
F-2
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF JANUARY 31, 1997 AND JULY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1997 1997
----------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets
Cash (Note 2)............................................. $ 63 $ 289,392
Stock subscription receivable............................. 23,000 --
Prepaid expenses.......................................... -- 115,286
--------- -----------
Total current assets.................................... 23,063 404,678
Furniture and equipment, net (Note 3)....................... 12,165 800,931
Loan origination fees....................................... -- 116,278
Deferred offering costs..................................... -- 20,000
Other assets................................................ 3,956 107,814
--------- -----------
Total assets............................................ $ 39,184 $ 1,449,701
========= ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C>
Current liabilities
Notes payable (Note 6).................................... $ -- $ 1,000,000
Note payable--related party (Note 5)...................... 50,000 --
Current portion of capital lease obligation (Note 4)...... -- 15,993
Accounts payable.......................................... 35,986 322,259
Other accrued liabilities................................. 31,845 53,829
Deferred revenue.......................................... -- 52,500
--------- -----------
Total current liabilities............................... 117,831 1,444,581
Capital lease obligation, net of current portion (Note 4)... -- 74,200
--------- -----------
Total liabilities....................................... 117,831 1,518,781
--------- -----------
Commitments (Note 4 and 9)
Shareholders' equity (deficit) (Note 7)
Preferred stock, Series A convertible, no par value,
1,500,000 shares authorized, 0 and 1,500,000 shares
issued and outstanding................................... -- 300,000
Preferred stock, Series B convertible, no par value,
4,000,000 shares authorized, 0 and 653,333 shares issued
and outstanding.......................................... -- 873,281
Common stock, no par value, 8,000,000 shares authorized,
2,305,000 and 2,565,000 shares issued and outstanding.... 23,050 25,650
Additional paid-in capital................................ 100,000 --
Deficit accumulated during development stage.............. (201,697) (1,268,011)
--------- -----------
Total shareholders' equity (deficit).................... (78,647) (69,080)
--------- -----------
Total liabilities and shareholders' equity (deficit).. $ 39,184 $ 1,449,701
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1997 AND
THE SIX MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION
FOR THE SIX MONTHS SIX MONTHS (FEBRUARY
YEAR ENDED ENDED ENDED 1996) TO
JANUARY 31, JULY 31, JULY 31, JULY 31,
1997 1997 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 55,541 $ -- $ 55,541
Cost of sales........... -- 50,509 -- 50,509
--------- ----------- --------- -----------
Gross profit............ -- 5,032 -- 5,032
--------- ----------- --------- -----------
Operating Expenses...... 201,697 1,064,808 70,391 1,266,505
--------- ----------- --------- -----------
Loss from operations.... (201,697) (1,059,776) (70,391) (1,261,473)
Other expenses
Interest expense...... -- (6,538) -- (6,538)
--------- ----------- --------- -----------
Total other
expenses........... -- (6,538) -- (6,538)
--------- ----------- --------- -----------
Net loss................ $(201,697) $(1,066,314) $ (70,391) $(1,268,011)
========= =========== ========= ===========
Net loss per share...... $ (0.03) $ (0.17) $ (0.01) $ (0.20)
========= =========== ========= ===========
Weighted average shares
outstanding............ 6,315,173 6,315,173 6,315,173 6,315,173
========= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED JANUARY 31, 1997 AND
THE SIX MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK
------------------ ----------------- DEFICIT
SERIES A SERIES B ACCUMULATED
CONVERTIBLE CONVERTIBLE COMMON STOCK ADDITIONAL DURING
------------------ ----------------- ----------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
--------- -------- ------- --------- --------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1,
1996................... -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common
stock.................. 2,305,000 23,050 23,050
Capital contributed by
Cyber Depot, Inc. to
purchase assets and
develop proprietary
software............... 100,000 100,000
Net loss................ (201,697) (201,697)
--------- -------- ------- --------- --------- ------- --------- ----------- -----------
Balance, January 31,
1997................... -- -- -- -- 2,305,000 23,050 100,000 (201,697) (78,647)
Issuance of common stock
for cash (unaudited)... 260,000 2,600 2,600
Issuance of preferred
stock, Series A for
cash (unaudited)....... 1,000,000 200,000 200,000
Issuance of preferred
stock, Series A for
assets and proprietary
software of Cyber
Depot, Inc.
(unaudited)............ 500,000 100,000 (100,000) --
Issuance of preferred
stock, Series B for
cash (unaudited)....... 653,333 980,000 980,000
Offering costs
(unaudited)............ (106,719) (106,719)
Net loss (unaudited).... (1,066,314) (1,066,314)
--------- -------- ------- --------- --------- ------- --------- ----------- -----------
Balance, July 31, 1997
(unaudited)............ 1,500,000 $300,000 653,333 $ 873,281 2,565,000 $25,650 $ -- $(1,268,011) $ (69,080)
========= ======== ======= ========= ========= ======= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 31, 1997 AND
THE SIX MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION
FOR THE YEAR SIX MONTHS SIX MONTHS (FEBRUARY
ENDED ENDED ENDED 1996) TO
JANUARY 31, JULY 31, JULY 31, JULY 31,
1997 1997 1996 1997
------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss.................. $(201,697) $(1,066,314) $(70,391) $(1,268,011)
Adjustments to reconcile
net loss to net cash used
in operating activities
Depreciation of
furniture and
equipment.............. 1,276 23,848 576 25,124
Amortization of loan
origination fees....... -- 13,722 -- 13,722
(Increase) in prepaid
expenses............... -- (115,286) -- (115,286)
(Increase) in other
assets................. (3,956) (103,858) (3,956) (107,814)
Increase in accounts
payable................ 35,986 271,273 -- 307,259
Increase in other
accrued liabilities.... 31,845 21,984 -- 53,829
Increase in deferred
revenue................ -- 52,500 -- 52,500
--------- ----------- -------- -----------
Net cash used in operating
activities................. (136,546) (902,131) (73,771) (1,038,677)
--------- ----------- -------- -----------
Cash flows from investing
activities
Purchase of furniture and
equipment................ (13,441) (722,421) (13,441) (735,862)
--------- ----------- -------- -----------
Net cash used in investing
activities................. $ (13,441) $ (722,421) $(13,441) $ (735,862)
========= =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND
THE SIX MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
INCEPTION
FOR THE SIX MONTHS SIX MONTHS (FEBRUARY
YEAR ENDED ENDED ENDED 1996) TO
JANUARY 31, JULY 31, JULY 31, JULY 31,
1997 1997 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from financing
activities
Issuance of note payable--
related party............... 50,000 -- -- 50,000
Payments on note payable--
related party............... -- (50,000) -- (50,000)
Issuance of notes payable.... -- 1,000,000 -- 1,000,000
Payment of loan origination
fees........................ -- (130,000) -- (130,000)
Proceeds from the issuance of
preferred stock, Series A... -- 200,000 -- 300,000
Proceeds from the issuance of
preferred stock, Series B... -- 980,000 -- 980,000
Payment of offering costs.... -- (111,719) -- (111,719)
Proceeds from the issuance of
common stock................ 50 25,600 -- 25,650
Capital contribution......... 100,000 -- 87,212 --
-------- ---------- ------- ----------
Net cash provided by financing
activities.................... 150,050 1,913,881 87,212 2,063,931
-------- ---------- ------- ----------
Net increase in cash........... 63 289,329 -- 289,392
Cash, beginning of period...... -- 63 -- --
-------- ---------- ------- ----------
Cash, end of period............ $ 63 $ 289,392 $ -- $ 289,392
======== ========== ======= ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the six months ended July 31, 1997, the Company paid $1,000 (unaudited)
in interest.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended January 31, 1997, the Company issued common stock in the
amount of $23,000 for a subscription receivable.
During the six months ended July 31, 1997, the Company issued 500,000 shares
of Series A convertible preferred stock in exchange for certain assets and
software research and development of Cyber Depot, Inc. valued at $100,000
(unaudited). In addition, the Company entered into a capital lease obligation
of $90,193 (unaudited).
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND LINE OF BUSINESS
Shopping.com (the "Company") was incorporated in California on November 22,
1996. Cyber Depot, Inc. ("Cyber") was incorporated in California in January
1996 and among other business ventures commenced the design and development of
proprietary software for the Internet shopping marketplace in February 1996.
In March 1997, Cyber agreed to sell certain assets and liabilities and
proprietary software to Shopping.com for 500,000 shares of Series A
Convertible Preferred Stock, and Shopping.com continued the design and
development of the proprietary software. The operations of Cyber devoted to
the design and development of the proprietary software are considered to be
the predecessor operations of the Company and have been included with the
operations of the Company since February 1996. The propriety software acquired
by the Company in this transaction has been expensed as software research and
development. The Company is engaged in the design and development of
proprietary software for marketing a broad range of products and services to
retail customers on the Internet. On July 11, 1997, the Company commenced
selling products over the Internet through its website at
http://www.shopping.com.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of the
Company as a going concern. However, the Company has experienced net losses of
$201,697 and $1,066,314 (unaudited) for the year ended January 31, 1997 and
the six months ended July 31, 1997, respectively. In addition, the Company has
used, rather than provided, cash from its operations. In view of the matters
described above, recoverability of a major portion of the recorded asset
amounts shown in the accompanying balance sheets is dependent upon continued
operations of the Company, which in turn, is dependent upon the Company's
ability to continue to meet its financing requirements and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts,
or amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
Management has raised capital during 1997 through private placement
offerings of equity and debt securities and expects to complete an initial
public offering ("IPO") in the latter part of 1997, which management expects
will provide sufficient funding to continue present operations and support
future marketing and development activities.
INTERIM FINANCIAL INFORMATION
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management, are necessary to fairly state the Company's financial
position, the results of its operations and cash flows for the periods
presented. The results of operations for the six months ended July 31, 1997
are not necessarily indicative of results for the entire fiscal year ending
January 31, 1998.
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 the
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
REVENUE RECOGNITION
The Company recognizes revenue at the time the vendor ships the product to
the customer.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common and
common equivalent shares outstanding during the period. In connection with the
Company's IPO, convertible preferred stock and warrants to purchase the
Company's common stock issued for consideration below the IPO per share price
(assuming an IPO price of $4.25 on a pre-split basis or $8.50 on a post-split
basis) during the twelve months before the filing of the registration
statement have been included in the calculation of common stock equivalent
shares using the treasury stock method as if they had been outstanding for all
periods presented.
STOCK SUBSCRIPTION RECEIVABLE
At January 31, 1997, the Company had subscriptions to purchase its common
stock of $23,000. This amount was collected subsequent to the balance sheet
date; therefore, the amount is shown as an asset in the accompanying balance
sheet.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three months
or less to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost less accumulated depreciation.
Depreciation and amortization are provided using the straight-line method over
estimated useful lives of three to fifteen years as follows:
<TABLE>
<S> <C>
Computer hardware........................................... 5 years
Computer software........................................... 3 years
Furniture and equipment..................................... 5 to 7 years
Leasehold improvement....................................... 15 years
</TABLE>
Maintenance and minor replacements are charged to expense as incurred. Gains
and losses on disposals are included in the results of operations.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs for
the year ended January 31, 1997 and for the six months ended July 31, 1997 and
1996 were $0, $11,603 (unaudited), and $0 (unaudited), respectively.
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires the 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. Under this method,
F-9
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
INCOME TAXES (CONTINUED)
deferred income taxes are recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. The provision for income taxes represents the tax payable for the
period and the change during the period in deferred tax assets and
liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's
financial instruments, including cash, accounts payable, and other accrued
liabilities, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for note payable also approximate fair value
because current interest rates offered to the Company for debt of similar
maturities are substantially the same.
DEFERRED OFFERING COSTS
Amounts paid for costs associated with an anticipated IPO are capitalized
and will be recorded as a reduction to common stock upon the completion of the
IPO. In the event that the IPO is not successful, the deferred offering costs
will be charged to expense.
LOAN ORIGINATION FEES
Loan origination fees are amounts paid to obtain the $1,000,000 in debt
financing. These fees are being amortized over the lives of the respective
notes payable (nine months). Any unamortized fees at the completion of the IPO
will be expensed immediately. The amortization of those fees for the six
months ended July 31, 1997 was $13,722 (unaudited).
STOCK SPILT
At the closing of the Company's IPO, the Company will effect a one for two
reverse stock split of its common stock. These financial statements do not
reflect this reverse stock split as it is contingent upon the closing of the
Company's IPO.
STOCK OPTIONS
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting
for Stock-Based Compensation," effective for fiscal years beginning after
December 15, 1995. SFAS 123 establishes and encourages the use of the fair
value based method of accounting for stock-based compensation arrangements
under which compensation cost is determined using the fair value of stock-
based compensation determined as of the date of grant and is recognized over
the periods in which the related services are rendered. The statement also
permits companies to elect to continue using the current implicit value
accounting method specified in Accounting Principles Bulletin ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," to account for stock-based
compensation. The Company will use the implicit value based method and will be
required to disclose the pro forma effect of using the fair value based method
to account for its stock-based compensation.
F-10
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
RISKS AND UNCERTAINTIES
The Company's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and other
online services as an effective medium of commerce by consumers. Rapid growth
in the use of an interest in the Web, the Internet, and other online services
is a recent phenomenon, and there can be no assurance that acceptance and use
will continue to develop or that a sufficiently broad base of consumers will
adopt, and continue to use, the Internet and other online services as a medium
of commerce.
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality, and features of the Shopping.com online store.
The Internet and the online commerce industry are characterized by rapid
technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies, and the emergence of new industry standards and practices that
could render the Company's existing Web site and proprietary technology and
systems obsolete. The Company's success will depend, in part, on its ability
to license leading technologies useful in its business, enhance its existing
services, develop new services and technology that address the increasingly
sophisticated and varied needs of its prospective customers, and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. The Company
relies on encryption and authentication technology licensed from third parties
to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card
numbers. There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data.
The online commerce market, particularly over the Internet, is new, rapidly
evolving, and intensely competitive, which competition the Company expects to
intensify in the future. Barriers to entry are minimal, and current and new
competitors can launch new Web sites at a relatively low cost. The Company
currently or potentially competes with a variety of other companies.
The Company carries no inventory, has no warehouse employees or facilities,
and relies on rapid fulfillment from its vendors. To satisfy customer orders,
the Company has no long-term contracts or arrangements with any of its
manufacturers or distributors that guarantee the availability of merchandise,
the continuation of particular payment terms, the extension of credit limits,
or the shopping schedules.
The Company regards its Shopping.com brand name and related software as
proprietary and relies primarily on a combination of copyright, trademark,
trade secret and confidential information laws, and employee and third party
non-disclosure agreements and other methods to protect its proprietary rights.
There can be no assurance that these protections will be adequate to protect
against technologies that are substantially equivalent or superior to the
Company's technologies. The Company does not currently hold any patents or
have any patent applications pending for itself or its products and has not
obtained federal registration for any of its trademarks.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per
Share," which is effective for financial statements issued for periods ending
after December 31, 1997. SFAS No. 128 requires public companies to present
basic earnings per share and, if applicable, diluted earnings per share
instead of primary and fully-diluted earnings per share. The Company does not
believe that diluted earnings per share in accordance with SFAS No. 128 will
be materially different from the earnings per share previously reported.
F-11
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 2--CASH
The Company maintains cash balances at financial institutions located in
California. Accounts at each institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. Uninsured balances aggregated to
$137,004 (unaudited) at July 31, 1997. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.
NOTE 3--FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1997 1997
----------- --------
(UNAUDITED)
<S> <C> <C>
Computer hardware..................................... $12,761 $570,547
Computer software..................................... -- 49,174
Furniture and equipment............................... 680 162,993
Leasehold improvements................................ -- 43,341
------- --------
13,441 826,055
Less accumulated depreciation and amortization........ 1,276 25,124
------- --------
Total............................................... $12,165 $800,931
======= ========
</TABLE>
NOTE 4--COMMITMENTS
LITIGATION
The Company is involved in certain litigation in the normal course of
business. The Company does not believe that the resolution of any suit will
result in any material adverse effect on the Company's financial position,
results of operations or cash flows.
LEASES
The Company leases a facility for its corporate offices under a non-
cancelable operating lease agreement that expires in 2002. Future minimum
lease payments under this non-cancelable operating lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
-----------------------
<S> <C>
1998............................................................ $ 75,489
1999............................................................ 117,282
2000............................................................ 125,798
2001............................................................ 131,594
2002............................................................ 137,390
Thereafter...................................................... 40,565
--------
Total......................................................... $628,118
========
</TABLE>
Rent expense was $13,451 for the year ended January 31, 1997 and $29,422
(unaudited) and $6,594 (unaudited) for the six months ended July 31, 1997 and
1996, respectively.
F-12
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 4--COMMITMENTS (CONTINUED)
LEASES (CONTINUED)
The Company also leases certain office equipment under a non-cancelable
capital lease arrangement. Future minimum lease payments under this lease
agreement are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
-----------------------
<S> <C>
1998........................................................... $ 13,905
1999........................................................... 23,837
2000........................................................... 23,837
2001........................................................... 23,837
2002........................................................... 23,837
Thereafter..................................................... 9,933
--------
119,186
Less amount representing interest................................ 28,993
--------
90,193
Less current portion............................................. 15,993
--------
Long-term portion.............................................. $ 74,200
========
</TABLE>
Included in furniture and equipment at July 31, 1997 is capital lease
equipment of $90,193 (unaudited) with accumulated amortization of $0
(unaudited).
NOTE 5--NOTE PAYABLE--RELATED PARTY
The Company has a note payable to a related party which is personally
guaranteed by an officer of the Company. In addition, the note is personally
guaranteed by a vice president of the Company and secured by a second deed of
trust on a residence owned by the vice president. The note accrues interest at
the highest rate permitted by California law (approximately 11% at January 31,
1997) and is due 90 days from January 13, 1997.
Subsequent to year-end, $51,000 was repaid which includes accrued interest
of $1,000.
NOTE 6--NOTES PAYABLE
In June and July 1997, the Company issued $1,000,000 of subordinated notes.
The notes bear interest at 10% per annum and are unsecured. The notes are due
at the earlier of nine months from the date of issuance or closing of the IPO.
In connection with the note agreement, each note holder is entitled to
receive 666 warrants for each $1,000 loaned to purchase the Company's common
stock for $3.00 per share. There is a twelve month "lock-up" on the warrants
and the common stock underlying these warrants. Given the time between the
issuance of the notes and the completion of the IPO, the twelve-month "lock-
up" period for these warrants, and the financial condition of the Company at
the date of grant, the Company has determined that the fair value of the
Company's common stock is less than the exercise price of the warrants.
Accordingly, no additional financing expense has been recognized in connection
with the issuance of these warrants.
F-13
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 7--SHAREHOLDERS' EQUITY (DEFICIT)
SERIES A CONVERTIBLE PREFERRED STOCK
In March 1997, the Company issued 500,000 shares of Series A convertible
preferred stock ("Series A Preferred") in connection with the acquisition of
certain assets and liabilities, and proprietary software developed by Cyber
(see Note 1). The historical cost of the assets and liabilities, and
proprietary software acquired was approximately $100,000 which is the amount
used to value the 500,000 shares of Series A Preferred. In April 1997, the
Company sold 1,000,000 shares of Series A Preferred for a price of $0.20 per
share. The holders of the Series A Preferred are entitled to receive a non-
cumulative dividend of $0.02 per share per annum, payable in cash at the
option of the Company.
Each share of Series A Preferred is convertible into shares of common stock
at the option of the holder. In addition, Series A Preferred will be
automatically converted into shares of common stock based upon the effective
conversion price immediately upon the closing of an IPO of not less than
$6,000,000.
The Series A Preferred has a liquidation preference of $0.20 per share plus
all declared and unpaid dividends prior to the payment of any amount to the
holders of common stock.
Each holder of Series A Preferred was issued one warrant for every two
shares of Series A Preferred to purchase a share of the Company's common stock
for $1.50 per share resulting in 750,000 warrants being issued. Based on the
financial condition of the Company at the time the warrants were issued,
management estimates that the fair value of the Company's common stock was
less than the exercise price of the warrants.
SERIES B CONVERTIBLE PREFERRED STOCK
During May to July 1997, the Company sold 653,333 shares of Series B
convertible preferred stock ("Series B Preferred") for a price of $1.50 per
share. The holders of the Series B Preferred are entitled to receive a non-
cumulative dividend of $0.15 per share per annum, payable in cash at the
option of the Company.
Each share of Series B Preferred is convertible into shares of common stock
at the option of the holder. In addition, Series B Preferred will be
automatically converted into shares of common stock based upon the effective
conversion price immediately upon the closing of an IPO of not less than
$6,000,000.
The Series B Preferred has a liquidation preference of $1.50 per share plus
all declared and unpaid dividends prior to the payment of any amount to the
holders of common stock.
Each holder of Series B Preferred was issued one warrant for every two
shares of Series B Preferred to purchase a share of the Company's common stock
for $1.50 per share resulting in 326,667 warrants being issued. Based on the
financial condition of the Company at the time the warrants were issued,
management estimates that the fair value of the Company's common stock
approximates the exercise price of the warrants.
F-14
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 7--SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
STOCK OPTIONS (UNAUDITED)
The Company's board of directors adopted the 1997 Stock Option Plan (the
"Plan") and reserved 500,000 shares of common stock for grants of stock
options under the Plan. Generally, options granted under the Plan expire the
earlier of ten years from the date of grant (five years in the case of an
incentive stock option granted to a holder of 10% or more of the Company's
outstanding capital stock) or three months after the optionee's termination of
employment or service.
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF AVERAGE
OPTIONS PRICE
------- --------
<S> <C> <C>
Balance, January 1, 1997................................. -- $ --
Granted.................................................. 356,000 1.50
Exercised................................................ -- --
Expired/terminated....................................... -- --
------- -----
Balance, July 31, 1997................................. 356,000 $1.50
======= =====
</TABLE>
Based on the financial condition of the Company at the time the stock
options were issued, management estimates that the fair value of the Company's
common stock approximates the exercise price of the stock options.
NOTE 8--INCOME TAXES
For the year ended January 31, 1997 and the six months ended July 31, 1997,
the Company did not provide a provision for income taxes due to the net loss
incurred. At January 31, 1997, the Company has approximately $98,000 and
$49,000 in net operating loss carryforwards for federal and state income tax
purposes, respectively, that expire in 2012 and 2002, respectively. The
components of the Company's deferred tax assets and liabilities for income
taxes consist of a deferred tax asset relating to the net operating loss
carryforwards of approximately $36,000. The other components of the Company's
deferred tax assets and liabilities are immaterial. The Company has
established a valuation allowance of approximately $36,000 to fully offset its
deferred tax asset as the Company does not believe the recoverability of this
deferred tax asset is more likely than not.
NOTE 9--SUBSEQUENT EVENTS (UNAUDITED)
In August and September 1997, the Company sold an additional 352,997 shares
of Series B Preferred and issued 176,498 warrants to purchase the Company's
common stock at $1.50 per share.
Also, in August and September 1997, the Company issued an additional
$250,000 of subordinated notes. In connection therewith, the Company also
issued 166,500 warrants to purchase the Company's common stock at $3.00 per
share.
In addition, on September 15, 1997 the Company entered into an agreement
with En Pointe Technologies, Inc. ("En Pointe") whereby:
. En Pointe made an investment in the Company by purchasing $600,000 of
subordinated notes. In connection therewith, the Company issued 399,600
warrants to purchase the Company's Common Stock at $2.25 per share. As a
result of these warrants being issued with an exercise price less than
the fair market value of similar warrants, the Company will recognize
additional financing cost of $299,700 over the nine month term of this
subordinated note with the unamortized portion at the closing of the IPO
being expensed immediately;
F-15
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1997 AND
1996
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
IS UNAUDITED.)
NOTE 9--SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
. En Pointe granted the Company a license to En Pointe's proprietary EPIC
Software for five years in exchange for 250,000 shares of the Company's
Common Stock valued at $3.00 per share. The Company has agreed to pay an
annual maintenance and upgrade fee of $100,000. The initial annual fee
is to be paid concurrent with the funding of the $600,000 subordinated
notes;
. En Pointe has also agreed to provide (i) consulting services to the
Company by customizing its EPIC Software and (ii) information system
services for a quarterly fee estimated to be $60,000 and $50,000,
respectively. The initial quarterly fees of $60,000 and $50,000 are to
be paid concurrent with the funding of the $600,000 subordinated notes;
. In the event that the Company does not complete its IPO within one year,
the Company is obligated to pay En Pointe $1,000,000 for the licensing
of the EPIC Software.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED BY THE COMPANY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE ANY OF THE DATES AS OF WHICH INFORMATION IS
FURNISHED OR SINCE THE DATE OF THIS PROSPECTUS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 23
Business.................................................................. 27
Management................................................................ 35
Certain Transactions...................................................... 40
Principal Shareholders.................................................... 41
Description of Securities................................................. 42
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 46
Legal Matters............................................................. 48
Experts................................................................... 48
Additional Information.................................................... 48
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,400,000 SHARES
[LOGO OF SHOPPING.COM]
COMMON STOCK
---------------
PROSPECTUS
---------------
WALDRON & CO., INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Articles of Incorporation limits the liability of
directors to the full extent permitted by California law. California law
provides that a corporation's articles of incorporation may contain a
provision eliminating or limiting the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors, except for
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the corporation or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard
for the director's duty to the corporation or its shareholders, (v) for acts
or omissions that constitute an unexcused pattern of inattention that amounts
to an abdication of the director's duty, (vi) for certain transactions between
the director and the corporation or for certain distributions, loans or
guarantees. The Company's Bylaws provide that the Company shall indemnify its
directors and officers and may indemnify its employees and agents to the
fullest extent permitted by law.
The Company has entered into agreements to indemnify its directors and
executive officers. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such persons in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
The Company has obtained a policy insuring the directors and officers for
the liability described above.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the offering, other than underwriting discounts and
commissions, are as follows:
<TABLE>
<S> <C> <C>
SEC Registration Fees............................... $ 4,390.91
Blue Sky Fees and Expenses.......................... $ 30,000.00 [estimate]
Transfer Agent Fees................................. $ 2,000.00 [estimate]
Costs of Printing and Engraving..................... $ 50,000.00 [estimate]
Legal Fees.......................................... $100,000.00 [estimate]
Accounting Fees..................................... $100,000.00 [estimate]
NASD Listing Fees................................... $ 10,000.00 [estimate]
Miscellaneous Fees and Expenses..................... $ 28,609.09 [estimate]
-----------
$325,000.00
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES(1)
The following are all securities sold by Registrant within the past three (3)
years without registering the securities under the Securities Act:
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<C> <C> <S> <C> <C>
(1) (a) March 1997-June 1997 Common Stock 1,282,500 Shares
</TABLE>
<TABLE>
<C> <C> <S>
(b) There were no underwriters used in connection with this offering.
1,150,000 shares of Common Stock were offered and sold to Robert J.
McNulty, CEO of the Registrant. Subsequently, Mr. McNulty gifted an
aggregate of 325,000 of such shares to various employees of the
Company for no consideration. In addition, the Company offered and
sold shares of Common Stock to Bill Gross' idealab!, a company
controlled by Bill Gross, a director of Registrant (100,000 shares);
Alvin S. Morrow, (2,500 shares); and 30,000 shares to an independent
consultant who provided the Registrant's web site; all of whom were
accredited investors and residents of the State of California.
(c) The securities were sold for one cent ($.02) per share for an
aggregate consideration of $25,650.
(d) The issuer relied on Section 4(2) and 3(a)(11) of the Securities Act
of 1933, as amended.
(e) Not Applicable.
</TABLE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<C> <C> <S> <C> <C>
(2) (a) March 1997-April 1997 Series A Preferred Stock 750,000 Shares
Warrants for Common Stock 375,000 Warrants
</TABLE>
<TABLE>
<C> <C> <S>
(b) There were no underwriters used in connection with this offering.
The securities were offered and sold only to two accredited
investors, Cyber Depot, Inc., a corporation controlled by Robert J.
McNulty, President and CEO of the issuer, and Bill Gross' idealab! a
corporation controlled by Bill Gross, a director of Registrant. One
Warrant was issued for each two shares.
(c) The securities were sold for forty cents ($.40) per share of Series
A Stock.
(d) The issuer relied on Rule 506 under Regulation D based on the fact
that all offerees were accredited investors under Rule 501.
(e) Not Applicable.
</TABLE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<C> <C> <S> <C> <C>
(3) (a) April 1997-September 1997 Series B Preferred Stock 503,165 Shares
Warrants for Common Stock 251,583 Warrants
</TABLE>
<TABLE>
<C> <C> <S>
(b) There were no underwriters used in connection with 303,165 shares of
this offering. Waldron & Co., Inc. acted as placement agents for
200,000 shares of this offering and received fees of $78,000. The
securities were offered and sold only to accredited investors. One
Warrant was issued for each two shares of Series B Stock.
(c) The securities were sold for Three Dollars ($3.00) per share for an
aggregate consideration of $1,509,495. The Warrants are exercisable
for five years for the purchase of one share of common stock at a
strike price of $3.00.
(d) The issuer relied on Rule 506 under Regulation D based on the fact
that all offerees were accredited investors under Rule 501.
(e) Not Applicable.
</TABLE>
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<C> <C> <S> <C> <C>
(4) (a) June 1997-September 1997 Promissory Notes $1,250,000
Warrants for Common Stock 416,250 Warrants
</TABLE>
<TABLE>
<C> <C> <S>
(b) No underwriters were used in connection with $150,000 principal
amount of such Notes. Waldron & Co., Inc., acted as placement agents
in connection with the placement of the $1,100,000 principal amount
of such Notes, and received fees of $143,000. The securities were
offered and sold only to qualified and accredited investors. 333
Warrants were issued for each $1,000 in principal amount of such
Notes.
</TABLE>
II-2
<PAGE>
(c) The Notes were sold for an aggregate consideration of $1,250,000.
The accompanying Warrants are exercisable for five years for the
purchase of one share of common stock at an exercise price of $6.00
per share.
(d) The issuer relied on Rule 506 under Regulation D based on the fact
that all offerees were accredited investors under Rule 501.
(e) Not Applicable.
DATE TITLE AMOUNT
---- ----- ------
(5) (a) April 1997 Common Stock 8,000 Shares
(b) There were no underwriters used in connection with this private
placement. The securities were offered and sold to Typhoon Capital
Consultants, LLC in exchange for consulting services.
(c) The securities were valued at $3.00 per share and were exchanged for
business consulting services, for an aggregate consideration valued
at $24,000.
(d) The issuer relied on Section 4(2) of the Securities Act of 1933, as
amended.
<TABLE>
<CAPTION>
DATE TITLE AMOUNT
---- ----- ------
<S> <C> <C> <C>
(6) (a) September 1997 Common Stock 125,000 Shares
Promissory Note $600,000
Warrants for Common Stock 199,800 Shares
</TABLE>
(b) Waldron & Co., Inc. acted as placement agent in connection with this
private placement and is owed $78,000 in fees therefor. The
securities were issued to En Pointe Technologies, Inc., an
accredited investor.
(c) The Common Stock was valued at $6.00 per share and was issued as
consideration for a 5 year license to the Company to use En Pointe's
EPIC software. The Notes were issued at face value for a $600,000
loan to the Company. 333 Warrants were issued for each $1,000
principal amount of the Note. The Warrants are exercisable for five
years for the purchase of one share of stock at a strike price of
$4.50 per share.
(d) The issuer relied on Rule 506 under Regulation D based on the fact
that En Pointe is an accredited investor.
- --------
(1) All share amounts and related information reflect a one-for-two reverse
stock split effective upon the effective date of this offering.
II-3
<PAGE>
ITEM 27. EXHIBITS
EXHIBIT INDEX
<TABLE>
<C> <S>
1.01 Underwriting Agreement.
3.01 Amended and restated Articles of Incorporation.
3.02 By-Laws.
3.03 Proposed Amended and Restated Articles of Incorporation.
4.01 Stock Option Plan of 1997
4.02 Form of Incentive Stock Option Agreement form under Stock Option Plan
of 1997 (McNulty)
4.03 Form of Incentive Stock Option Agreement form under Stock Option Plan
of 1997 (Hay)
4.04 Form of Incentive Stock Option Agreement form under Stock Option Plan
of 1997 (Non-Employee)
4.05 Form of Incentive Stock Option Agreement form under Stock Option Plan
of 1997 (Employee)
4.06 Form of $3.00 Warrant Certificate.
4.07 Form of $1.50 Warrant Certificate
4.08 Form of Underwriter's Warrant Certificate
4.09 Form of Demand Registration Rights Agreement.
4.10 Form of Piggy Back Registration Rights Agreement
4.11 Form of Irrevocable Proxy
4.12 Form of Irrevocable Proxy
4.13 Domain Name Transfer
4.14 En Pointe Agreement--(Confidential Treatment)
4.15 Form of Lock-up Agreement
5.01 Form of Opinion re: Legality.
10.01 Employment Agreement between the Company and Robert J. McNulty.
10.02 Employment Agreement between the Company and Mark S. Winkler.
10.03 Form of Indemnification Agreement
10.04 Form of Confidentiality and Non-Solicitation Agreement (independent
contractors/outside vendor).
10.05 Asset Purchase Agreement and Bill of Sale dated March 31, 1997 in
which Cyber Depot., Inc. sells to Shoppers Source title and interest
in the hardware, software, customer lists and vendor lists in
connection with retail sales operations through the Internet.
10.06 Asset Purchase Agreement
10.07 Office lease between Arai Corporation of American and the Shoppers
Source, and Amendment.
10.08 Assignment of Property Rights
10.09 City Search Agreement
10.10 Form of Subordinated Promissory Note
23.01 Consent of counsel.
23.02 Consent of accountants.
24.01 Power of Attorney contained in Securities and Exchange Commission Form
SB-2, page II-5.
27.01 Financial data schedule
</TABLE>
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act:
(b) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-
effective amendment hereof) which individually, or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide to 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.
(5) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(6) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities act shall be deemed as part of this Registration
Statement as of the time it was declared effective.
(7) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona funds offering thereof.
(a) The small business issuer will provide to 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.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer 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.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Corona del Mar,
State of California, on September 22, 1997.
Shopping.com
/s/ Robert J. McNulty
-------------------------------------
By: Robert J. McNulty
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned officers, and directors of Shopping.com do hereby
constitute and appoint Robert J. McNulty and Christine Webster, and each of
them, our true and lawful attorneys-in-fact and agents, each with full power
of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby, ratifying and
confirming all that each of said attorneys-in-fact and agents, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates stated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Bill Gross Chairman of the Board and September 23, 1997
____________________________________ Director
Bill Gross
/s/ Robert J. McNulty Chief Executive Officer, and September 22, 1997
____________________________________ President (Principal
Robert J. McNulty Executive Officer) and
Director
/s/ Paul J. Hill Director September 22, 1997
____________________________________
Paul J. Hill
/s/ Edward F. Bradley Director September 19, 1997
____________________________________
Edward F. Bradley
/s/ Kristine E. Webster Chief Financial Officer September 22, 1997
____________________________________ (Principal Financial and
Kristine E. Webster Accounting Officer),
Secretary
/s/ Douglas Hay Executive Vice-President and September 22, 1997
____________________________________ Director
Douglas Hay
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
1.01 Underwriting Agreement.
3.01 Amended and restated Articles of Incorporation.
3.02 By-Laws.
3.03 Proposed Amended and Restated Articles of
Incorporation.
4.01 Stock Option Plan of 1997
4.02 Form of Incentive Stock Option Agreement form under
Stock Option Plan of 1997 (McNulty)
4.03 Form of Incentive Stock Option Agreement form under
Stock Option Plan of 1997 (Hay)
4.04 Form of Incentive Stock Option Agreement form under
Stock Option Plan of 1997 (Non-Employee)
4.05 Form of Incentive Stock Option Agreement form under
Stock Option Plan of 1997 (Employee)
4.06 Form of $3.00 Warrant Certificate.
4.07 Form of $1.50 Warrant Certificate
4.08 Form of Underwriter's Warrant Certificate
4.09 Form of Demand Registration Rights Agreement.
4.10 Form of Piggy Back Registration Rights Agreement
4.11 Form of Irrevocable Proxy
4.12 Form of Irrevocable Proxy
4.13 Domain Name Transfer
4.14 En Pointe Agreement--(Confidential Treatment)
4.15 Form of Lock-up Agreement
5.01 Form of Opinion re: Legality.
10.01 Employment Agreement between the Company and Robert J.
McNulty.
10.02 Employment Agreement between the Company and Mark S.
Winkler.
10.03 Form of Indemnification Agreement
10.04 Form of Confidentiality and Non-Solicitation Agreement
(independent contractors/outside vendor).
10.05 Asset Purchase Agreement and Bill of Sale dated March
31, 1997 in which Cyber Depot., Inc. sells to
Shoppers Source title and interest in the hardware,
software, customer lists and vendor lists in
connection with retail sales operations through the
Internet.
10.06 Asset Purchase Agreement
10.07 Office lease between Arai Corporation of American and
the Shoppers Source, and Amendment.
10.08 Assignment of Property Rights
10.09 City Search Agreement
10.10 Form of Subordinated Promissory Note
23.01 Consent of counsel.
23.02 Consent of accountants.
24.01 Power of Attorney contained in Securities and Exchange
Commission Form SB-2, page II-5.
27.01 Financial data schedule
</TABLE>
<PAGE>
EXHIBIT 1.01
SHOPPING.COM
_______ Shares
UNDERWRITING AGREEMENT
______, 1997
Waldron & Co., Inc.
(As Representative of the Several
Underwriters Named in Schedule 1 hereto)
19000 MacArthur, 8th Floor
Irvine, California 92715
Dear Sirs:
Shopping.Com, a California corporation (the "Company"), hereby confirms its
agreement (this "Agreement") with the several underwriters named in Schedule 1
hereto (the "Underwriters"), for whom Waldron & Co., Inc. has been duly
authorized to act as representative (in such capacity, the "Representative"), as
set forth below:
SECTION 1.
DESCRIPTION OF TRANSACTION
The Company proposes to issue and sell to the Underwriters on the Closing
Date (as defined below), pursuant to the terms and conditions of this Agreement,
an aggregate of ___________ shares ("Firm Shares") of the Company's Common Stock
("Common Stock") at a price of $_______ per Share on the terms as hereinafter
set forth. The Company also proposes to issue and sell to the several
Underwriters on or after the Closing Date not more than ___________ additional
Shares if requested by the Representative as provided in Section 3.2 of this
Agreement (the "Option Shares"). The Firm Shares and any Option Shares are
collectively referred to herein as the "Shares."
SECTION 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Underwriters to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Underwriters that:
<PAGE>
2.1 Registration Statement and Prospectus. A registration statement
on Form SB-2 (File No. __________) with respect to the Shares, including the
related prospectus, copies of which have heretofore been delivered by the
Company to the Underwriters, has been filed by the Company in conformity with
the requirements of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(a) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by the Representative prior to the execution of this Agreement, or (b) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representative prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement" means
such registration statement on Form SB-2 and all amendments thereto, including
the prospectus, all exhibits and financial statements, as it becomes effective;
the term "Preliminary Prospectus" means each prospectus included in said
Registration Statement before it becomes effective; and the term "Prospectus"
means the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or, if no prospectus is required to be filed pursuant to said Rule
424(b), such term means the prospectus included in the Registration Statement
when it becomes effective.
2.2 Accuracy of Registration Statement and Prospectus. Neither the
Commission nor the "blue sky" or securities authority of any jurisdiction has
issued any order preventing or suspending the use of any Preliminary Prospectus.
When (a) any Preliminary Prospectus was filed with the Commission, (b) the
Registration Statement or any amendment thereto was or is declared effective,
and (c) the Prospectus or any amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b)(or, if the Prospectus or such amendment or
supplement is not required to be so filed, when the Registration Statement or
the amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and on the Closing Date the Prospectus, as amended
or supplemented at any such time, such filing (i) contained or will contain all
statements required to be stated therein in accordance with, and complied or
will comply in all material respects with the requirements of, the Act and the
rules and regulations of the Commission promulgated thereunder (the "Rules and
Regulations") and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made. The foregoing representation does not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or any
amendment thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representative specifically for use
therein.
2.3 Incorporation and Standing. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of California and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company.
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2.4 Due Power and Authority. The Company has full corporate power to
own or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Company has full
corporate power to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it. The execution and delivery of this
Agreement and consummation of the transactions contemplated herein have been
duly authorized by the Company and this Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with the terms
hereof, except as may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
general equitable principles, and as rights to indemnity and contribution
hereunder may be limited by applicable law.
2.5 Consents; No Defaults. The issuance, offering and sale of the
Shares to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (a) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained, or as may be
required under the Act or under the securities or blue sky laws of any
jurisdiction, or (b) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, lease or other material agreement or instrument to
which the Company is a party or by which the Company or any of its properties is
bound, or the charter documents or bylaws of the Company, or any statue or any
judgment, decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company.
2.6 No Breach or Default. The company is not in breach of any term
or provision of its Articles of Incorporation or Bylaws; no default exists, and
no event has occurred which with notice or lapse of time or both, would
constitute a default, in the Company's due performance and observance of any
term, covenant or condition of any indenture mortgage, deed of trust, lease,
note, bank loan or credit agreement or any other material agreement or
instrument to which the Company or its properties may be bound or affected in
any respect which would have a material adverse effect on the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company.
2.7 Licenses. The Company possesses all certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary for the conduct of its business, and the Company has not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business,
prospectus, net worth or results of operations of the Company, except as
described in or contemplated by the Registration Statement. Each approval,
registration, qualification, license, permit, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body or agency necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions contemplated (except such additional actions as may be required by
the National Association of Securities Dealers, Inc. or may be necessary to
qualify the Common Stock for public offering under state securities or blue sky
laws) has been obtained or made and each is in full force and effect.
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2.8 Compliance with Laws. Except as disclosed in the Registration
Statement and in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), the Company is not in violation of any
laws, ordinances, governmental rules or regulations to which it is subject which
would have a material adverse effect on the condition (financial or otherwise),
business, properties, prospects, net worth or results of operations of the
Company.
2.9 Existing Capital Structure and Shareholder Rights. The Company
has an authorized, issued and outstanding capitalization as set forth in, and
capital stock conforms in all material respects to the description contained in,
the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus. Except as described in the Registration Statement and in
the Prospectus there are no outstanding (a) securities or obligations of the
Company convertible into or exchangeable for any capital stock of the Company,
(b) warrants, rights or options to subscribe for or purchase from the Company,
any such capital stock or any such convertible or exchangeable securities or
obligations, or (c) obligations of the Company to issue such shares, any such
convertible or exchangeable securities or obligations, or any such warrants,
rights or obligations. All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, and have been issued in compliance with all federal and state
securities laws. No preemptive rights of shareholders exist with respect to any
capital stock of the Company. No shareholder of the Company has any right
pursuant to any agreement which has not been waived or honored to require the
Company to register the sale of any securities owned by such shareholder under
the Act in the public offering contemplated herein except as disclosed in the
Registration Statement. The Company has no subsidiaries, and does not own any
shares of stock or any other equity interest in any firm, partnership,
association or other entity.
2.10 Authority for Issuance of Shares. The issuance of the Common
Stock issuable in connection with the Shares has been duly authorized and at any
Firm or Option Closing Date as defined herein after payment therefor in
accordance herewith, such Common Stock will be validly issued, fully paid and
nonassessable. The Shares will conform in material respects with all statements
with regard thereto in the Registration Statement and the Prospectus.
2.11 Title to Tangible Property. Except as otherwise set forth in or
contemplated by the Registration Statement and Prospectus. The Company has good
and marketable title to all items of personal property owned by the Company,
free and clear of any security interest, liens, encumbrances, equities, claims
and other defects, except such as do not materially and adversely affect the
value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company, and any real property and
buildings held under lease by the Company are held under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such property
and buildings by the Company.
2.12 Title to Intellectual Property. Except as described in the
Prospectus, the Company does not own any patents or trademarks. The Company owns
or possesses, or can acquire on reasonable terms, all material, service marks,
trade names, licenses, copyrights and propriety or other confidential
information currently employed by it in connection with its business, and the
Company has not received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing intellectual
property rights which, singly or in the aggregate, if the subject of any
unfavorable decision, ruling of finding would result in a material adverse
change in the condition (financial or otherwise), business, prospects, net worth
or results of operations of the Company, except as described in or contemplated
by the Prospectus.
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2.13 Contract Rights. The agreements to which the Company is a party
described in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company in accordance with their terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditor's rights generally or by equitable principles, and, to the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any such agreements.
2.14 No Market Manipulation. The Company has not taken nor will it
take, directly or indirectly, any action designed to cause or result, or which
might reasonably be expected to cause or result, in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Stock.
2.15 No Other Sales or Commissions. The Company has not since the
filing of the Registration Statement (i) sold, bid for,purchased, attempted to
induce any person to purchase, or paid anyone any compensation for soliciting
purchases of, its capital stock or (ii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the Company
except for the sale of Shares by the Company under this Agreement.
2.16 Accuracy of Financial Statements. The financial statements and
schedules of the Company included in the Registration Statement and the
Prospectus, or if the Prospectus is not in existence, the most recent
Preliminary Prospectus, fairly present in all material respects the financial
position of the Company and the results of operations and changes in financial
condition as of the dates and periods therein specified. Such financial
statements and schedules have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as otherwise noted therein and include all financial information
required to be included by the Act. The selected financial data set forth under
the captions "PROSPECTUS SUMMARY--Summary Financial Information," "SELECTED
FINANCIAL DATA" and MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS and the information set forth under the captions
"CAPITALIZATION" and "DILUTION" in the Prospectus, or, if the Prospectus is not
in existence the most recent Preliminary Prospectus, fairly present in all
material respects, on the basis stated in the Prospectus or such Preliminary
Prospectus the information included therein .
2.17 Independent Public Accountant. Singer, Lewak, Greenbaum &
Goldstein LLP, which have certified or shall certify certain of the financial
statements of the Company filed or to be filed as part of the Registration
Statement and the Prospectus, are independent certified public accountants
within the meaning of the Act and the Rules and Regulations.
2.18 Internal Accounting. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (c) access to assets is
permitted only in accordance with management's general or specific
authorization; and (d) the record accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.19 Litigation. Except as set forth in the Registration Statement
and Prospectus, there is and at the Closing Date there will be no action, suit
or proceeding before any court or governmental
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agency, authority or body pending or to the knowledge of the Company threatened
which might result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse change in
the condition (financial or otherwise), the business or the prospects of the
Company, or would have a material adverse effect on the properties or assets of
the Company. The Company is not subject to the provisions of any injunction,
judgement, decree or order of any court, regulatory body, administrative agency
or other governmental body or arbitral forum, which might result in a material
adverse change in the business, assets or condition of the Company.
2.20 No Material Adverse Change. Subsequent to the respective dates as
of which information is given in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), (a) the Company has not incurred any material adverse change in or
affecting the condition, financial or otherwise, of the Company or the earnings,
business affairs, management, or business prospects of the Company, whether or
not occurring in the ordinary course of business, (b) there has not been any
material transaction entered into by the Company, other than transactions in the
ordinary course of business or tranactions specifically described in the
Registration Statement as it may be amended or supplemented, (c) the Company has
not sustained any material loss or interference with its business or properties
from earthquake, fire, flood, windstrom, accident or other calamity, (d) the
Company has not paid or declared any dividends or other distribution with
respect to its capital stock and the Company is not in default in the payment of
principal or interest on any outstanding debt obligations, and (e) there has not
been any change in the capital stock (other than the sale of the Common Stock
hereunder or the exercise of outstanding stock options or warrants as described
in the Registration Statement) or material increase in indebtedness of the
Company. The Company does not have any known material contingent obligation
which is not disclosed in the Registration Statement (or contained in the
financial statements or related notes thereto), as such may be amended or
supplemented.
2.21 Transactions With Affiliates. Subsequent to the respective dates
as of which information is given in the Registration Statement and Prospectus or
if the Prospectus is not in existence the most recent Preliminary Prospectus and
except as may otherwise be indicated or contemplated herein or therein, (a) the
Company has not entered into any transaction with an "affiliate" of the Company,
as defined in the Act and the Rules and Regulations, or (b) declared, paid or
made any dividend or distribution of any kind on or in connection with any class
of its capital stock, and (c) the Company has no knowledge of any transaction
between any affiliate of the Company and any significant customer or supplier of
the Company, except in its ordinary course of business.
2.22 Insurance. Except as otherwise set forth in or contemplated by
the Registration Statement and Prospectus, the Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the business in which it is engaged; the
Company has not been refused any insurance coverage sought or applied for; and
the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company.
2.23 Tax Returns. The Company has filed all foreign, federal, state
and local tax returns that are required to be filed or has requested extensions
thereof and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due
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and payable or adequate accruals have been set up to cover any such unpaid
taxes, except for any such assessment, fine or penalty is currently being
contested in good faith.
2.24 Political Contributions. The Company has not directly or
indirectly, (a) made any unlawful contribution to any candidate for public
office, or failed to disclose fully any contribution in violation of law, or (b)
made any payment to any federal, state, local, or foreign governmental officer
or official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any other such jurisdiction.
2.25 Investment Company Act. The Company conducts its operations in
a manner that does not subject it to registration as an investment Company under
the Investment Company Act of 1940, as amended, and the transactions
contemplated by this Agreement will not cause the Company to become an
investment Company subject to registration under the Investment Company Act of
1940, as amended.
2.26 Sales of Securities. No securities of the Company have been
sold by the Company or any predecessor of the Company, or by, or on behalf of,
or for the benefit of, any person or persons controlling, or controlled by, or
under common control with the Company within three years prior to the date
hereto, except as set forth in the Prospectus and in Item 26 of the Registration
Statement.
2.27 Finder's and Brokers. The Company and the Representative each
represent to the other that no person has acted as a finder in connection with
the transactions contemplated herein and each will indemnify the other party
with respect to any claim for finder's or broker's fees in connection herewith.
Except as set forth in the Registration Statement and in the Prospectus, the
Company further represents that it does not have any management or financial
consulting agreement with any person and that, except as set forth in the
Registration Statement and in the Prospectus or otherwise disclosed to the
Representative in writing prior to the date hereof, no promoter, officer,
director or five percent or greater shareholder of the Company is, directly or
indirectly, affiliated or associated with an NASD member-broker-dealer.
2.28 Use of Proceeds. The Company will apply the proceeds from the
sale of Shares in the manner set forth in the Prospectus under the caption "Use
of Proceeds."
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SECTION 3.
PURCHASE, SALE AND DELIVERY OF THE SHARES
3.1 Purchase of Firm Shares. On the basis of the representations,
warranties, agreements and covenants herein contained and subject to the terms
and conditions herein set forth, the Company agrees to issue and sell to each of
the Underwriters named in Schedule 1 hereto, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $___ per Share, the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto. The Company will make one or more
certificates for Common Stock constituting the Firm Shares, in definitive form
and in such denomination or denominations and registered in such name or names
as the Representative shall request upon notice to the Company at least 48 hours
prior to the Firm Closing Date, available for checking and packaging by the
Representative at the offices of the Company's transfer agent or registrar or
the correspondent or the agent of the Company transfer agent or registrar at
least 24 hours prior to the Firm Closing Date. Payment for the Firm Shares shall
be made by bank wire payable in same day funds to the order of the Company drawn
to the order of the Company for the Firm Shares, against delivery of
certificates therefor to the Representative. Delivery of the documents,
certificates and opinions described in Section 6 of this Agreement, the Firm
Shares and payment for the Firm Shares and the Option Shares shall be made at
the offices of Waldron & Co., Inc., 19000 MacArthur, 8th Floor, Irvine,
California 92715, at 9:00 a.m, Los Angeles time, on the third full business day
following the date hereof (on the fourth full business day if this Agreement is
executed after 12:30 p.m, California time), or at such other places, time or
date as the Representative and the Company may agree upon or as the
Representative may determine pursuant to Section 9 hereof, such time and date of
delivery against payment being herein referred to as the "Firm Closing Date."
3.2 Over-Allotment, Option Shares. For the purpose of covering any
over-allotments in connection with the distribution and sale of the Firm Shares
as contemplated by the Prospectus, the Company hereby grants to you on behalf of
the several Underwriters an option to purchase, severally and not jointly, the
Option Shares, The purchase price to be paid for any Option Shares shall be the
same price per share as the price per Share for the Firm Shares set forth above
in Section 3.1, plus, if the purchase and sale of any Option Share takes place
after the Firm Closing Date and after the Common Stock is trading "ex-dividend,
"an amount equal to the dividends payable on the Common Stock contained in such
Option Shares. The option granted hereby may be exercised in the manner
described below as to all or any part of the Option Shares from time to time
within forty-five days after the date of the Prospectus. The Underwriters shall
not be under any obligation to purchase any of the Option Shares prior to the
exercise of such option. The Representative may from time to time exercise the
option granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the Company setting forth the aggregate number of Option Shares as
to which the several Underwriters are then exercising the option and the date
and time for delivery of and payment for such Option Shares. Any such date of
delivery shall be determined by the Representative but shall not be earlier than
two business days or later than seven business days after such exercise of the
option and, in any event, shall not be earlier than the Firm Closing Date. The
time and date set forth in such notice, or such other time on such other date as
the Representative and the Company may agree upon or as the Representative may
determine pursuant to Section 9 hereof, is herein called the "Option Closing
Date" with respect to such Option Shares. Upon each exercise of the option as
provided herein, subject to the terms and conditions herein set forth, the
Company shall become obligated to sell to each of the several Underwriters, and
each of the Underwriters (severally and not jointly) shall become obligated to
purchase from the Company, the same percentage of the total number of the Option
Shares as to which the several Underwriters are then exercising the option as
such Underwriter is obligated to purchase of the aggregate
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number of Firm Shares, as adjusted by the Representative in such manner as it
deems advisable to avoid fractional shares. If the option is exercised as to all
or any portion of the Option Shares, one or more certificates for Common Stock
contained in such Option Shares, in definitive form, and payment therefore,
shall be delivered on the related Option Closing Date in the manner, and upon
the terms and conditions, set forth in Section 3.1, except that reference
therein to the Firm Shares and Firm Closing Date shall be deemed, for purposes
of this Section 3.2, to refer to such Option Shares and Option Closing Date,
respectively. No Option Shares shall be required to be, or be, sold and
delivered unless the Firm Shares have been, or simultaneously are, sold and
delivered as provided in this Agreement.
3.3 Default by an Underwriter. It is understood that you,
individually and not as the Representative, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for any of the Shares
to be purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their obligations
hereunder.
SECTION 4.
OFFERING BY THE UNDERWRITERS
Upon payment by the Underwriters of the purchase price of $_______ per
Share and the Company's authorization of the release of the Firm Shares, the
several Underwriters shall offer the Firm Shares for sale to the public upon the
terms set forth in the Prospectus. The Representative may from time to time
thereafter change the public offering prices and other selling terms. If the
option set forth in Section 3.2 of this Agreement is exercised, then upon the
Company's authorization of the release of the Option Shares the several
Underwriters shall offer such Shares for sale to the public upon the foregoing
terms.
SECTION 5.
COVENANTS OF THE COMPANY
Except as otherwise stated below, the Company covenants and agrees
with each of the Underwriters that:
5.1 Company's Best Efforts to Cause Registration Statement to Become
Effective. The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto, to become effective as promptly as possible. If required,
the Company will file the Prospectus and any amendment or supplement thereto
with the Commission in the manner and within the time period required by Rule
424(b) under the Act. During any time when a prospectus relating to the Common
Stock is required to be delivered under the Act, the Company (a) will comply
with all requirements imposed upon it by the Act and the Rules and Regulations
to the extent necessary to permit the continuance of sales of or dealings in the
Common Stock in accordance with the provisions hereof and of the Prospectus, as
then amended or supplemented, and (b) will not file with the Commission the
prospectus or the amendment referred to in the second sentence of Section 2.1
hereof, any amendment or supplement to such prospectus or any amendment to the
Registration Statement unless and until the Representative have been advised of
such proposed filing, has been furnished with a copy for a reasonable period of
time prior to the proposed filing, and has given its consent to such filing,
which shall not be unreasonably withheld or delayed.
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5.2 Preparation and Filing of Amendments and Supplements. The Company
will prepare and file with the Commission, in accordance with the Rules and
Regulations of the Commission, promptly upon written request by the
Representative or counsel for the Representative, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be reasonably necessary or advisable in connection with the distribution of the
Shares by the several Underwriters, and the Company will use its best efforts to
cause any such amendment to the Registration Statement to be declared effective
by the Commission as promptly as possible. The Company will advise the
Representative, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Representative of each such
filing or effectiveness.
5.3 Notice of Stop Orders. The Company will advise the Representative
promptly after receiving notice or obtaining knowledge of: (a) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto, or any order preventing or
suspending the use of any Preliminary Prospectus of the Prospectus or any
amendment or supplement thereto; (b) the suspension of the qualification of the
Shares for offering or sale in any jurisdiction; (c) the institution,
threatening or contemplation of any proceeding for any such purpose; or (d) any
request made by the Commission for amending the Registration Statement for
amending or supplementing the Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any such stop order
and, if any such stop order is issued to obtain the withdrawal thereof as
promptly as possible.
5.4 Blue Sky Qualification. The Company will arrange and cooperate
with counsel to the Representative for the qualification of the Shares for
offering and sale under the securities or blue sky laws of such jurisdictions as
the Representative may designate and will continue such qualifications in effect
for as long as may be necessary to complete the distribution of the Shares;
provided, however, that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction.
5.5 Post-Effective Amendments. If, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
occurs as a result of which the Prospectus, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading,
in the light of the circumstances under which they were made, or if for any
other reason it is necessary at any time to amend or supplement the Prospectus
to comply with the Act or the Rules or Regulations, the Company will promptly
notify the Representative thereof and subject to Section 3 hereof, will prepare
and file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
5.6 Delivery of Prospectuses. The Company will, without charge,
provide (a) to the Representative and to counsel for the Representative a signed
copy of the Registration Statement originally filed with respect to the Shares
and each amendment thereto (in each case including exhibits thereto), (b) to
each other Underwriter so requesting in writing, a conformed copy of such
Registration Statement and each amendment thereto (in each case without exhibits
thereto) and (c) so long as a prospectus relating to the Shares is required to
be delivered under the Act, as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as the Representative may
reasonably request.
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5.7 Section 11(a) Financials. The Company will, as soon as
practicable but in any event not later that 90 days after the period covered
thereby, make generally available to its security holders and to the
Representative a consolidated earnings statement of the Company and its
subsidiaries that satisfies the provisions of Section 11(a) of the Act and Rule
158 thereunder covering a twelve-month period beginning not later than the first
day of the Company's fiscal quarter next following the effective date of the
Registration Statement.
5.8 Application of Proceeds. The Company will apply the net proceeds
from the sale of the Shares as set forth in the Prospectus and Registration
Statement and will not take any action that would cause it to become an
investment Company under the Investment Company Act of 1940, as amended.
5.9 Sales of Securities. Except as set forth in the Registration
Statement, the Company will not, directly or indirectly, without ten (10) days
prior written notice to the Representative, offer, sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of any option
to purchase or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of two years after the date hereof, except (a) to the
Underwriters pursuant to this Agreement; and (b) up to _________ options to be
granted pursuant a stock option plan to be adopted by the Company provided that
such persons have delivered to the Representative the agreement described in
Section 7.7 of this Agreement.
5.10 Application to NASDAQ. The Company will cause the Shares to be
duly included for quotation on the Nasdaq SmallCap Market prior to the Closing
Date. If requested by the Representative, the Company will also cause the Shares
to be duly included for listing on the Pacific Stock Exchange. The Company will
use its best efforts to ensure that the Shares remain included for quotation on
the Nasdaq SmallCap Market and the Pacific Stock Exchange (if applicable)
following the Closing Date for a period of not less than three years.
5.11 Application for Secondary Market Exemptions. To the extent
necessary or appropriate, the Company will make such application, file such
documents, and furnish such information as may be necessary to list the Shares
in the securities listing manuals of Standard & Poor's Corporation or Moody's
Industrial Services contemporaneous with the filing of the Prospectus with the
Commission, and shall maintain listing in such manuals thereafter for a period
of no less than five years. As of the first date that the Company and its
securities are eligible, the Company will apply with the Department of
Corporations in the State of California to have the Shares listed as an
"Eligible Security" for purposes of secondary market exemptions in the State of
California. The Company will take such other similar steps as are reasonably
necessary to obtain exemptions for secondary trading of the Company's Shares in
various United States jurisdictions.
5.12 Reports to Shareholders. So long as any Common Stock is
outstanding until five years after the Closing Date, the Company will furnish to
the Representative (a) as soon as available a copy of each report of the Company
(i) mailed to shareholders and (ii) filed with the Commission and (b) from time
to time such other information concerning the Company as the Representative may
reasonably request.
5.13 Delivery of Documents. At or prior to the Closing, the Company
will deliver to the Representative true and correct copies of the Articles of
Incorporation of the Company and all amendments thereto, all such copies to be
certified by the Secretary of State of the State of California, a good standing
certificate from the Secretary of State of California, dated no more than five
business days prior to the
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Closing Date; true correct copies of the bylaws of the Company, as amended,
certified by the Secretary of the Company and true and correct copies of the
minutes of all meetings of the directors and shareholders of the Company held
prior to the Closing Date which in any way relate to the subject matter of this
Agreement.
5.14 Underwriters' Warrant. On or prior to the Closing Date, the
Company shall deliver to the Representative warrants (the "Underwriter's
Warrants"), at an aggregate purchase price of $100, to purchase Shares equal to
10% of the Firm Shares sold in the Offering, which Underwriter's Warrants shall
be exercisable for a per Share exercise price equal to 120% of the per Share
public offering price of the Firm Shares.
5.15 Right of First Refusal. The Company grants to the
Representative a three (3) year right of first refusal (a) to underwrite or
place any public or private sale of equity or debt securities of the
Company, or any subsidiary or successor of the Company, offered for sale by the
Company or any of its subsidiaries, successors or shareholders and (b) to
purchase for the Representative's account or to sell for the account of the
Company's officers, directors and 10% or greater shareholders any securities
owned by such persons that such persons desire to sell, whether privately,
pursuant to a registered offering, pursuant to Rule 144 promulgated pursuant to
the Act or otherwise; provided, however, that such right shall not apply if the
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Company proposes to conduct, subsequent to the date hereof, a secondary public
offering that is underwritten by a major - tier investment banking firm. Such
right must be exercised by the Representative within twenty (20) days after it
receives written notice from the Company or such persons, as applicable, of a
proposed sale, which notice shall specify the terms of such proposed sale in
reasonable detail. If the Representative declines to exercise the right granted
hereunder but subsequent thereto the terms of such proposed sale change, the
Company or such persons, as applicable shall again provide written notice to the
Representative of the new terms and the Representative shall again have twenty
(20) days after it receives such written notice to exercise the right granted
herein.
5.16 Merger; Sale of Assets of other Acquisition of or by the
Company. For a period of three (3) years from the date hereof the Company agrees
to consult with the Representative with respect to any merger, consolidation,
acquisition, or sale of substantially all of the Company's assets. The
Representative agrees to evaluate such merger, consolidation, acquisition, or
sale of substantially all of its assets, or proposal, consult with the officers
of the Company and perform such other financial advisory services with respect
to such proposal as the Company may request. In consideration of such services,
the Company agrees to pay the Representative at the closing of such merger,
consolidation, acquisition, or sale of substantially all of its assets a fee
equal to 5% of the first one million dollars of Aggregate Value of such
transaction, 4% of the second million dollars of Aggregate Value of such
transaction, 3% of the third million dollars of Aggregate Value of such
transaction, 2% of the fourth million dollars of Aggregate Value of such
transaction and 1% of the Aggregate Value of such transaction in excess of $4
Million. For purposes hereof, "Aggregate Value" would mean the fair market value
of all consideration (including without limitation cash, securities, other
assets and contingent payments such as earnouts) received or paid by the Company
and/or its shareholders, together with the fair market value of debt or
liabilities assumed or refinanced as part of such transaction.
5.17 Cooperation With Representative' Due Diligence. At all times
prior to the Closing Date, the Company will cooperate with the Representative in
such investigation as the Representative may make or cause to be made of all the
properties, business and operations of the Company in connection with
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the purchase and public offering of the Shares and the Company will make
available to the Representative in connection therewith such information in its
possession as the Representative may reasonably request.
5.18 Stock Transfer Agent. The Company has appointed U.S. Stock
Transfer, Glendale, California, as Transfer Agent for the Common Stock. The
Company will not change or terminate such appointment for a period of two years
from the effective date without first obtaining the written consent of the
Representative, which consent shall not be unreasonably withheld.
5.19 Publicity. Prior to the Firm Closing Date, or the Option
Closing Date, as the case may be, the Company shall not issue any press release
or other communication directly or indirectly and shall hold no press conference
with respect to the Company, its financial condition, results of operations,
business, properties, assets, liabilities and any of them, or this offering,
without the prior written consent of the Representative. If at any time during
the 90 day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in the opinion of the Representative the market price of the
Common Stock has been or is likely to be materially affected, regardless of
whether such rumor, publication of event necessitates a supplement to or
amendment of the Prospectus, the Company will, after written notice from the
Representative, evaluate the propriety of disseminating a press release or other
public statement reasonably acceptable to the Representative and their counsel,
commenting on such rumor, publication or event.
5.20 Board of Directors Meetings. The Company shall notify the
Representative of all meetings of the Board of Directors and shareholders of the
Company and shall have the right, for a period of three (3) years from the date
of the Prospectus to have an observer at such meetings. Such designee will also
be sent all communications which the Company sends to its directors at the same
time as such directors receive communications and shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings,
including, but not limited to, food, lodging, and transportation
5.21 Forecasts and Projections. For a period of two years from the
effective date of the Registration Statement, the Company shall provide the
Representative with routine internal forecasts if any such reports are prepared
by the Company for dissemination to the public.
5.22 Key Man Insurance. The Company will maintain for a period of
at least five (5) years, Key Man Insurance on Robert J. McNulty in the amount of
$1,000,000. The Representative reserves the right to write the above policy at
the next renewal date thereof providing it can do so on terms no less favorable
to the Company.
SECTION 6.
EXPENSES
6.1 Offering Expenses. The Company will pay upon demand all costs
and expenses incident to the performance of the Company's obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 11 hereof, including all
costs and expenses incident to (a) the printing or other production of documents
with respect to the transactions, including any costs of printing the
Registration Statement originally filed with respect to the Shares and any
amendment thereto, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement, the Agreement Among
Underwriters, the Selected Dealer
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Agreement, and any blue sky memoranda, (b) all arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, (c) the fees
and disbursements of counsel, accountants and any other experts or advisors
retained by the Company, (d) preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Common Stock, including
transfer agent's and registrar's fees, (e) the qualification of the Shares under
state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Representative relating thereto, (f) the filing
fees of the Commission and the National Association of Securities Dealers, Inc.
relating to the Shares, (g) any listing fees for the quotation of the Common
Stock on the Nasdaq SmallCap Market or listing on the Pacific Stock Exchange (if
applicable), (h) the cost of placing "tombstone advertisements" in any
publications which may be selected by the Representative (provided that any such
cost in excess of $5,000 shall require the consent of both the Company and the
Representative), and (i) all other advertising that has been approved in advance
by the Company relating to the offering of the Shares (other than as shall have
been specifically approved in writing by the Representative to be paid for by
the Underwriters). In addition to the foregoing the Company agrees to pay to the
Representative a non-accountable expense allowance of 3% of the gross amount to
be raised from the sale of the Shares hereunder, payable at the Closing(s), of
which $________ has already been paid by the Company in connection with this
offering. If the sale of the Shares provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 7 (other than Section 7.5) hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11 hereof or because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be satisfied hereunder other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
counsel fees and disbursements) that shall have been reasonably incurred by them
in connection with the proposed purchase and sale of the Shares, excluding any
costs in excess of $50,000. The Company shall in no event be liable to any of
the Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement.
6.2 INTERIM INDEMNIFICATION. The Company agrees that as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8.1 hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly
return such payment to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) listed from time to time in THE WALL
STREET JOURNAL which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
The Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim action, investigation, inquiry or other
proceeding described in Section 8.2 hereof, they will reimburse the Company on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigation or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Underwriters' obligation to reimburse
the Company for such expenses and the possibility that such payments
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might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to have
been improper, the Company shall promptly return such payment to the
Underwriters together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Company within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
SECTION 7.
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The obligations of the several Underwriters to purchase and pay for the
Firm Shares shall be subject, unless waived by the Representative in its sole
discretion, to the accuracy of the representations and warranties of the Company
contained herein as of the date hereof and as of the Firm Closing Date as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company of its covenants and agreements hereunder and to the
following additional conditions:
7.1 Effectiveness of Registration Statement. If the Registration
Statement or any amendment thereto filed prior to the Firm Closing Date has not
been declared effective as of the time of execution hereof, the Registration
Statement or such amendment shall have been declared effective not later than 11
a.m., California time, on the date on which the amendment to the Registration
Statement originally filed with respect to the Shares or to the Registration
Statement, as the case may be, containing information regarding the initial
public offering price of the Shares has been filed with the Commission, or such
later time and date as shall have been consented to by the Representative, if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Representative, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) to the reasonable satisfaction of
counsel for the underwriters.
7.2 Opinion of Counsel. The Representative shall have received an
opinion, dated the Firm Closing Date, of Lewis, D'Amato, Brisbois & Bisgaard
LLP, Los Angeles, California counsel for the Company, substantially to the
effect that:
(a) the Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of California, and
duly qualified to transact business as a foreign corporation and is in good
standing under the laws of all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company;
(b) the Company has the corporate power to own or lease its
properties; to conduct its business as described in the Registration Statement
and the Prospectus; to enter into this Agreement and to carry out all of the
terms and provisions hereof to be carried out by it;
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(c) the Company has an authorized capital stock as set forth
under the heading "CAPITALIZATION" in the Prospectus; other than as disclosed
in the Registration Statement and the Prospectus, there are no outstanding
options, warrants, or other rights calling for the issuance of, and no
commitment, plan or arrangement to issue or register, any share of capital stock
of the Company; all of the shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable; the Shares
have been duly authorized by all necessary corporate action of the Company, and,
when issued and delivered to and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable; the shares of capital stock of the
Company have been duly authorized for quotation on the Nasdaq SmallCap Market;
no holders of outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the Shares; and
no holders of securities of the Company are entitled to have such securities
registered under the Registration Statement;
(d) the capital stock of the Company conforms, as to legal
matters, to the statements set forth under the heading "DESCRIPTION OF
SECURITIES" in the Prospectus in all material respects;
(e) the execution and delivery of each of this Agreement and the
agreement representing the Underwriter's Warrants have been duly authorized by
all necessary corporate action of the Company and each of this Agreement and the
agreement representing the Underwriter's Warrants is a valid and binding
obligation of the Company except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally and subject to general principles
of equity and, with respect to this Agreement, except as rights to indemnify and
contribution hereunder may be limited by applicable federal or state securities
laws.
(f) The Underwriter's Warrants will conform to the description
thereof in the Registration Statement and the Prospectus, and when issued and
paid for in accordance with the terms of the agreement representing the
Underwriter's Warrants, will constitute legal, valid and binding obligations of
the Company entitled to the rights and benefits of such agreement. The shares of
Common Stock of the Company issuable upon exercise of the Underwriter's Warrants
have been duly and validly authorized and reserved for issuance upon exercise of
the Underwriter's Warrants and when issued upon such exercise in accordance
with the terms of the agreement representing the Underwriter's Warrants at the
price therein provided, will be duly and validly issued, fully paid and non-
assessable and free of preemptive rights.
(g) no legal or governmental proceedings are pending to which
the Company is a party or to which the property of the Company is subject that
are required to be described in the Registration Statement or the Prospectus
and are not described therein, and, to the best knowledge of such counsel, no
such proceedings have been threatened against the Company or with respect to any
of its properties that can reasonably be expected to, or, if determined
adversely to the Company, would, in any individual case or in the aggregate,
result in any material adverse change in the business, prospects, financial
condition or results of operations of the Company;
(h) no contract or other document is required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required;
(i) the issuance, offering and sale of the Shares and the
Underwriter's Warrant by the Company pursuant to this Agreement, the compliance
by the Company with the other
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provisions of this Agreement and the agreement representing the Underwriter's
Warrants and the consummation of the other transactions herein and therein
contemplated do not require the consent, approval, authorization, registration
or qualification of or with any governmental authority, except such as have been
obtained and such as may be required under state securities or blue sky laws, or
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument, known to such counsel, to which
the Company is a party or by which the Company or any of its properties are
bound, or the Articles of Incorporation or Bylaws of the Company, or any
statute or any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel and applicable to
the Company;
(j) the Registration Statement is effective under the Act, any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued by the Commission, and no proceedings for that purpose
have been instituted or, to the knowledge of such counsel, are threatened or
contemplated by the Commission;
(k) the Registration Statement and the Prospectus and each
amendment or supplement thereto (in each case, other than the financial
statements and other financial and statistical information contained therein, as
to which such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations;
(l) the Company is not required, and, if the Company uses the
proceeds of the sale of the Firm Shares and the Option Shares solely as
described in the Prospectus, will not be required as a result of the sale of
such Shares to be registered as an investment Company within the meaning of the
Investment Company Act of 1940, as amended; and
(m) such counsel shall also state that they have no reason to
believe that the Registration Statement, as of its effective date, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date or the date of such opinion,
included or includes any untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided
that in each case such counsel need not express any opinion as to the financial
statements and other financial and statistical information contained therein.
In rendering any such opinion, such counsel may rely as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers of
the Company and public officials. The foregoing opinion may be limited to the
laws of the United States, the laws of the State of California and the General
Corporation Law of the State of California. References to the Registration
Statement and the Prospectus in the Section 7.2 shall include any amendment or
supplement thereto at the date of such opinion. Such counsel shall permit
Donahue, Mesereau & Leids LLP to rely upon such opinion in rendering its opinion
in Section 7.3.
7.3 Review by and Opinion of Representative's Counsel. The
Representative shall have received an opinion, dated the Firm Closing Date, of
Donahue, Mesereau & Leids LLP, counsel for the Representative, with respect to
certain matters as the Representative may reasonably require, and the
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Company shall have furnished to such counsel such documents and certificates as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
7.4 Accountant's Letter. The Representative shall have received from
Singer, Lewak, Greenbaum & Goldstein LLP, a letter or letters dated,
respectively, the date hereof and the Closing Date, in form and substance
reasonably satisfactory to the Representative, substantially to the effect that:
(a) they are independent accountants with respect to the Company
within the meaning of the Act and the Rules and Regulations;
(b) in their opinion, the financial statements audited by them
and included in the Registration Statement and the Prospectus comply in form in
all material respects with the applicable accounting requirements of the Act and
the related published rules and regulations;
(c) on the basis of a reading of the audited financial
statements of the Company, for the year-ended January 31, 1997, and the
unaudited financial statements of the Company for the period ended July 31, 1997
and the notes thereto, carrying out certain specified procedures (which do not
constitute an audit made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of significance with
respect to the comments set forth in this paragraph, a reading of the minute
books of the shareholders, the board of directors and any committees thereof of
the Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters, nothing came to their
attention that caused them to believe that:
(i) the unaudited financial statements of the Company
included in the Registration Statement and the Prospectus do not comply in form
in all material respects with the applicable accounting requirements of the Act
and the related published rules and regulations thereunder or are not in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus; and
(ii) at a specific date not more than five business days
prior to the date of such letter, there were any changes in the capital stock or
long-term debt of the Company or any decreases in net current assets or
shareholders' equity of the Company, in each case compared with amounts shown on
the July 31, 1997 balance sheet included in the Registration Statement and the
Prospectus, or for the period from July 31, 1997 to such specified date there
were any decreases, as compared with the corresponding period in the preceding
year, in net sales, gross profit, selling, general and administrative expenses,
employee plans and bonuses, income (loss) from operations, interest expenses,
income (loss) before income taxes, provision (benefit) for income taxes, net
income (loss) or net income (loss) per share of the Company, except in all
instances for changes, decreases or increases set forth in such letter; and
(d) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting records of
the Company and are included in the Registration Statement and the Prospectus,
and have compared such amounts, percentages and financial information with such
records of the Company and with information derived from such records and have
found them to be in agreement, excluding any questions of legal interpretation.
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In the event that the letters referred to above set forth any such changes,
decreases or increases, it shall be a further condition to the obligations of
the Underwriters that such letters shall be accompanied by a written explanation
of the Company as to the significance thereof, unless the Representative deems
such explanation unnecessary, and such changes, decreases or increases do not,
in the sole judgment of the Representative, make it impractical or inadvisable
to proceed with the purchase and delivery of the Shares as contemplated by the
Registration Statement, as amended as of the date hereof.
References to the Registration Statement and the Prospectus in this Section
7.4 with respect to either letter referred to above shall include any amendment
or supplement thereto at the date of such letter.
7.5 Officer's Certificate. The Representative shall have received a
certificate, dated the Firm Closing Date, of the president and the principal
financial or accounting officer of the Company to the effect that:
(a) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing Date,
the Registration Statement, as amended as of the Firm Closing Date, does not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading, in light of the
circumstances in which they were made and the Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein not misleading, in the light of the circumstances under
which they were made; and the Company has in all material respects performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date;
(b) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the best
of their knowledge, are contemplated by the Commission; and
(c) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or interference with its business or property from
fire, flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any material adverse change, or any development involving
a prospective material adverse change, in the condition (financial or
otherwise), business, prospects net worth or results of operations of the
Company, except in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto).
7.6 NASD Review. The NASD, upon review of the terms of the public
offering of the Firm Shares and Option Shares, shall not have objected to the
Underwriters' participation in such offering.
7.7 Lockups. The Representatives shall have received from each person
who owns Common Stock, or securities convertible into Common Stock, an agreement
to the effect that such person will not, directly or indirectly, without the
prior written consent of the Representative, offer, sell or grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of an option
to purchase or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock for a
period of twelve months.
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7.8 Due Diligence Examination. The counsel to the Representative and
other persons retained by the Representative to conduct a due diligence
investigation with respect to the offering, shall be reasonably satisfied with
the results of their respective due diligence investigations.
7.9 Blue Sky Qualification. The Shares shall be qualified in such
states as the Representative may reasonably request pursuant to Section 5.4, and
each such qualification shall be in effect and not subject to any stop order or
other proceeding on the Closing Date or Option Closing Date, as the case may be.
7.10 Other Documents. On or before the Firm Closing Date, the
Representative and counsel for the Representative shall have received such
further certificates, documents or other information as they may have reasonably
requested from the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representative. The
Company shall furnish to the Representative such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representative and the counsel to the Representative shall reasonably request.
The respective obligations of the several Underwriters to purchase and pay
for any Option Shares shall be subject, in the Representative discretion, to
each of the foregoing conditions to purchase the Firm Shares, except that all
references to the Firm Shares and the Firm Closing Date shall be deemed to refer
to such Option Shares and the related Option Closing Date, respectively.
SECTION 8.
INDEMNIFICATION AND CONTRIBUTION
8.1 Indemnification by Company. The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act") against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(a) any untrue statement or alleged untrue statement made by the
Company in Section 2 of this Agreement;
(b) any untrue statement or alleged untrue statement of any
material fact contained in (i) the Registration Statement or any amendment
thereto or any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (ii) any application or other document, or any amendment
or supplement thereto, executed by the Company and based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Shares under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities exchange
(each an "Application"); or
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(c) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they are made, and
will reimburse, as incurred, each Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representative specifically for use therein; and provided further
that the Company will not be liable to any Underwriter or any person controlling
such Underwriter with respect to any such untrue statement or omission made in
any Preliminary Prospectus that is corrected in the Prospectus (or any amendment
or supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Shares from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented), other than the documents
incorporated by reference therein at or prior to the written confirmation of the
sale of such Shares to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless failure
to deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5.5 of this Agreement. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent each Underwriter
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out if such claim, action, suit or proceeding.
8.2 Indemnification by Underwriters. Each Underwriter will indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company, any such director or officer of the Company or any such controlling
person of the Company may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement to any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application or (b) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or necessary to make the statements therein not misleading in light
of the circumstances in which are made, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the COmpany or any
21
<PAGE>
director, officer or controlling person of the Company in connection with
investigation or defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have. No Underwriter will, without the prior
written consent of the Company, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not the
Company, any of its directors, any of its officers who signed the Registration
Statement or any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding), unless such settlement, compromise or consent
includes an unconditional release of the Company and each such director, officer
and controlling person from all liability arising out of such claim, action,
suit or proceeding.
8.3 Notice of Defense. Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party and the indemnified party shall have reasonably concluded that there may
be one or more legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnifying party shall not have the right to direct the defense of
such action on behalf of such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party (which may not be unreasonably withheld or delayed under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (a) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel at any one time in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representative in the case of
Section 8.1, representing the indemnified parties under such Section 8.1 who are
parties to such action or actions) or (b) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party, unless such indemnified party
waived its rights under this Section 8 in which case the indemnified party may
effect such a settlement without such consent.
8.4 Contribution. In circumstances in which the indemnity agreement
provided for in the proceeding paragraphs of this Section 8 is unavailable or
insufficient to hold harmless an indemnified party in respect to any losses,
claims, damages or liability (or actions in respect thereof), each indemnifying
party, in order to provide for just and equitable contribution, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in
22
<PAGE>
such proportion as is appropriate to reflect (a) the relative benefits received
by the indemnifying party or parties on the one hand and the indemnified party
on the other from the offering of the Shares or (b) if the allocation provided
by the foregoing clause (a) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party in the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liability (or action in respect
thereof). The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (after deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault of the parties shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters agree that it
would not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable consideration referred to in the first sentence of
this Section 8.4. Notwithstanding any other provision of this Section 8.4. no
Underwriter shall be obligated to make contributions hereunder that in the
aggregate exceed the underwriter discount on the Shares purchased by such
Underwriter under this Agreement, less the aggregate amount of any damages that
such Underwriter has otherwise been required to pay in respect of the same or
any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Agreement Among Underwriters. For purposes of this Section 8.4, each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, shall have the same right to contribution as the Company
as the case may be.
SECTION 9.
DEFAULT OF UNDERWRITERS
If one or more Underwriters default in their obligations to purchase Firm
Shares, or Options Shares hereunder and the aggregate number of such Shares that
such defaulting Underwriter or Underwriters agreed but failed to purchase is ten
percent or less of the aggregate number of Firm Shares or Option Shares to be
purchased by all of the Underwriters at such time hereunder, the other
Underwriters may make arrangements satisfactory to the Representative for the
purchase of such Shares by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representative), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally in
proportion to their respective commitments hereunder to purchase the Firm
Shares, or Option Shares that such defaulting Underwriter or Underwriters agreed
but failed to purchase. In the event of any default by one or more Underwriters
as described in this Section 9, the Representative shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the
23
<PAGE>
case may be, established as provided in Section 3 hereof for not more than seven
business days in order that any necessary changes may be made in the
arrangements or documents for the purpose and delivery of the Firm Shares or
Option Shares, as the case may be. As used in this Agreement, the term
"Underwriter" includes any persons substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
SECTION 10.
SURVIVAL
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers and directors and
the several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (a) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (b) delivery of and payment for the Shares.
The respective agreements, covenants, indemnities and other statements set forth
in Sections 5 and 8 hereof shall remain in full force and effect, regardless of
any termination or cancellation this Agreement.
24
<PAGE>
SECTION 11.
TERMINATION
11.1 By Representative. This Agreement may be terminated with
respect to the Firm Shares or any Option Shares in the sole discretion of the
Representative by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing date or such Option Closing Date,
respectively:
(a) the Company shall have sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding or there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including financial or otherwise), in the business, prospects
net worth or results of operations of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(b) trading in the Common Stock shall have been suspended
by the Commission or the National Association of Securities Dealers Automated
Quotation SmallCap Market or trading in securities generally on the New York
Stock Exchange or the American Stock Exchange shall have been suspended or
minimum or maximum prices shall have been established on any such exchange or
market system;
(c) a banking moratorium shall been declared by New York,
California, or United States authorities; or
(d) there shall have been (i) an outbreak or escalation of
hostilities between the United States and any foreign power, (ii) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or (iii) any other calamity or crisis having an effect on the financial
markets that, in the reasonable judgement of the Representative, makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares as contemplated by the Registration Statement, as amended as of
the date hereof.
11.2 Effect of Termination Hereunder. Termination of this Agreement
pursuant to this Section 11 shall be without liability of any party to any other
party, except as provided in Section 10 hereof.
25
<PAGE>
SECTION 12.
INFORMATION SUPPLIED BY UNDERWRITERS
The statements set forth in the last paragraph on the front cover page
and under the heading "Underwriting" in any Preliminary Prospectus or the
Prospectus, to the extent such statements relate to the Underwriters constitute
the only information furnished by any Underwriter through the Representative to
the Company for the purposes of Section 8 and 10 hereof. The Underwriters
represent and warrant to the Company that such statements, to such extent, are
correct as of the date hereof and at each Closing Date.
SECTION 13.
NOTICES
All communications hereunder shall be in writing and if sent to any of the
Underwriters, shall be mailed (certified or registered mail, postage prepaid,
return receipt requested) or delivered or sent by facsimile transmission and
confirmed in writing to Waldron & Co., Inc., 19000 MacArthur, 8th Floor, Irvine,
California 92715, Attention: Mr Jack Myers, with a copy to Asher M. Leids, Esq,
Donahue, Mesereau & Leids LLP, 1900 Avenue of the Stars, Suite 2700, Los
Angeles, California 90067), if sent to the Company, shall be mailed (certified
or registered mail, postage prepaid, return receipt requested), delivered or
telegraphed and confirmed in writing to the Company at 2101 East Coast Highway,
Garden Level, Corona del Mar, California 92625, Attention: Robert J. McNulty
(with copy to Leon Cooper, Esq., Lewis, D'Amato, Brisbois & Bisgaard LLP, 221
North Figueroa, Suite 1200, Los Angeles, California 90012). Notices shall be
effective if mailed, 48 hours after deposit in the mail properly addressed, sent
by facsimile, upon receipt and in any other instance, when delivered.
SECTION 14.
SUCCESSORS
This Agreement shall inure to the benefit of and shall be binding upon the
several Underwriters, the Company and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (a) the indemnities of the
Company contained in Section 8 of this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (b) the indemnities
of the Underwriters contained in Section 8 of this Agreement shall also be for
the benefit of the directors of the Company, the officers of the Company who
have signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Shares from any Underwriter shall be deemed a
successor because of such purchase.
26
<PAGE>
SECTION 15.
APPLICABLE LAW
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in accordance
with the laws of the State of California without giving effect to any provisions
relating to conflicts of laws.
SECTION 16.
COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, and each of the
several Underwriters.
Very truly yours,
SHOPPING.COM
By:______________________________________
Robert J. McNulty
Chief Executive Officer and President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Waldron & Co., Inc.
(As Representative of the several
Underwriters named in Schedule 1 hereto)
By:________________________________________
27
<PAGE>
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be purchased
- ----------- ---------------
<S> <C>
Waldron & Co., Inc.
Total __________
</TABLE>
<PAGE>
EXHIBIT 3.01
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE SHOPPERS' SOURCE
I.
The name of the Corporation is The Shoppers' Source.
II.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
The name and address in the State of California for this corporation's
initial agent for service of process is:
Leon M. Cooper
221 N. Figueroa Street, 12th Floor
Los Angeles, California 90012
IV.
The Corporation is authorized to issue three classes of shares
designated "Common Stock", "Series A Convertible Preferred Stock" and "Series B
Convertible Preferred Stock". The total number of shares which the Corporation
is authorized to issue is 13,500,000 shares. The total number of shares of
Common Stock authorized to be issued is 8,000,000 shares. The number of shares
of Series A Convertible Preferred Stock authorized to be issued is 1,500,000,
and the number of shares of Series B Convertible Preferred Stock authorized to
be issued is 4,000,000.
A description of the respective classes of stock and a statement of
the designations, preferences, voting powers, relative, participating, optional
or other special rights and privileges, and the qualifications, limitations and
restrictions of the Preferred Stock and Common Stock are as follows:
Section 1. Definitions. For purposes of this Article IV the
-----------
following definitions shall apply:
Exhibit A
1
<PAGE>
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Commitment Date" with respect to the Series B Stock shall
mean, June 30, 1997, as may extended and, with respect to the Series A
Stock, shall mean February 7, 1997.
(c) "Corporation" shall mean this corporation, when the word is
capitalized.
(d) "Common Stock" shall mean the Common Stock of the
Corporation.
(e) "Majority of the Preferred Stock" shall mean more than 50% of
the outstanding Preferred Stock voting as described in Section 4(a) hereof.
(f) "Preferred Stock" shall mean the Series A Stock and the
Series B Stock of the Corporation, collectively.
(g) "Series A Stock" shall mean the Series A Convertible
Preferred Stock of the Corporation.
(h) "Series B Stock shall mean the Series B Convertible Preferred
Stock of the Corporation.
(i) "Subsidiary" shall mean any corporation at least fifty
percent (50%) of the outstanding voting stock of which is at the time owned
directly or indirectly by the Corporation or by one or more of such
subsidiary corporations.
(j) "Underlying Common Stock" shall mean the Common Stock of the
Corporation into which the Preferred Stock is convertible pursuant to
Section 5 hereof.
Section 2. Dividends.
---------
(a) Right to Dividends. When and as declared by the Board and
------------------
out of any funds legally available therefor, the holders of the then
outstanding Series A Stock shall be entitled to receive cash (except as
provided in Section 5 hereof) noncumulative dividends at the rate of $0.02
per share per annum when declared, and the holders of the then outstanding
Series B Stock shall be entitled to receive cash (except as provided in
Section 5 hereof) noncumulative dividends at the rate of $0.15 per share
per annum when declared.
(b) Priority. Unless full dividends on the Preferred Stock for
--------
all declared but unpaid dividends shall have been paid or a sum sufficient
for the payment thereof set apart with respect to the fiscal year of the
Corporation during which the Corporation
Exhibit A
2
<PAGE>
proposes to take any of the actions described in subparagraphs (1) and (2)
of this Section 2(b), (1) no dividend whatsoever (other than a dividend
payable solely in Common Stock) shall be paid or declared, and no
distribution shall be made, on any Common Stock, and (2) no shares of
Common Stock shall be purchased, redeemed or acquired by the Corporation
and no monies shall be paid into or set aside or made available for a
sinking fund for the purchase, redemption or acquisition thereof; provided,
however, that this restriction shall not apply to the repurchase of shares
of Common Stock from directors or employees of or consultants or advisers
to the Corporation or any Subsidiary pursuant to agreements under which the
Corporation has the option to repurchase such shares upon the occurrence of
certain events, including without limitation the termination of employment
by or service to the Corporation or any Subsidiary; and provided further,
however, that without the approval, by vote or written consent, of the
holders of a Majority of the Preferred Stock the total amount applied to
the repurchase of shares of Common Stock shall not exceed $50,000 during
any twelve-month period.
Section 3. Liquidation Rights of Preferred Stock.
-------------------------------------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, whether voluntary or involuntary, the
holders of the Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
shareholders, whether such assets are capital, surplus or earnings, before
any payment or declaration and setting apart for payment of any amount
shall be made in respect of the Common Stock, (i) for the Series A Stock,
$0.20 per share of Underlying Common Stock plus an amount equal to all
declared and unpaid dividends thereon and on Series A Stock, to and
including the date full payment shall be tendered to the holders of the
Series A Stock in respect of such liquidation, dissolution or winding up
and no more; (ii) for the Series B Stock $1.50 per share of Underlying
Common Stock plus an amount equal to all declared and unpaid dividends
thereon and on Series B Stock, to and including the date full payment shall
be tendered to the holders of the Series B Stock in respect of such
liquidation, dissolution or winding up and no more. If upon any
liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed to the holders of
the Preferred Stock shall be insufficient to permit the payment to such
shareholders of the full preferential amounts aforesaid, then all of the
assets of the Corporation to be distributed shall be distributed to the
holders of the Preferred Stock
Exhibit A
3
<PAGE>
ratably on the basis of the number of shares of Preferred Stock held.
(b) Remaining Assets. After the payment or distribution to the
----------------
holders of the Preferred Stock of the full preferential amounts aforesaid,
the holders of the Common Stock then outstanding shall be entitled to
receive ratably all remaining assets of the Corporation to be distributed
on the basis of the number of shares of Common Stock held.
(c) Reorganization. A consolidation or merger of the Corporation
--------------
with or into any other corporation or corporations or a sale of all or
substantially all of the assets of the Corporation, in which the
shareholders of the Corporation receive solely capital stock of the
acquiring corporation (or of the direct or indirect parent corporation of
the acquiring corporation), except for cash in lieu of fractional shares,
shall not be deemed a liquidation, dissolution or winding up of the
Corporation as those terms are used in this Section 3.
(d) Consent to Certain Transactions. Each holder of shares of
-------------------------------
Preferred Stock shall, by virtue of its acceptance of a stock certificate
evidencing Preferred Stock, be treated as having consented, for purposes of
Sections 502, 503 and 506 of the General Corporation Law of California, to
distributions made by the Corporation in connection with the repurchase of
shares of Common Stock from directors or employees of or consultants or
advisers to the Corporation or any Subsidiary upon the termination of
employment by or service to the Corporation or any Subsidiary or otherwise
if such repurchase is made in accordance with the repurchase agreements
referred to in Section 2(b) and such repurchases are not prohibited by such
Section.
Section 4. Voting Rights.
-------------
(a) Preferred Stock. Each holder of shares of Preferred Stock
---------------
shall be entitled to vote on all matters and except as otherwise expressly
provided herein, shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of
Preferred Stock could be converted pursuant to the provisions of Section 5
hereof at the record date for the determination of the shareholders
entitled to vote on such matters or, if no such record date is established,
at the date such vote is taken.
(b) Common Stock. Holders of shares of Common Stock shall be
------------
entitled to one vote for each share thereof held. Except as otherwise
expressly provided
Exhibit A
4
<PAGE>
herein or as required by law, the holders of Preferred Stock and the
holders of Common Stock shall vote together and not as separate classes.
Section 5. Conversion.
----------
The holders of Preferred Stock shall have the following conversion rights:
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at any time at the option of the holder thereof, into fully
paid and nonassessable shares of Common Stock.
(b) Conversion Price. Each share of the Preferred Stock shall be
----------------
convertible into the number of shares of Common Stock which results from
dividing the applicable Conversion Price per share in effect at the time of
conversion into, in the case of Series A Stock the sum of $0.20 and the
declared but unpaid dividends on such share, and in the case of the Series
B Stock, the sum of $1.50 and the declared but unpaid dividends on such
share. The initial Conversion Price per share shall be $0.20 with respect
to the Series A Stock and $1.50 with respect to the Series B Stock. The
Conversion Price shall be subject to adjustment from time to time as
provided below.
(c) Mechanics of Conversion. Each holder of Preferred Stock who
-----------------------
desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock or Common
Stock, and shall give written notice to the Corporation at such office that
such holder elects to convert the same and shall state therein the number
of shares of Preferred Stock being converted. Thereupon the Corporation
shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to
which such holder is entitled. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the certificate representing the shares of Preferred Stock to
be converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock on such date.
(d) Adjustment for Stock Splits and Combinations. If the
--------------------------------------------
Corporation at any time or from time to time after the applicable
Commitment Date effects a subdivision of the outstanding Common Stock, the
applicable Conversion Price then in effect immediately before that
subdivision shall be proportionately decreased, and conversely, if the
Corporation at any
Exhibit A
5
<PAGE>
time or from time to time after the applicable Commitment Date combines the
outstanding shares of Common Stock into a smaller number of shares, the
applicable Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
subsection (d) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. If the
--------------------------------------------------
Corporation at any time or from time to time after the applicable
Commitment Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in additional shares of Common Stock, then and in each
such event the applicable Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such record date
is fixed, as of the close of business on such record date, by multiplying
such Conversion Price then in effect by a fraction (1) the numerator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on
such record date, and (2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such
dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefore, such Conversion Price shall be
recompute accordingly as of the close of business on such record date and
thereafter such Conversion Price shall be adjusted pursuant to this
subsection (e) as of the time of actual payment of such dividends or
distributions.
(f) Adjustments for other Dividends and Distributions. In the
-------------------------------------------------
event the Corporation at any time or from time to time after the applicable
Commitment Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that
the holders of 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 which they would have received had
their 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, subject to all
Exhibit A
6
<PAGE>
other adjustments called for during such period under this Section 5 with
respect to the rights of the holders of the Preferred Stock.
(g) Adjustment for Reclassification, Exchange and Substitution.
----------------------------------------------------------
In the event that at any time or from time to time after the applicable
Commitment Date, the Common Stock issuable upon the conversion of the
Preferred Stock is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale
of assets, provided for elsewhere in this Section 5), then and in any such
event each holder of Preferred Stock shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities
and property receivable upon such recapitalization, reclassification or
other change, by holders of the maximum number of shares of Common Stock
into which such shares of Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein.
(h) Reorganization, Mergers, Consolidations or Sales of Assets.
----------------------------------------------------------
If at any time or from time to time after the applicable Commitment Date
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 5) or a merger or
consolidation of the Corporation with or into another corporation, or the
sale of all or substantially all of the Corporation's properties and assets
to any other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of
the Preferred Stock the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions
of this Section 5 with respect to the rights of the holders of the
Preferred Stock after the reorganization, merger, consolidation or sale to
the end that the provisions of this Section 5 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable after that event and
be as nearly equivalent as may be practicable.
Exhibit A
7
<PAGE>
(i) Sale of Shares Below Conversion Price.
-------------------------------------
(1) If at any time or from time to time after the applicable
Commitment Date, the Corporation issues or sells, or is deemed by the
express provisions of this subsection (i) to have issued or sold,
Additional Shares of Common Stock (as hereinafter defined), other than as a
dividend or other distribution on any class of stock as provided in
subsection (e) above and other than upon a subdivision or combination of
shares of Common Stock as provided in subsection (d) above, for an
Effective Price (as hereinafter defined) less than the then existing
Conversion Price (or, if an adjusted Conversion Price shall be in effect by
reason of a previous adjustment, then less than such adjusted Conversion
Price), of a series of Preferred Stock then and in each such case the then
existing Conversion Price of that series of Preferred Stock shall be
reduced, as of the opening of business on the date of such issue or sale,
to a price determined by multiplying that Conversion Price by a fraction
(I) the numerator of which shall be (A) the number of shares of Common
Stock outstanding at the close of business on the day next preceding the
date of such issue or sale, plus (B) the number of shares of Common Stock
which the aggregate consideration received (or by the express provisions
hereof deemed to have been received) by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at
such Conversion Price, and (II) the denominator of which shall be the
number of shares of Common Stock outstanding at the close of business on
the date of such issue after giving effect to such issue of Additional
Shares of Common Stock; provided however, that for the purpose of this
subsection 5(i)(1), all shares of Common Stock then issuable upon
conversion or exercise of then outstanding rights or options to acquire
Common Stock at an Effective Price less than the applicable Conversion
Price, or other stocks or securities convertible into Common Stock at an
Effective Price less than the applicable Conversion Price, shall be deemed
to be outstanding.
(2) For the purpose of making any adjustment required under
this subsection (i), the consideration received by the Corporation for any
issue or sale of securities shall (A) to the extent it consists of cash be
computed at the net amount of cash received by the Corporation after
deduction of any expenses payable by the Corporation and any underwriting
or similar commissions, compensation, or concessions paid or allowed by the
Corporation in connection with such issue or sale, (B) to the extent it
consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board, and (C) if Additional
Shares of Common Stock, Convertible Securities (as hereinafter defined) or
Exhibit A
8
<PAGE>
rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Corporation for a consideration which
covers both, be computed as the portion of the consideration so received
that may be reasonably determined in good faith by the Board to be
allocable to such Additional Shares of Common Stock, Convertible Securities
or rights or options.
(3) For the purpose of the adjustment required under this
subsection (i), if the Corporation issues or sells any rights or options
for the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities
being hereinafter referred to as "Convertible Securities") and if the
Effective Price of such Additional Shares of Common Stock is less than the
applicable Conversion Price then in effect, then in each case the
Corporation shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion
thereof and to have received as consideration for the issuance of such
shares an amount equal to the total amount of the consideration, if any,
received by the Corporation for the issuance of such rights or options or
Convertible Securities, plus, in the case of such rights or options, the
minimum amounts of consideration, if any, payable to the Corporation upon
the exercise of such rights or options, plus, in the case of Convertible
Securities, the minimum amounts of consideration, if any, payable to the
Corporation (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) upon the conversion thereof. No
further adjustment of the applicable Conversion Price, adjusted upon the
issuance of such rights, options or Convertible Securities, shall be made
as a result of the actual issuance of Additional Shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire
without having been exercised, the applicable Conversion Price adjusted
upon the issuance of such rights, options or Convertible Securities shall
be readjusted to the applicable Conversion Price which would have been in
effect had an adjustment been made on the basis that the only Additional
shares of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or
options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus
the consideration, if any, actually
Exhibit A
9
<PAGE>
received by the Corporation for the granting of all such rights or options,
whether or not exercised, plus the consideration received for issuing or
selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Corporation (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities.
(4) For the purpose of the adjustment required under this
subsection (i), if the Corporation issues or sells any rights or options
for the purchase of Convertible Securities and if the Effective Price of
the Additional Shares of Common Stock underlying such Convertible
Securities is less than the applicable Conversion Price then in effect,
then in each such case the Corporation shall be deemed to have issued at
the time of the issuance o(Pounds) such rights or options the maximum
number of Additional Shares of Common Stock issuable upon conversion of the
total amount of Convertible Securities covered by such rights or options
and to have received as consideration for the issuance of such Additional
Shares of Common Stock an amount equal to the amount of consideration, if
any, received by the Corporation for the issuance of such rights or
options, plus the minimum amounts of consideration, if any, payable to the
Corporation upon the exercise of such rights or options and plus the
minimum amount of consideration, if any, payable to the Corporation (other
than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) upon the conversion of such Convertible Securities.
No further adjustment of the applicable Conversion Price, adjusted upon the
issuance of such rights or options, shall be made as a result of the actual
issuance of the Convertible Securities upon the exercise of such rights or
options or upon the actual issuance of Additional Shares of Common Stock
upon the conversion of such Convertible Securities. The provisions of
paragraph (3) above for the readjustment of the applicable Conversion Price
upon the expiration of rights or options or the rights of conversion of
Convertible Securities shall apply mutatis mutandis to the rights, options
and Convertible Securities referred to in this paragraph (4).
(5) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Corporation after the applicable Commitment
Date, whether or not subsequently reacquired or retired by the Corporation,
other than (1) shares of Common Stock issued upon conversion of the
Preferred Stock and (2) the shares of Common Stock issued to employees or
directors of or consultants and advisers to the Corporation or any
Subsidiary pursuant to stock purchase or stock option plans or other
arrangements,
Exhibit A
10
<PAGE>
that are approved by the Board. The "Effective Price" of Additional Shares
of Common Stock shall mean the quotient determined by dividing the total
number of Additional Shares of Common Stock issued or sold, or deemed to
have been issued or sold by the Corporation under this subsection (i), into
the aggregate consideration received, or deemed to have been received by
the Corporation for such issue under this subsection (i), for such
Additional Shares of Common Stock.
(j) Accountants' Certificate of Adjustment. In each case of an
--------------------------------------
adjustment or readjustment of the applicable Conversion Price or the number
of shares of Common Stock or other securities issuable upon conversion of
any series the Preferred Stock, the Corporation, at its expense, shall
cause independent public accountants of recognized standing selected by the
Corporation (who may be the independent public accountants then auditing
the books of the Corporation) to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing
such adjustment or readjustment, and shall mail such certificate, by first
class mail, postage prepaid, to each registered holder of the applicable
series of Preferred Stock at the holder's address as shown in the
Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (1) the consideration
received or deemed to be received by the Corporation for any Additional
Shares of Common Stock issued or sold or deemed to have been issued or
sold, (2) the Conversion Price as then in effect, (3) the number of
Additional Shares of Common Stock and (4) the type and amount, if any, of
other property which at the time would be received upon conversion of the
Preferred Stock.
(k) Notices of Record Date. In the event of (I) any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (II) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock
of the Corporation, any merger or consolidation of the Corporation with or
into any other corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other person or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Common Stock and to each holder of
Preferred Stock at least thirty (30) days prior to the record date
specified therein, a notice specifying (l) the date on which any such
record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (2) the
Exhibit A
11
<PAGE>
date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected
to become effective, and (3) the date, if any, that is to be fixed, as to
when the holders of record of Preferred Stock (or other securities) shall
be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation
or winding up.
(l) Automatic Conversion.
--------------------
(1) Each share of Series A Stock and Series B Stock shall
automatically be converted into shares of Common Stock based on the then
effective applicable Conversion Prices immediately upon 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 Common Stock for the account of the Corporation, the
public offering price per share of which equals or exceeds the applicable
amount per share of Common Stock (as hereinafter defined) and the
obligation of the underwriters with respect to which is that if any of the
securities being offered are purchased, all such securities must be
purchased; provided, however, that such conversion shall be conditioned
upon payment by the Corporation of all unpaid declared dividends on the
outstanding Preferred Stock, to and including the date of such conversion,
payable in Common Stock (valued as determined in good faith by the Board).
For purposes of this Subsection (1), the "applicable amount per share of
Common Stock" shall be $0.20 with respect to the Series A Stock and $1.50
with respect to the Series B Stock, in each case appropriately adjusted in
accordance with this Section 5. The underwritten public offering shall
also be for a gross amount (without any deduction for commissions or
expenses) to the Corporation of not less than six million dollars
($6,000,000).
(2) Upon the occurrence of the event specified in paragraph
(l) above the outstanding shares of the applicable series of Preferred
Stock shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent;
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of the applicable
series of Preferred Stock are either delivered to the Corporation or its
transfer
Exhibit A
12
<PAGE>
agent as provided below, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion of the
applicable series of Preferred Stock, the holders of the applicable series
of Preferred Stock shall surrender the certificates representing such
shares at the office of the Corporation or any transfer agent for the
applicable series of Preferred Stock or Common Stock. Thereupon, there
shall be issued and delivered to such holder promptly at such office and in
its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into
which the applicable series of Preferred Stock surrendered were convertible
on the date on which such automatic conversion occurred, and the
Corporation shall promptly pay in Common Stock (taken at a value
established in good faith by the Board) as of the date of such conversion),
all declared and unpaid dividends on the shares of the applicable series of
Preferred Stock being converted, to and including the date of such
conversion.
(m) Fractional Shares. No fractional shares of Common Stock
-----------------
shall be issued upon conversion of Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied
by the fair market value of one share of the Corporation's Common Stock on
the date of conversion, as determined in good faith by the Board.
(n) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding
shares of the Preferred Stock, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(o) Notices. Any notice required by the provisions of this
-------
Section 5 to he given to the holder of shares of the Preferred Stock shall
be deemed given upon the earlier of actual receipt or seventy-two (72)
hours after the same has been deposited in the United States mail, by
certified or registered mail, return
Exhibit A
13
<PAGE>
receipt requested, postage prepaid, and addressed to each holder of record
at the address of such holder appearing on the books of the Corporation.
(p) Payment of Taxes. The Corporation will pay all taxes (other
----------------
than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock
upon conversion of shares of Preferred Stock, including without limitation
any tax or other charge imposed in connection with any transfer involved in
the issue and delivery of shares of Common Stock in a name other than that
in which the shares of Preferred Stock so converted were registered.
(q) No Dilution or Impairment. The Corporation shall not amend
-------------------------
its Articles of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times
in good faith assist in carrying out all such action as may be reasonably
necessary or appropriate in order to protect the conversion rights of the
holders of the Preferred Stock against dilution or other impairment.
Section 6. Protective Provisions. Provided that any shares of
---------------------
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of at
least fifty-one percent (51%) of the then outstanding shares of Preferred Stock,
voting together as a single class, on an as-converted basis:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly owned subsidiary
corporation) or effect any transaction or Series of related transactions in
which more than fifty percent (50%) of the voting power of this corporation
is disposed of;
(b) declare or pay any dividends on the Common Stock, or
repurchase any Preferred Stock or Common Stock;
(c) make any loans or advances to officers, directors, employees
or consultants of this corporation, except (i) in the ordinary course of
business as part of travel advances or other remuneration for services and
(ii) pursuant to secured promissory notes for the purchase of stock;
Exhibit A
14
<PAGE>
(d) make any guarantees, except in the ordinary course of
business;
(e) mortgage, pledge or create any security interest in, or
permit any subsidiary corporation to mortgage, pledge or create any
security interest in, all or substantially all of the real or personal
property of this corporation or any subsidiary corporation, unless
unanimously approved by the Board of Directors;
(f) own or permit any subsidiary corporation to own any
securities of any subsidiary corporation or other corporation, partnership
or other entity unless it is wholly-owned by this corporation;
(g) create any new class or Series of stock or any other
securities convertible into equity securities of the corporation having a
preference over, or being on a parity with, the Preferred Stock with
respect to voting, dividends or upon liquidation; or
(h) amend or repeal any provision of, or add any provision to,
this corporation's Amended and Restated Articles of Incorporation if such
action would change adversely the preferences rights, privileges or powers
of, or restrictions provided for the benefit of, the Preferred Stock.
V.
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
VI.
The Corporation shall indemnify any director or officer and may
indemnify any agent of the Corporation in all circumstances in which
indemnification is permitted by the provisions of Section 317(a), (b) and (c) of
the General Corporation Law of California and shall advance the expenses of any
director or officer and may advance the expenses of any agent in all
circumstances in which such advancement of expenses is permitted by the
provisions of Section 317 of the General Corporation Law of California (without
regard to the authorization required by that section); provided, however, that
such indemnification is not authorized with respect to an action for a breach of
the duty of the director, officer or agent to the Corporation or its
shareholders if any of the exceptions to exoneration from liability of directors
set forth in Section 204(a)(10) of the General Corporation Law of California are
applicable; and the director, officer or agent shall repay to the Corporation
any such advancement of expenses if the director, officer or agent is adjudged
guilty of any of the conduct
Exhibit A
15
<PAGE>
specified in such exceptions or if indemnification is expressly prohibited by
said Section 317. This provision does not limit in any way the permissive
indemnification provided for in said Section 317. The director, officer or agent
may sue in any court of competent jurisdiction to enforce the rights to
indemnification and advancement of expenses granted by this Article VI. The
Corporation is authorized to indemnify the directors and officers of the
Corporation to the fullest extent permissible under California law.
VII.
From time to time any of the provisions of this Articles of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of California at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Articles of Incorporation are granted subject to the provisions of this Article
VII.
Exhibit A
16
<PAGE>
[LOGO OF STATE OF CALIFORNIA]
SECRETARY OF STATE
I, BILL JONES, Secretary of State of the State of California, hereby
certify:
That the annexed transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
MAR 28 1997
------------------------------------
[THE GREAT SEAL OF THE STATE OF CALIFORNIA APPEARS HERE]
/s/ Bill Jones
Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT AND RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
THE SHOPPERS' SOURCE
Robert J. McNulty certifies that:
1. I am the sole director of THE SHOPPERS' SOURCE, a California corporation,
and I adopt the Amended and Restated Articles of Incorporation in Exhibit A
attached hereto and incorporated by reference as though set forth in full
hereat, in order to amend the provisions authorizing the amount of shares
of stock.
2. No directors of the corporation were named in the Articles of Incorporation
and one director, myself has been elected since.
3. No shares of the stock of the corporation have been issued.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Dated: March 14, 1997
/s/ Robert J. McNulty
-------------------------------
Robert J. McNulty, Director
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE SHOPPERS' SOURCE
Robert J. McNulty and Kristine E. Webster certify that:
1. They are the President and the Secretary, respectively, of the Shoppers'
Source, a California corporation.
2. The Amended and Restated Articles of Incorporation of this corporation are
hereby amended by striking Article I of the said Amended and Restated
Articles of Incorporation. In lieu, place and stead thereof, to read as
follows:
"I.
The name of this Corporation is SHOPPING.COM".
3. The foregoing amendment of Articles of Incorporation has been duly approved
by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly approved
by the required vote of shareholders in accordance with Section 902 of the
Corporations Code. The total number of outstanding shares of the
corporation is 4,500,000. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote
required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated: July 10, 1997
/s/ Robert J. McNulty / CEO
----------------------------------
Robert J. McNulty, President
/s/ Kristine E. Webster / CFO
----------------------------------
Kristine E. Webster, Secretary
<PAGE>
EXHIBIT 3.02
BY-LAWS
OF
THE SHOPPERS' SOURCE
--------------------
a California corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of the corporation is hereby fixed and located at 3300 Irvine Boulevard,
Suite 374, Newport Beach, California 92660. The Board of Directors is hereby
granted full power and authority to change said principal executive office from
one location to another. The location of the principal executive office of the
corporation need not be in the State of California.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any
time be established by the Board of Directors at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of shareholders shall be
held either at the principal executive office or at any other place within or
without the State of California which may be designated either by the Board of
Directors pursuant to authority hereinafter granted to said Board, or by written
consent of all shareholders entitled to vote thereat, given either before or
after the meeting, filed with the Secretary of the corporation.
Section 2. ANNUAL MEETINGS. The annual meetings of shareholders,
commencing with the meeting to be held in June __, 1997 shall be held at 10:00
o'clock A.M. on the second Tuesday of June if not a legal holiday, and, if a
legal holiday, then on the next business day following which is not a legal
holiday, or at such other time and date as may be designated by the Board of
Directors. At such meeting the shareholders shall elect a Board of Directors in
accordance with the provisions of Article II, Section 6 of the By-Laws, and
transact such other business as may properly be brought before the meeting.
Written notice of each annual meeting shall be given to each
shareholder entitled to vote thereat, either personally or by mail or other
means of written communication, charges prepaid, addressed to such shareholder
at his or her address appearing on the books of the corporation or given by him
or her to the corporation for the purpose of notice. If any notice or report
addressed to the shareholder at the address of such shareholder appearing on the
books of the corporation is returned to the
1
<PAGE>
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available to
the shareholder upon written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice or report to all other shareholders. If a shareholder
gives no address, notice shall be deemed to have been given him or her if sent
by mail or other means of written communication addressed to the place where the
principal executive office of the corporation is situated, or if published at
least once in some newspaper of general circulation in the county in which said
office is located.
All such notices shall be given to each shareholder entitled thereto
not less than ten (10) days nor more than sixty (60) days before each annual
meeting. Any such notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication.
Such notices shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters which the Board, at the time of the mailing of
the notice, intends to present for action by the shareholders;
(c) if Directors are to be elected, the names of nominees
intended at the time of the notice to be presented by management for
election;
(d) the general nature of a proposal, if any, to take action with
respect to approval of: (i) a contract or other transaction with an
interested Director,(ii) amendment of the Articles of Incorporation, (iii)
a reorganization of the corporation as defined in Section 181 of the
California General Corporations Law, (iv) voluntary dissolution of the
corporation, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, if any; and
(e) such other matters, if any, as may be expressly required by
statute.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders,
for any purpose or purposes whatsoever, may be called at any time by the
Chairman of the Board or the President, or by the Board of Directors, or by
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting. Upon request in writing directed to the Chairman of the Board,
President, Vice President or Secretary by any person (other than
2
<PAGE>
the Board) entitled to call a special meeting of shareholders, such officer
forthwith shall cause notice to be given to shareholders entitled to vote that a
meeting will be held at a time requested by the person or persons calling the
meeting, not less than thirty-five (35) nor more than sixty (60) days after
receipt of the request. If the notice is not given within twenty (20) days after
receipt of the request, the persons entitled to call the meeting may give the
notice. Except in cases where other express provision is made by statute, notice
of such special meeting shall be given in the same manner as required for annual
meetings of shareholders. In addition to the matters required by items (a) and,
if applicable, (c) of Section 2 above, notice of any special meeting shall
specify the general nature of the business to be transacted, and no other
business may be transacted at such meeting.
Section 4. ADJOURNED MEETINGS AND NOTICE THEREOF. Any shareholders
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by vote of a majority of the shares, the holders of which are
either present in person or by proxy thereat, but in the absence of a quorum
(except as provided in Section 7 below), no other business may be transacted at
any such meeting.
When any shareholders meeting, either annual or special, is adjourned
for forty-five (45) days or more, or if after adjournment a new record date is
fixed for the adjourned meeting, notice of the adjourned meeting shall be given
as in the case of an original meeting. Except as provided above, it shall not
be necessary to give any notice of the time and place of the adjourned meeting
or of the business to be transacted thereat, other than by announcement of the
time and place thereof at the meeting at which such adjournment is taken.
Section 5. AFFIDAVIT OF MAILING. Whenever any shareholder entitled
to vote has been absent from any meeting of shareholders, whether annual or
special, an entry in the minutes to the effect that notice has been duly given
shall be sufficient evidence that due notice of such meeting was given to such
shareholder as required by law and the By-Laws of the corporation.
Section 6. VOTING.
(a) Generally: The shareholders entitled to notice of any meeting or
---------
to vote at any such meeting shall be only persons in whose name shares
stand on the stock records of the corporation on the record date determined
in accordance with Section l of ARTICLE VI.
(b) Ballots: Such vote may be viva voce or by ballot; provided,
------- ---- ----
however, upon demand made by a shareholder at any election and before the
voting begins, all elections for Directors must be by ballot.
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(c) Action by Majority: If a quorum is present except with respect to
------------------
election of Directors, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter shall be the
act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California General Corporation Law or the
Articles of Incorporation.
(d) Cumulative Voting: Subject to the requirements hereinbelow
-----------------
provided, every shareholder entitled to vote at any election for Directors
shall have the right to cumulate such shareholder's votes and give one
candidate a number of votes equal to the number of Directors to be elected
multiplied by the number of votes to which the shareholder's shares are
entitled, or to distribute the shareholder's votes on the same principle
among as many candidates as he shall think fit. No shareholder shall be
entitled to cumulate votes unless the name of the candidate or candidates
for whom such votes would be cast has been placed in nomination prior to
the voting and the shareholder has given notice at the meeting, prior to
the voting, of the shareholder's intention to cumulate the shareholder's
votes. If any one shareholder has given such notice, all shareholders may
cumulate their votes for candidates in nomination. The candidates
receiving the highest number of votes of shares entitled to be voted for
them, up to the number of Directors to be elected, shall be elected.
Section 7. QUORUM. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
Section 8. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, either annual or special, however called and noticed, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, or who, though present, has, at the beginning of the meeting, properly
objected to the transaction of any business because the meeting was not lawfully
called or convened, or to particular matters of business legally required to be
included in the notice, but not so included, signs a written waiver of notice,
or a consent to the holding of such meeting, or an approval of the minutes
thereof. Except as provided in Sections 601(e) and 601(f) of the California
General Corporation Law, the business transacted at the meeting need not be
specified in a written waiver of notice by a shareholder, in a consent to the
holding of the meeting by a shareholder or in an approval of
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the minutes of the meeting by a shareholder. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 9. ACTION WITHOUT MEETING.
(a) Election of Directors by Written Consent: Directors may be
----------------------------------------
elected without a meeting by a consent in writing, setting forth the
actions so taken, signed by all the persons who would be entitled to vote
for the election of Directors. A Director may be elected at any time to
fill a vacancy not filled by the Directors by the written consent of
persons holding a majority of the outstanding shares entitled to vote for
the election of Directors.
(b) Other Actions by Written Consent: Any other action which under
--------------------------------
any provision of the California General Corporation Law may be taken at a
meeting of the shareholders may be taken without a meeting and without
notice, except as hereinafter set forth, if a consent in writing, setting
forth the action so taken, is signed by the holders of outstanding shares
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.
(c) Notice of Action by Written Consent: If the consents of all
-----------------------------------
shareholders entitled to vote have not been solicited in writing, and if
the unanimous written consent of all such shareholders shall not have been
received, the Secretary shall give prompt notice of the corporate action
approved by the shareholders without a meeting. This notice shall be given
in the manner specified in Section 2 of this ARTICLE II. In the case of
approval of (i) contracts or transactions in which a Director has a direct
or indirect financial interest, pursuant to Section 310 of the Corporations
Code of California, (ii) indemnification of agents of the corporation,
pursuant to Section 317 of that Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of that Code, and (iv) a distribution
in dissolution other than in accordance with the rights of outstanding
preferred shares, pursuant to Section 2007 of that Code, the notice shall
be given at least ten (10) days before the consummation of any action
authorized by that approval.
(d) Record Date: Unless, as provided in Section 1 of Article VI of
-----------
these By-Laws, the Board of Directors has fixed a record date for the
determination of shareholders entitled to notice of and to give such
written consent, the record date for such determination shall be the day on
which the first written consent is given. All such written consents shall
be filed with the Secretary of the corporation.
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(e) Revocation of Written Consent: Any shareholder giving a written
-----------------------------
consent, or the shareholder's proxy holders, or a transferee of the shares
or a personal representative of the shareholder or their respective proxy
holders, may revoke the consent by a writing received by the corporation
prior to the time that written consents of the number of shares required to
authorize the proposed action has been filed with the Secretary of the
corporation, but may not do so thereafter. Such revocation is effective
upon its receipt by the Secretary of the corporation.
(f) Form of Written Consent: The form of written consent shall be
-----------------------
governed by the provisions of Section 604 of the California General
Corporation Law where applicable.
Section 10. PROXIES. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or his duly authorized
agent and filed with the Secretary of the corporation. Any proxy duly executed
is not revoked and continues in full force and effect until: (i) an instrument
revoking it or a duly executed proxy bearing a later date is filed with the
Secretary of the corporation prior to the vote pursuant thereto, (ii) a
subsequent proxy is executed by the person executing the prior proxy and is
presented to the meeting, (iii) the person executing the proxy attends the
meeting and votes in person, or (iv) written notice of the death or incapacity
of the maker of such proxy is received by the corporation before the vote
pursuant thereto is counted; provided that no such proxy shall be valid after
the expiration of eleven (11) months from the date of its execution, unless the
person executing it specifies therein the length of time for which such proxy is
to continue in force. Notwithstanding the foregoing, a proxy may be made
irrevocable pursuant to the provisions of Section 705(e) of the California
General Corporation Law. The form of proxy shall be governed by the provisions
of Section 604 of the California General Corporation Law, where applicable.
Section 11. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election are not so appointed, the Chairman of any
such meeting may, and on the request of any shareholder or his proxy shall, make
such appointment at the meeting. The number of inspectors shall be either one
(1) or three (3). If appointed at a meeting on the request of one or more
shareholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one (1) or three (3) inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may, and on the request of any shareholder or a
shareholder's proxy shall, be filled by appointment by the Board of Directors in
advance of the meeting, or at the meeting by the Chairman of the meeting.
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The duties of such inspectors shall be as prescribed in Section 707(b)
of the California General Corporation Law and shall include: Determining the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining when the polls shall close; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all shareholders.
In the determination of the validity and effect of proxies, the dates contained
on the forms of proxies shall presumptively determine the order of execution of
the proxies, regardless of the postmarked dates on the envelopes in which they
are mailed.
The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three (3) inspectors of election, the decision, act or certificate
of a majority is effective in all respects as the decision, act or certificate
of all. Any report or certificate made by the inspectors of election is prima
facie evidence of the facts stated herein.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to any limitations in the Articles of
Incorporation and the California General Corporation Law relating to action
requiring shareholder approval, the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised by or under the
direction of the Board of Directors. The Board of Directors may delegate the
management of the day-to-day operation of the business of the corporation to a
management company or other person, provided that the business and affairs of
the corporation shall be managed and all corporate powers shall be exercised
under the ultimate direction of the Board of Directors. Without prejudice to
such general powers, but subject to the same limitations, it is hereby expressly
declared that the Board shall have the following powers in addition to the other
powers enumerated in these By-Laws:
(a) To select and remove all the other officers, agents, and employees
of the corporation, prescribe the powers and duties for them as may not be
inconsistent with law, or with the Articles of Incorporation or these By-
Laws, fix their compensation, and require from them security for faithful
service.
(b) To conduct, manage, and control the affairs and business of the
corporation and to make such rules and regulations therefor not
inconsistent with law, or with the
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Articles of Incorporation or these By-Laws, as they may deem best.
(c) To adopt, make, and use a corporate seal, and to prescribe the
forms of certificates of stock, and to alter the form of such seal and of
such certificates from time to time as in their judgment they may deem
best.
(d) To authorize the issuance of shares of stock of the corporation
from time to time, upon such terms and for such consideration as may be
lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations, or other evidences of debt and
securities therefor.
Section 2. NUMBER AND QUALIFICATIONS OF DIRECTORS. The authorized
number of Directors of the corporation shall be three (3) until changed by the
shareholders either by amendment of the Articles of Incorporation or by an
amendment of the By-Laws. If no shares have been issued, this section may be
amended by a By-Law duly adopted by the Directors.
Section 3. ELECTION AND TERM OF OFFICE. The Directors shall be
elected at each annual meeting of the shareholders, but if any such annual
meeting is not held, or the Directors are not elected thereat, the Directors may
be elected at any special meeting of the shareholders held for that purpose.
All Directors shall hold office at the pleasure of the shareholders or until
their respective successors are elected. The shareholders may at any time,
either at a regular or special meeting, remove any Director and elect his or her
successor.
Section 4. RESIGNATION AND REMOVAL OF DIRECTORS.
(a) Resignation: Any Director may resign effective upon giving
-----------
written notice to the Chairman of the Board, the President, Secretary or
the Board of Directors of the corporation, unless the notice specifies a
later time for the effectiveness of such resignation, in which case such
resignation shall be effective at the time specified.
(b) Unsound Mind; Felony: The Board of Directors may declare vacant
--------------------
the office of a Director who has been declared of unsound mind by an order
of Court or convicted of a felony.
(c) Removal Without Cause by Shareholders: Any or all of the
-------------------------------------
Directors may be removed without cause if such removal is approved by the
affirmative vote of a majority of the outstanding shares entitled to vote,
provided that no Director may be removed (unless the entire board is
removed)
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when the votes cast against removal, or not consenting in writing to such
removal, would be sufficient to elect such Director if voted cumulatively
at an election at which the same total number of votes were cast (or, if
such action is taken by written consent, all shares entitled to vote were
voted) and the entire number of Directors authorized at the time of the
Director's most recent election were then being elected.
(d) Reduction of Authorized Number of Directors: No reduction of the
-------------------------------------------
authorized number of Directors shall have the affect of removing any
Director before his term of office expires.
Section 5. VACANCIES.
(a) Vacancy Defined: A vacancy in the Board of Directors shall be
---------------
deemed to exist in the case of the death, resignation or removal of any
Director, if a Director has been declared of unsound mind by order of Court
or convicted of a felony, if the authorized number of Directors is
increased, or if the shareholders fail at any annual or special meeting of
shareholders at which any Director or Directors are elected to elect the
full authorized number of Directors to be voted for at that meeting.
(b) Action by Board of Directors: Vacancies in the Board of
----------------------------
Directors, except for a vacancy created by the removal of a Director, may
be filled by a majority of the remaining Directors, although less than a
quorum, or by a sole remaining Director, and each Director so elected shall
hold office until a successor is elected at an annual or a special meeting
of the shareholders A vacancy in the Board of Directors created by the
removal of a Director may be filled only by the vote of majority of the
shares represented and voting at a duly held meeting at which a quorum is
present, or by the written consent of the holders of a majority of the
outstanding shares.
(c) Action by Shareholders: The shareholders may elect a Director or
----------------------
Directors at any time to fill any vacancy or vacancies not filled by the
Directors. Any such election by written consent other than to fill a
vacancy created by removal shall require the consent of holders of a
majority of the outstanding shares entitled to vote.
Section 6. PLACE OF MEETING. Regular and special meetings of the
Board of Directors shall be held at any place within or without the State which
has been designated in the notice of the meeting, or, if not stated in the
notice or there is no notice, designated by resolution of the Board of Directors
or, either before or after the meeting, consented to in writing by members of
the Board pursuant to the provisions of ARTICLE III, Section 10 of these By-
Laws. If the place of a regular or
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special meeting is not designated in the notice or fixed by a resolution of the
Board or consented to in writing by all members of the Board, it shall be held
at the corporation's principal executive office.
Section 7. ORGANIZATION MEETING. Immediately following each annual
meeting of shareholders, the Board of Directors shall hold a regular meeting for
the purpose of organization, election of officers, and the transaction of other
business. Notice of such meeting is hereby dispensed with.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose may be called at any time by the Chairman of the Board
or the President or any Vice President or the Secretary or any Assistant
Secretary, or any two Directors. Notice of the time of special meetings shall
be delivered personally or by telephone or telegraph or sent to the Directors by
mail. In case notice is given by mail, or telegram, it shall be sent, charges
prepaid, addressed to him or her at his or her address as it is shown on the
records of the corporation, or if it is not on these records or is not readily
ascertainable, at the place where the regular Board meetings are held. If
notice is delivered personally or given by telephone or telegraph, it shall be
given or delivered to the telegraph office at least twenty-four (24) hours
before the meeting. If notice is mailed, it shall be deposited in the United
States mail at least forty-eight (48) hours before the meeting.
A notice, or waiver of notice, need not specify the purpose of the
meeting of the Board of Directors.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the Board of Directors by law, according to the Articles of
Incorporation or according to these By-Laws may be taken without a meeting, if
all members of the Board shall individually or collectively consent in writing
to such action. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board, and shall have the same force and
effect as a unanimous vote of such Directors.
Section 10. MEETINGS BY CONFERENCE TELEPHONE. Members of the Board
of Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such a
meeting can hear and speak to one another. Participation by a Director in a
meeting in the manner provided in this Section shall constitute presence in
person by such Director at such meeting.
Section 11. ACTION AT MEETING: QUORUM AND REQUIRED VOTE. Presence
of a majority of the authorized number of Directors at a meeting of the Board of
Directors constitutes a quorum for the transaction of business, except as
hereinafter provided. Every act or decision done or made by a majority of the
Directors present at a meeting duly held at which a quorum is
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present is the act of the Board of Directors, unless a greater number, or the
same number after disqualifying one or more Directors from voting, is required
by law, the Articles of Incorporation or these By-Laws. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of one or more Directors, provided that any action taken is
approved by at least a majority of the required quorum for such meeting.
Section 12. WAIVER OF NOTICE. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present, and if, either before or after the meeting, each of the
Directors not present or who, though present, has prior to the meeting or at its
commencement, protested the lack of proper notice to him, signs a written waiver
of notice or a consent to holding such meeting or in approval of the minutes
thereof. A waiver of notice need not specify the purpose of any regular or
special meeting of the Board of Directors. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 13. ADJOURNMENT. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place. If the meeting is adjourned for more than twenty-four (24) hours, notice
of the adjournment to another time or place shall be given prior to the time of
the adjourned meeting to the Directors who are not present at the time of the
adjournment.
Section 14. FEES AND COMPENSATION. Directors shall not receive any
stated salary for their services as Directors, but, by resolution of the board,
a fixed fee, with or without expenses of attending, may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any Director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise, and receiving compensation therefor.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be:
(a) President
(b) Secretary
(c) Chief Financial Officer
The corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board, one or more
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Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Financial Officers, and such other offices as may be appointed by the Board of
Directors. Officers other than the Chairman of the Board need not be Directors.
One person may hold two or more offices.
Section 2. ELECTIONS. The officers of the corporation designated in
the preceding section of this Article, except such officers as may be elected or
appointed in accordance with Section 3 or Section 5 of this Article, shall be
chosen annually by the Board of Directors, and each shall hold his or her office
at the pleasure of the Board of Directors, who may, either at a regular or
special meeting, remove any such officer and appoint his or her successor.
Section 3. SUBORDINATE OFFICER'S, ETC. The Board of Directors may
appoint such other officers as the business of the corporation may require, each
of whom shall hold office for such period, have such authority and perform such
duties as are provided in the By-Laws or as the Board of Directors may from time
to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by the Board of Directors at that time in office,
at a regular or special meeting of the Board, or, except in case of an officer
chosen by the Board of Directors, by any officer upon whom such power or removal
may be conferred by the Board of Directors, subject, in each case, to the
rights, if any, of an officer under any contract of employment.
Any officer may resign at any time by giving written notice to the
Board of Directors or to the President, or to the Secretary of the corporation
without prejudice, however, to the rights, if any, of the corporation under any
contract to which such officer is a party. Any such resignation shall take
effect at the date of the receipt of such notice or at any later time specified
therein, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-Laws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there shall be such an officer, shall, if present, preside at all meetings of
the Board of Directors, and exercise and perform such other powers and duties as
may be from time to time assigned to him or her by the Board of Directors as
prescribed by the By-Laws.
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Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the president shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and affairs of the
corporation. He shall preside at all meetings of the shareholders, and in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the By-Laws.
Section 8. VICE-PRESIDENT. In the absence or disability of the
President, the Vice-Presidents in order of their rank as designated by the Board
of Directors, if there shall be such officers, shall perform all the duties of
the President, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the President The Vice-President shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors or the By-Laws.
Section 9. SECRETARY. The Secretary shall record, or cause to be
recorded, and shall keep a book of minutes at the principal executive office, or
such other place as the Board of Directors may order, actions taken at all
meetings of the Board of Directors and its committees, and at all meetings of
shareholders, with the time and place of holding, whether regular or special
and, if special, how authorized, the notice thereof given, the names of those
Directors and shareholders present, the number of shares present or represented
at shareholders meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the shareholders
and their addresses; the number and classes of shares held by each; the number
and date of certificates issued for the same; the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of shareholders and of the Board of Directors, as required by law or these By-
Laws to be given, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or the By-Laws.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer of
the corporation shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation,
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including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus, surplus shares and shall send or cause to be sent to
the shareholders of the corporation such financial statements and reports as are
by law or these By-Laws required to be sent to them. Any surplus, including
earned surplus, paid in surplus and surplus arising from a reduction of stated
capital, shall be classified according to source and shown in a separate
account. The books of account shall at all times be open for inspection by any
Director.
The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors and shall render to the President and Directors, when they request it,
an account of all of his or her transactions as Chief Financial Officer and of
the financial condition of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or
these By-Laws.
ARTICLE V
EXECUTIVE AND OTHER COMMITTEES
The Board may appoint one or more committees, each consisting of two
or more Directors, and delegate to such committees any of the authority of the
Board except with respect to:
(a) the approval of any action for which the California General
Corporation Law also requires shareholders, approval or approval of the
outstanding shares;
(b) the filling of vacancies on the Board or on any committee;
(c) the fixing of compensation of the Directors for serving on the
Board or on any committee;
(d) the amendment or repeal of By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board which by
its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation except at a
rate or in a periodic amount or within a price range determined by the
Board;
(g) the appointment of other committees of the Board or the members
thereof.
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Any such committee must be appointed by resolution adopted by a
majority of the authorized number of Directors and may be designated an
Executive Committee or by such other name as the Board shall specify. The Board
shall have the power to prescribe the manner in which proceedings of any such
committee shall be conducted. In the absence of any such prescription, such
committee shall have the power to prescribe the manner in which its proceedings
shall be conducted. Unless the Board or such committee shall otherwise provide,
the regular and special meetings and other actions of any such committee shall
be governed by the provisions of this Article applicable to meetings and actions
of the Board. Minutes shall be kept of each meeting of each committee.
ARTICLE VI
CORPORATE RECORDS AND REPORTS -- INSPECTION
MISCELLANEOUS
Section 1. RECORD DATE. The Board of Directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of and to vote at any meeting of shareholders or entitled to give consent
to corporate action in writing without a meeting, to receive any report, to
receive any dividend or distribution, or any allotment of rights, or to exercise
rights in respect to any change, conversion, or exchange of shares. The record
date so fixed shall not be more than sixty (60) days nor less than ten (10) days
prior to the date of any meeting, not more than sixty (60) days prior to any
other event for the purposes of which it is fixed. When a record date is so
fixed, only shareholders of record on that date are entitled to notice of and to
vote at any such meeting, to give consent without a meeting, to receive any
report, to receive a dividend, distribution, or allotment of rights, or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the Articles of Incorporation or By-Laws.
If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held. The record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
is necessary, shall be the day on which the first consent is given.
The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto, or the
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60th day prior to the date of such other action, whichever is later.
Section 2. INSPECTION OF CORPORATE RECORDS. The accounting books and
records, the record of shareholders, and minutes of proceedings of the
shareholders and the Board and committees of the Board of this corporation and
any subsidiary of this corporation shall be open to inspection upon the written
demand on the corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to such holder's interests as a shareholder or as the holder
of such voting trust certificate. Such inspection by a shareholder or holder of
a voting trust certificate may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts.
A shareholder or shareholders holding at least five (5) percent in the
aggregate of the outstanding voting shares of the corporation or who hold at
least one (1) percent of such voting shares and have filed a Schedule 14B with
the United States Securities and Exchange Commission relating to the election of
Directors of the corporation shall have (in person, or by agent or attorney) the
right to inspect and copy the record of shareholders, names and addresses and
shareholdings during usual business hours upon five (5) business days, prior
written demand upon the corporation and to obtain from the transfer agent for
the corporation, upon written demand and upon the tender of its usual charges, a
list of the shareholders names and addresses, who are entitled to vote for the
election of Directors, and their shareholdings, as of the most recent record
date for which it has been compiled or as of a date specified by the shareholder
subsequent to the date of demand. The list shall be made available on or before
the later of five (5) business days after the demand is received or the date
specified therein as the date as of which the list is to be compiled.
Every Director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation. Such inspection by a Director may be
made in person or by agent or attorney and the right of inspection includes the
right to copy and make extracts.
Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The original or a
copy of these By-Laws, as amended or otherwise altered to date, certified by the
Secretary, shall be open to inspection by the shareholders at all reasonable
times during office hours. If the principal executive office of the corporation
is outside the State of California and the corporation has no principal business
office in such state, it shall upon the written notice of any shareholder
furnish to such shareholder a copy of these By-Laws as amended to date.
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Section 4. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for payment of money, notes or other evidences of indebtedness, issued in the
name of or payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 5. CONTRACTS, ETC. -- HOW EXECUTED. The Board of Directors,
except as the By-Laws otherwise provide, may authorize any officer or officers,
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation. Such authority may be general or
confined to specific instances.
Section 6. ANNUAL AND OTHER REPORTS. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly waived, but nothing herein shall be interpreted as prohibiting
the Board from issuing annual or other periodic reports to shareholders.
Section 7. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
President or any Vice-President and the Secretary or Assistant Secretary of this
corporation are authorized to vote, represent and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted to said officers to vote or represent on behalf of this corporation any
and all shares held by this corporation in any other corporation or corporations
may be exercised either by such officers in person or by a person authorized so
to do by proxy or power of attorney duly executed by said officers.
Section 8. CONSTRUCTION AND DEFINITIONS. Unless the context
otherwise requires, the general provisions, rules of construction and
definitions contained in the California General Corporation Law shall govern the
construction of these By-Laws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular number
includes the plural and the plural number includes the singular, and the term
"person" includes a corporation as well as a natural person.
ARTICLE VII
CERTIFICATES AND TRANSFER OF SHARES
Section 1. CERTIFICATE FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice-Chairman of the Board or the President or a
Vice-President and by the Chief Financial Officer or an Assistant-Treasurer or
the Secretary or any Assistant Secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any of the signatures
on the certificate may be
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facsimile, provided that in such event at least one signature, including that of
either officer or the corporation's registrar or transfer agent, if any, shall
be manually signed. In any case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if such person were an officer, transfer agent or registrar at the date of
issue.
Any such certificate shall also contain such legend or other statement
as may be required by Section 418 of the General Corporation Law, the Corporate
Securities Law of 1968, the federal securities laws, and any agreement between
the corporation and the issue thereof.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the Board of Directors or the By-Laws may
provide; provided, however, that any such certificate so issued prior to full
payment shall state on the face thereof the amount remaining unpaid and the
terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered and canceled at the same time;
provided, however, that a new certificate will be issued without the surrender
and cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for the issuance of
the new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction, or theft; (3) the request for
the issuance of a new certificate is made prior to the receipt of notice by the
corporation that the old certificate has been acquired by a bona fide purchaser;
(4) the owner of the old certificate files a sufficient indemnity bond with or
provides other adequate security to the corporation; and (5) the owner satisfies
any other reasonable requirements imposed by the corporation. In the event of
the issuance of a new certificate, the rights and liabilities of the
corporation, and of the holders of the old and new certificates, shall be
governed by the provisions of Section 8104 and 8405 of the California Commercial
Code.
Section 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or
transfer agent of the corporation by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a
certificate of stock to be lost or destroyed shall make an affidavit or
affirmation of that fact and advertise the same in such manner as the Board of
Directors may require, and shall if the Directors so require give the
corporation a bond of
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indemnity, in form with one or more sureties satisfactory to the Board, in at
least double the value of the stock represented by said certificate, whereupon a
new certificate may be issued of the same tenor and for the same number of
shares as the one alleged to be lost or destroyed.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may appoint one or more transfer agents or transfer clerks, and one or more
registrars, which shall be an incorporated bank or trust company (either
domestic or foreign), who shall be appointed at such times and places as the
requirements of the corporation may necessitate and the Board of Directors may
designate.
Section 5. RECORD DATE AND CLOSING BOOKS. The Board of Directors may
fix a time in the future as a record date for the determination of the
shareholders entitled to give consent to corporate action in writing without a
meeting to receive any report, dividends or distribution, or any allotment of
rights, or to exercise rights in respect to any change, conversion or exchange
of shares. The record date so fixed shall be not more than sixty (60) days
prior to any other event for the purposes of which it is fixed. When a record
date is so fixed, only shareholders of record on that date are entitled to
notice of any such meeting, and to vote at any such meeting, to give consent
without a meeting, to receive any report, to receive a dividend, distribution,
or allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Articles of Incorporation
or By-Laws.
The Board of Directors may close the books of the corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders, meeting, the date when the
right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion, or exchange of shares.
ARTICLE VII
INDEMNIFICATION
Section 1. DEFINITIONS. For purposes of this Article, "agent" means
any person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation; and "proceeding" means any threatened,
pending, or completed action or proceeding, whether civil, criminal,
administrative or investigative.
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Section 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation
shall indemnify, in the manner and to the full extent permitted by law
(including, without limitation, the indemnification authorized by Article VI of
the Articles of Incorporation), any person (or the estate of any person) who was
or is a party, or is threatened to be made a party, to any proceeding by reason
of the fact that such person (1) is or was a director or officer of the
corporation or a predecessor corporation, or (2) is or was an agent other than
a director or officer of the corporation or a predecessor corporation who, at
the time, is or was also serving as a director or officer of the corporation or
a predecessor corporation. Where required by law, the indemnification provided
for in this Section shall be made only as authorized in the specific case upon a
determination, in the manner provided by law, that indemnification is proper
under the circumstances.
To the full extent permitted by law, the indemnification provided
for in this Section shall include expenses (including attorneys' fees and
expenses of establishing a right to indemnification under this Section) in any
proceeding or in connection with any appeal therein, judgments, fines, and
amounts paid in settlement. In the manner and to the full extent permitted by
law, any such expenses shall be paid by the corporation in advance of the final
disposition of such proceeding. The provisions of this Paragraph are subject to
the provisions of Section 3 of this Article.
Section 3. NOTIFICATION AND DEFENSE OF CLAIM.
(a) A person's right to indemnification and advance ment of expenses
under the provisions of Section 2 of this Article (hereinafter referred to in
this Section as "Indemnification Provisions") is conditioned upon his having
promptly given the corporation written notice after learning of his involvement
in a proceeding; however, a person's failure to give such notice promptly shall
not relieve the corporation of any liability it may have to the person (1) under
the Indemnification Provisions unless the corporation is materially prejudiced
by such failure or (2) otherwise than under the Indemnification Provisions.
(b) With respect to any proceeding of which the corporation has been
given the notice required by Paragraph (a) of this Section, the corporation
shall have the right to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume and
control the defense thereof, with counsel chosen by the corporation but
reasonably satisfactory to the person seeking indemnification (hereinafter
referred to in this Section as "Indemnitee"); provided, however, that if the
defendants in any such proceeding include both Indemnitee and the corporation,
and counsel for the corporation shall have reasonably concluded that there is a
conflict of interest that would prevent counsel for the corporation from also
representing Indemnitee, then Indemnitee shall have the right to select separate
counsel to
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participate in the defense of the proceeding on Indemnitee's behalf. After the
corporation has notified Indemnitee of the corporation's election so to assume
the defense of the proceeding, the corporation will not be liable to Indemnitee
pursuant to the Indemnification Provisions for any legal or other expense
subsequently incurred by Indemnitee in connection with the defense other than
reasonable costs of investigation unless (1) Indemnitee shall have employed
counsel pursuant to the provisions of this Paragraph as a result of a conflict
of interest or (2) the corporation shall have authorized the employment of
counsel for Indemnitee at the expense of the corporation. If the corporation
elects to assume such defense, Indemnitee shall have the right, at his own
expense and with counsel of his choice, to participate in such defense, and
Indemnitee shall in all events cooperate fully with the corporation. Neither
Indemnitee nor the corporation will compromise or settle any proceeding without
the prior written consent of the other, provided that in the event that the
corporation proposes a monetary settlement the acceptance of which would release
Indemnitee from all claims asserted in such proceeding and if Indemnitee
withholds his consent to such settlement, then the liability of the corporation
shall be limited to the total sum representing the amount of the proposed
compromise or settlement and the amount of reasonable attorneys' fees incurred
by Indemnitee up to the time such approval is withheld.
Section 4. INDEMNIFICATION OF OTHER AGENTS. The corporation may
provide indemnification and may advance expenses, in the same manner and to the
same extent required in Section 2 of this Article for those agents specified
therein, to any person (or the estate of any person) who was or is a party, or
is threatened to be made a party, to any proceeding by reason of the fact that
such person is or was an agent other than an agent specified in Section 2 of
this Article.
Section 5. SUCCESSFUL DEFENSE. To the extent that any agent has been
successful on the merits in defense of any claim, issue or matter therein, the
agent shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by the agent in connection therewith.
Section 6. OTHER INDEMNIFICATION PERMITTED. The indemnification
provided by this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise, both as to action
in an official capacity and as to action in another capacity while holding such
office. Nothing contained in this Article shall affect any right to
indemnification to which any person may be entitled in another capacity, by
contract or otherwise.
Section 7. INSURANCE. The corporation may, in the manner and to the
full extent permitted by law, purchase and
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maintain insurance on behalf of any agent of the corporation against any
liability which may be asserted against him.
Section 8. PRESUMPTIONS. The termination of any proceeding by
judgment, order, settlement or conviction or upon a plea of nolo contendere or
its equivalent shall not of itself create a presumption that any standard has
not been satisfied that by law must be satisfied for indemnification to be
proper under the circumstances.
Section 9. SUBSEQUENT AMENDMENT. No amendment, termination or repeal
of this Article, Article V of the Articles of Incorporation, or relevant
provisions of the California Corporations Code or any other applicable law shall
affect or diminish in any way the rights to indemnification under the provisions
of this Article with respect to any proceeding arising out of, or relating to,
any actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
Section 10. MERGER, CONSOLIDATION, ETC. If the corporation is merged into
or consolidated with another corporation and the corporation is not the
surviving corporation, or if substantially all of the assets or stock of the
corporation are acquired by any other corporation, or in the event of any other
similar reorganization involving the corporation, the Board of Directors of the
corporation or the board of directors of any corporation assuming the
obligations of the corporation shall assume the obligations of the corporation
under this Article with respect to any proceeding arising out of or relating to
any actions, transactions or facts occurring before to the date of such merger,
consolidation, acquisition or reorganization.
Section 11. SEVERABILITY. If any part of this Article shall be found
in any proceeding or appeal therefrom or in any other circumstances or as to any
particular agent to be unenforceable, ineffective or invalid for any reason, the
enforceability, effect and validity of the remaining parts or of such parts in
other circumstances shall not be affected, except as otherwise required by
applicable law.
ARTICLE IX
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the date of its incorporation, and the word
"California."
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ARTICLE X
AMENDMENTS TO BY-LAWS
Section 1. BY SHAREHOLDERS. New By-Laws may be adopted or these By-
Laws may be repealed or amended at their annual meeting, or at any other meeting
of the shareholders called for that purpose, by a vote of shareholders entitled
to exercise a majority of the voting power of the corporation, or by written
assent of such shareholders, except as otherwise provided by law, the Articles
of Incorporation, or Section 2 of this Article X.
Section 2. POWER OF DIRECTORS. Subject to the right of shareholders
as provided in Section 1 of this Article X to adopt, amend, or repeal By-Laws,
other than a By-Law or amendment thereof changing the authorized number of
Directors, these By-Laws may be adopted, amended or repealed by the Board of
Directors; provided, however, that if no shares have been issued, the Board of
Directors may adopt a By-Law or amendment thereof changing the authorized number
of Directors.
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CERTIFICATE OF SECRETARY
------------------------
I, the undersigned, hereby certify:
1. That I am the duly elected, qualified and acting Secretary
of ______________________________________, a California corporation.
2. That the foregoing By-Laws of said corporation were duly adopted
as the By-Laws thereof by an Action Taken by ________________ Written Consent of
the ________________________ of said corporation on ___________ __, 19___ and
that the same do now constitute the By-Laws of said corporation.
Executed on __________ __, 19__.
_______________________________
Secretary
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ACTION BY UNANIMOUS WRITTEN
CONSENT OF SOLE DIRECTOR OF
THE SHOPPERS' SOURCE
WHEREAS, it is deemed desirable and in the best interests of this
corporation that the following actions be taken by the Director of this
corporation pursuant to this Unanimous Written Consent:
NOW, THEREFORE, BE IT RESOLVED that, pursuant to Section 307(b) of the
California General Corporation Law, the undersigned, being the sole Director of
this corporation, hereby consents to, approves, and adopts the following:
RESOLVED that:
1. Section 2 of the By-Laws shall be stricken.
2. In lieu, place and stead of Section 2 of the By-Laws, Section 2 shall
now read as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
(a) The authorized number of Directors of the corporation shall be seven (7)
until changed by the shareholders either by an amendment of the Articles of
Incorporation or by an amendment of the By-Laws.
(b) The corporation, when listed, shall by amendment of its Articles of
Incorporation or of its By-Laws, divide the Board of Directors into two
classes to serve for terms of two years and to eliminate cumulative voting.
Three of the directors shall be elected at the first annual meeting after
the divided board becomes effective and four directors elected at the second
annual meeting. Thereafter, the number of board members to be elected shall
be determined in that alternate order. This provision in this subsection (b)
shall become effective only when the corporation becomes a listed
corporation within the meaning of Section 301.5 of the Corporations Code.
Dated: March 18, 1997
/s/ Robert J. McNulty
--------------------------------
Robert J. McNulty, Sole Director
<PAGE>
EXHIBIT 3.03
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SHOPPING.COM
I.
The name of the Corporation is SHOPPING.COM
II.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
The name and address in the State of California for this corporation's
initial agent for service of process is:
Leon M. Cooper
221 N. Figueroa Street, 12th Floor
Los Angeles, California 90012
IV.
The Corporation is authorized to issue one class of shares designated
"Common Stock". The total number of shares which the Corporation is authorized
to issue is 20,000,000 shares. The total number of shares of Common Stock
authorized to be issued is 20,000,000 shares.
V.
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
VI.
The Corporation shall indemnify any director or officer and may
indemnify any agent of the Corporation in all circumstances in which
indemnification is permitted by the provisions of Section 317(a), (b) and (c) of
the General Corporation Law of California and shall advance the expenses of
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any director or officer and may advance the expenses of any agent in all
circumstances in which such advancement of expenses is permitted by the
provisions of Section 317 of the General Corporation Law of California (without
regard to the authorization required by that section); provided, however, that
such indemnification is not authorized with respect to an action for a breach of
the duty of the director, officer or agent to the Corporation or its
shareholders if any of the exceptions to exoneration from liability of directors
set forth in Section 204(a) (10) of the General Corporation Law of California
are applicable; and the director, officer or agent shall repay to the
Corporation any such advancement of expenses if the director, officer or agent
is adjudged guilty of any of the conduct specified in such exceptions or if
indemnification is expressly prohibited by said Section 317. This provision does
not limit in any way the permissive indemnification provided for in said Section
317. The director, officer or agent may sue in any court of competent
jurisdiction to enforce the rights to indemnification and advancement of
expenses granted by this Article VI. The Corporation is authorized to indemnify
the directors and officers of the Corporation to the fullest extent permissible
under California law.
VII.
From time to time any of the provisions of this Articles of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of California at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Articles of Incorporation are granted subject to the provisions of this Article
VII.
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Exhibit 4.01
SHOPPING.COM
------------
A CALIFORNIA CORPORATION
STOCK OPTION PLAN OF 1997
1. Purpose.
-------
The purpose of this Stock Option Plan ("Plan") of Shopping.com, a
California corporation ("Company"), is to secure for the Company and its
shareholders the benefits arising from stock ownership by selected employees and
directors of and consultants to the Company and its Affiliates, as defined
below, as the Board of Directors of the Company, or a committee thereof
constituted for the purpose, may from time to time determine. The Plan will
provide a means whereby such selected employees, directors and consultants may
purchase shares of the Common Stock of the Company pursuant to (i) options which
will qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"), or (ii) "non-statutory" stock options
(Section 83 of the Code). The word "Affiliate" as used herein means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Code.
2. Administration.
--------------
2.1 The Plan shall be administered by the Board of Directors of the
Company ("Board of Directors") or by a Committee appointed by the Board of
Directors consisting of three or more Directors or officers of the Company to
whom administration of the Plan has been duly delegated. Any action of the Board
of Directors or the Committee with respect to
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administration of the Plan shall be taken by a majority vote or written consent
of its members.
2.2 Subject to the provisions of this Plan, the Board of
Directors or Committee, as the case may be, shall have authority (i) to construe
and interpret the Plan, (ii) to define the terms used therein, (iii) to
prescribe, amend and rescind rules and regulations relating to the Plan
(provided such amendment or rescission does not materially adversely affect the
rights of a participant under the Plan with respect to shares of Common Stock of
the Company previously issued under the Plan), (iv) to determine the individuals
to whom options shall be granted, the time or times at which options shall be
granted, whether such options will be incentive stock options or non-qualified
stock options, the number of shares to be subject to each option, the option
price, the number of installments, if any, in which each option may be
exercised, the vesting schedule for exercising each option, and the duration of
leaves of absence which may be granted to participants without constituting a
termination of their employment for the purposes of the Plan, and (v) to make
all other determinations necessary or advisable for the administration of the
Plan. All determinations and interpretations made by the Board of Directors or
Committee as the case may be, shall be binding and conclusive on all
participants in the Plan and their legal representatives and beneficiaries.
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3. Shares Subject to the Plan.
--------------------------
Subject to the adjustment as provided in paragraph 15 hereof, the
shares to be offered under the Plan shall consist of the Company's authorized
but unissued Common Stock, ("Common Stock"), and the aggregate amount of such
stock which may be issued upon exercise of all options under the Plan shall not
exceed 500,000 of such shares. If any option granted under the Plan shall
expire or terminate for any reason, without having been exercised in full, the
unpurchased shares subject thereto shall again be available for options to be
granted under the Plan.
4. Eligibility and Participation.
-----------------------------
4.1 All regular salaried employees of the Company or of any
Affiliate shall be eligible to receive incentive, qualified or nonstatutory
stock options. Directors of and consultants to the Company who are not regular
employees of the Company are not eligible to receive incentive stock options or
qualified options. These individuals are entitled to receive nonstatutory
options.
4.2 The Board of Directors or the Committee shall determine the
employees to whom, and the time or times at which, options shall be granted and
the number of shares to be covered by each option; provided, however, that no
option may be granted hereunder to any employee, director or consultant who, at
the time such option is granted, owns shares of the Company's outstanding
capital stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company (and of its Affiliates if
applicable), unless the
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exercise price of such option is at least one hundred ten percent (110%) of the
fair market value of the stock subject to such option and such option by its
terms is not exercisable after the expiration of five (5) years from the date
such option is granted. An individual who has been granted an option may, if he
is otherwise eligible, be granted an additional option or options if the Board
of Directors or Committee shall so determine.
4.3 With respect to incentive options under this plan and under all
such plans of the Company and any Affiliates, which are first exercisable during
the same calendar year, the aggregate fair market value of the stock with
respect to all such options (determined at the time the options are granted)
shall not exceed $100,000.
4.4 All options granted under this Plan shall be granted within ten
(10) years from the date this Plan is adopted by the Board or the date this Plan
is approved by the stockholders of the Company, whichever is earlier.
5. Duration of Options.
-------------------
Each option and all rights associated therewith shall expire on such
date as the Board of Directors or Committee may determine, but in no event later
than ten (10) years from the date on which the option is granted, and shall be
subject to earlier termination as provided herein.
6. Purchase Price.
--------------
The purchase price of the stock covered by each option shall be
determined by the Board of Directors or the Committee, but, in the case of each
such option, shall not be less than one hundred percent (100%) of the fair
market value of such stock on
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the date the option is granted. The purchase price of the shares upon exercise
of an option shall be paid in (a) cash, or (b) by delivering stock of the
Company already owned by the Grantee at the discretion of the Board of
Directors, or (c) a combination of cash and stock already owned by the option
holder at the discretion of the Board of Directors. For purposes of exercising
an option, the value of the stock of the Company delivered in payment shall be
the fair market value of the stock of the Company on the last business day prior
to the delivery.
7. Exercise of Options.
-------------------
No option granted under this Plan shall be exercisable if such
exercise would involve a violation of any applicable law or regulation
(including without limitation, federal and state securities laws and
regulations). The Board of Directors or the Committee shall determine on a case
by case basis the eligibility date or dates on which an option granted hereunder
may be exercised.
8. Fair Market Value of Common Stock.
---------------------------------
The fair market value of a share of Common Stock of the Company shall
be determined for purposes of this Plan by reference to the most recent sale
price of the Company's Common Stock and such other factors as the Board of
Directors or the Committee may deem appropriate to reflect the then fair market
value thereof, unless such shares are publicly traded on a stock exchange or
otherwise, in which case such value shall be determined by reference to the
closing price of a share on the principal stock exchange on which such shares
are traded, or if such shares are not then traded on a principal stock exchange,
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the mean between the bid and asked price of a share as supplied by the National
Association of Securities Dealers, Inc. through NASDAQ (or its successor in
function), in each case as reported by The Wall Street Journal, for the business
--- ---- ------ -------
day immediately preceding the date on which the option is granted or exercised.
9. Withholding Tax.
---------------
Upon the disposition by an employee or other person of shares of
Common Stock acquired pursuant to the exercise of an option granted pursuant to
the Plan, the Company shall have the right to require such employee or such
other person to pay the Company the amount of any taxes which the Company may be
required to withhold with respect to such shares.
10. Nontransferability.
------------------
An option granted under the Plan shall, by its terms, be
nontransferable by the option holder, either voluntarily or by operation of law,
otherwise than by will or the laws of descent and distribution, and shall be
exercisable during the option holder's lifetime only by the option holder,
regardless of any community property interest therein of the spouse of the
option holder, or such spouse's successors in interest. If the spouse of the
option holder shall have acquired a community property interest in such option,
the option holder, or the option holder's permitted successors in interest, may
exercise the option on behalf of the spouse of the option holder or such
spouse's successors in interest.
6
<PAGE>
11. Holding of Stock After Exercise of Option.
-----------------------------------------
At the discretion of the Board of Directors or Committee, any option
may provide that the option holder, by accepting such option, represents and
agrees, for the option holder and the option holder's permitted transferees (by
will or the laws of descent and distribution), that none of the shares purchased
upon exercise of the option will be acquired with a view to any sale, transfer
or distribution of said shares in violation of the Securities Act of 1933 (the
"Act"), as amended, and the rules and regulations promulgated thereunder, or any
applicable state securities laws, and the person entitled to exercise the same
shall furnish evidence satisfactory to the Company (including a written and
signed representation) to that effect in form and substance satisfactory to the
Company, including indemnification of the Company in the event of any violation
of the Act or any applicable state securities laws, by such person.
12. Termination of Employment.
-------------------------
If an option holder ceases to be employed by or associated with the
Company or one of its subsidiaries for any reason other than the option holder's
death or permanent disability (within the meaning of Section 105(d)(4) of the
Code), the option holder's option shall become void and of no further force or
effect thirty (30) days after the termination of such employment or association;
provided, however, that if such cessation of employment or association shall be
due to the option holder's voluntary resignation with the consent of the Board
of Directors of the Company or such subsidiary, expressed in the
7
<PAGE>
form of a written resolution, or to the option holder's retirement under the
provisions of any Pension or Retirement Plan of the Company or of such
subsidiary then in effect, within three (3) months after the date the option
holder ceases to be an employee or director of or consultant to the Company or
such subsidiary such option may be exercised to the extent exercisable on the
date of such cessation of employment. A leave of absence approved in writing by
the Board of Directors or the Committee shall not be deemed a termination of
employment for the purposes of this Paragraph 12, but no option may be exercised
during any such leave of absence, except during the first three (3) months
thereof.
13. Effect of Change of Position or Duties.
--------------------------------------
If an option holder ceases to be an officer of the Company for any
reason and remains an employee of the Company but ceases to be employed in a
position in which employees are eligible to receive options, as determined in
the sole judgment of the Board of Directors, such option holder may exercise his
options in accordance with their terms only for a period of thirty (30) days
after such cessation (but not beyond the option period). Any exercise of
options after such cessation may be only to the extent of the full number of
shares the option holder was entitled to purchase under the option on the date
of such cessation, plus a portion of the additional number of shares, if any, he
would have become entitled to purchase on the next anniversary date of the
issuance date of the option following such cessation, such portion to be
determined by multiplying such additional number of shares by a fraction, the
numerator of which
8
<PAGE>
shall be the number of days from the anniversary date of the Issuance Date
preceding such cessation to the date of such cessation and the denominator of
which shall be 365. Such portion shall be rounded, if necessary, to the nearest
whole share.
14. Death or Permanent Disability of Option Holder.
----------------------------------------------
If an option holder dies or becomes permanently disabled while the
option holder is employed by or associated with the Company or one of its
subsidiaries, option holder's option shall expire one (1) year after the date of
such death or permanent disability unless by its terms it sooner expires. During
such period after death, such option may, to the extent that it remained
unexercised (but exercisable by the option holder according to such option's
terms) on the date of such death, be exercised by the person or persons to whom
the option holder's rights under the option shall pass by the option holder's
will or by the laws of descent and distribution.
15. Privileges of Stock Ownership.
-----------------------------
No person entitled to exercise any option granted under the Plan shall
have any of the rights or privileges of a shareholder of the Company in respect
of any shares of stock issuable upon exercise of such option until certificates
representing such shares shall have been issued and delivered. No shares shall
be issued and delivered upon exercise of any option unless and until, in the
opinion of counsel for the Company, there shall have been full compliance with
any applicable registration requirements of the Act or qualification, or
registration requirements of applicable state securities, or
9
<PAGE>
"Blue Sky" laws, any applicable listing requirements of any national securities
exchange on which stock of the same class is then listed, and any other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery.
16. Adjustments.
-----------
16.1 If the outstanding shares of the Common Stock of the
Company are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares as to which options may
be granted under this Plan. A corresponding adjustment changing the number or
kind of shares allocated to unexercised options or portions thereof, which shall
have been granted prior to any such change, shall likewise be made. Any such
adjustment in the outstanding options shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the option but
with a corresponding adjustment in the price for each share or other unit of any
security covered by the option.
16.2 Upon the dissolution or liquidation of the Company, the
Plan shall terminate, and any option theretofore granted hereunder shall
terminate.
16.3 Upon a reorganization or reclassification of the Common
Stock or a merger or consolidation of the Company with or sale of substantially
all of the assets of the Company to one
10
<PAGE>
or more corporations as result of which reorganization, reclassification, merger
or consolidation, or sale, the then outstanding shares of Common Stock are
exchanged for shares of other stock, all then outstanding options hereunder
shall be converted into options to purchase shares of such other stock, with
appropriate adjustments as to the number and kind of shares of such other stock
and the prices therefor.
16.4 Adjustments under this Paragraph 15 shall be made by the Board
of Directors or the Committee, whose determination as to what adjustments shall
be made, and the extent thereof, shall be final, binding and conclusive. No
fractional shares of stock shall be issued under the Plan on any such
adjustment.
17. Amendment and Termination of Plan.
---------------------------------
17.1 The Board of Directors or the Committee may at any time suspend
or terminate the Plan. The Board of Directors or the Committee may also at any
time amend or revise the terms of the Plan, provided that no such amendment or
revision shall, unless appropriate shareholder approval of such amendment or
revision is obtained, increase the maximum number of shares in the aggregate
which may be issued pursuant to the options granted under the Plan or change the
class of employees eligible to receive such options, except as permitted under
the provisions of Paragraph 15.
17.2 No amendment, suspension or termination of the Plan shall,
without the consent of the option holder, alter or impair any rights or
obligations under any option theretofore granted under the Plan.
11
<PAGE>
18. Receipt of Financial Information Regarding the Company.
------------------------------------------------------
The Company shall deliver financial statements of the Company, as soon
as practicable after the end of each of the Company's fiscal years, to each
holder of then outstanding options hereunder. This provision will remain
applicable for the duration of each option granted pursuant to the Plan.
19. Sale or Disposition of Option Shares.
------------------------------------
19.1 In the event an option holder is terminated by the Company
for any reason, or option holder voluntarily terminates option holder's
employment with the Company prior to a specified date in the stock option
agreement, the Company shall have the right to repurchase ("Repurchase Option")
the Option Shares ("Repurchase Shares") at either (1) the higher of the original
purchase price or fair value on the date of termination of employment, if the
right to repurchase is required to exercised for cash or cancellation of
purchase money indebtedness for the shares within 90 days of termination of
employment, but the right terminates when the Company's securities become
publicly traded; or (2) the original purchase price, provided that (A) the right
to repurchase at the original purchase price lapses at the rate of at least 20%
per year over 5 years from the date of the option is granted (without respect to
the date the option was exercised or became exercisable), which right must be
exercised for cash or cancellation of purchase money indebtedness for the shares
within 90 days of termination of employment, and (B), if the right is
assignable, the assignee must pay the Company upon assignment of the right,
(unless the assignee is a
12
<PAGE>
100% owned subsidiary of the Company or is the parent of the Company owning 100%
of the Company) cash equal to the difference between the original purchase price
and fair value if the original purchase price is less than fair value.
20. Effective Date of Plan.
----------------------
20.1 No option may be granted under the Plan unless and until
the Plan has been registered or qualified under all applicable state and federal
securities laws or counsel for the Company determines that an exemption
therefrom is available.
20.2 Effectiveness of the Plan is subject to approval by the
holders of the outstanding voting stock of the Company as hereinafter provided
within twelve (12) months from the date the Plan is adopted by the Board of
Directors. The Plan shall be deemed approved by the holders of the outstanding
voting stock of the Company by (i) the affirmative vote of the holders of a
majority of the voting shares of the Company represented and voting at a duly
held meeting of shareholders at which a quorum is present or (ii) the written
consent of a majority of the outstanding voting shares of the Company. Any
options granted under the Plan prior to obtaining such shareholder approval
shall be granted on the conditions that the options so granted: (i) shall not be
exercisable prior to such approval, and (ii) shall become null and void if such
shareholder approval is not obtained.
* * * * *
13
<PAGE>
EXHIBIT 4.02
SHOPPING.COM
------------
a California corporation
INCENTIVE STOCK OPTION AGREEMENT
UNDER STOCK OPTION PLAN OF 1997
1. Grant of Option. SHOPPING.COM, a California corporation
---------------
("Company"), wishing to provide __________________________ ("Grantee") an
opportunity to purchase shares of the Company's Common Stock, no par value,
("Common Stock") and to provide Grantee with an added incentive as an employee
of the Company, hereby grants to Grantee and Grantee hereby accepts on this __
day of________, 199_, an option to purchase ___________ (___) shares of Common
Stock ("Option Shares") at a price of $____ per share on the terms and
conditions stated herein.
2. Option Dates, Term of Option.
----------------------------
2.1 This Option may be exercisable at any time during the Term
hereof.
2.2 Term of Option. This Option shall terminate on_________ ___,
--------------
200_ unless earlier terminated as provided in this Section 2.
2.3 Term for Ten Percent Shareholders. If on the date hereof,
---------------------------------
Grantee owns shares of the Company's outstanding capital stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its affiliates, this Option shall terminate on______ __ 200_.
2.4 Termination of Employment. If the Grantee's employment by
-------------------------
the Company or any of its affiliates is terminated for any reason other than
death or permanent disability (within the meaning of Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended (the "Code")), this Option shall
become void and of no further force or effect thirty (30) days after the
termination of such employment; provided, however, that if such cessation of
employment shall be due to (i) Grantee's voluntary resignation with the consent
of the Board of Directors or a Committee thereof (the "Board") of the Company or
such affiliate, expressed in the form of a written resignation, or (ii)
Grantee's retirement under the provisions of any Pension or Retirement Plan of
the Company or such affiliate then in effect, this Option shall terminate three
(3) months after the date Grantee ceases to be an employee of the Company or
such affiliate. A leave of absence approved in writing by the Board, including
but not limited to, military service leave or other temporary employment with
the United States Government and sick leave, shall not be deemed a termination
of employment for the purposes of this Paragraph, but this Option may not be
exercised after the first three (3) months of such leave.
<PAGE>
2.5 Death or Permanent Disability. If the Grantee shall die or
-----------------------------
become permanently disabled while employed by the Company or one of its
affiliates, this Option shall expire one (1) year after the date of such death
or permanent disability. During such period after death, the Grantee's legal
representation or representatives, or the person or persons entitled to do so
under the Grantee's last will and testament or under applicable intestate laws,
shall have the right to exercise this Option as to only the number of shares to
which the Grantee was entitled to purchase on the date of his death.
2.6 Terminating Transactions. Upon the dissolution or
------------------------
liquidation of the Company, this Option shall terminate.
2.7 Assumption by Successor. Upon the reorganization, merger or
-----------------------
consolidation of the Company with one or more corporations as a result of which
the Company is not the surviving corporation, the Board shall cause the
surviving corporation to assume the Option by converting the Option into an
option to purchase the stock of such successor or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices, pursuant to the terms hereof.
3. Non-Transferability of Option. Except by will or the laws of
-----------------------------
descent and distribution, this Option shall not be transferred, or assigned,
pledged, hypothecated or otherwise disposed of in any way, whether by operation
of law of otherwise. During the Grantee's lifetime this Option is exercisable
only by the Grantee, regardless of any community property interest therein of
the spouse of the Grantee, or such spouse's successor-in-interest. If the
spouse of the Grantee shall have acquired a community property interest in this
Option, only the Grantee, or the Grantee's permitted successor-in-interest, may
exercise the Option on behalf of the spouse of the Grantee or such spouse's
successor-in-interest.
4. Adjustments. If the outstanding shares of the Common Stock are
-----------
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction, an appropriate and proportionate adjustment shall be made
in the maximum number and kind of shares subject to the unexercised portion of
this Option. Any such adjustment in the unexercised portion of this Option shall
be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option but with a corresponding adjustment and price
for each share or other unit of any security covered by the Option. Adjustments
shall be made by the Board, whose determination as to what adjustments shall be
2
<PAGE>
made and the extent thereof shall be final, binding and conclusive. No
fractional shares of stock shall be issued under this Option on any such
adjustment.
5. Mechanics. This Option may be exercised by the Grantee or other
---------
person then entitled to exercise it by giving ten (10) days' written notice of
exercise to the Company specifying the number of shares to be purchased and the
total purchase price, accompanied by payment of such purchase price, in cash or
by certified or cashier's check payable to Company.
6. Withholding Taxes. Company shall have the right to require
-----------------
Grantee or such other holder of the Option or the Option Shares to pay to
Company any and all sums equal to any taxes which Company may be required to
withhold by reason of the Option, the Option Shares or the disposition of the
Option or the Option Shares.
7. Rights Before Issuance and Delivery. Neither Grantee nor any
-----------------------------------
holder of the Option shall be entitled to the privileges of stock ownership with
respect to the Option Shares unless and until such shares have been issued to
such person as fully paid shares.
8. By accepting this Option, the Grantee represents and agrees for
himself and his transferees by will or the laws of descent and distribution
that, unless a registration statement under the Securities Act of 1933 is in
effect as to the Option Shares purchased upon any exercise of this Option, any
and all Option Shares so purchased shall be acquired for his personal account
and not for sale or for distribution, and each notice of the exercise of any
portion of this Option shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the Option
Shares are being so acquired in good faith for his personal account and not for
sale or distribution. In the event the Company's legal counsel shall advise it
that registration under the Securities Act of 1933 of the Option Shares as to
which this Option is at the time being exercised is required prior to delivery
thereof, the Company shall not be required to issue or deliver such shares
unless and until such legal counsel shall advise that such registration has been
completed or that it is not required.
9. All stock certificates representing shares of Option Shares, if
the Option is exercised, may bear three (3) legends in a form substantially
similar to the following:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE
3
<PAGE>
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
"THESE SECURITIES HAVE NOTE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO A
RIGHT OF REPURCHASE BY THE COMPANY."
10. Employment Obligation.
---------------------
10.1 In consideration for the granting of this Option, the
Grantee agrees that during the period of his employment by the Company or its
affiliates, he shall faithfully and to the best of his ability devote his time,
energy and skills during all normal working hours to the service of the Company
or its subsidiaries in the promotion of their interests.
10.2 Nothing in this Agreement shall be construed to confer
upon the Grantee any right to continued employment with the Company or its
affiliates or to restrict in any way the right of the Company or its affiliates
to terminate his employment or modify the terms and conditions thereof at any
time.
11. Stock Option Plan of 1997. This Option is subject to, and the
-------------------------
Company and the Grantee agree to be bound by, all of the terms and conditions of
the Company's Stock Option Plan of 1997 ("Plan") as the same may be amended from
time to time in accordance with the terms thereof. A copy of the Plan in its
present form is available for inspection during business hours by the Grantee or
other persons entitled to exercise the Option at the Company's principal office.
12. Notices. Any notice to be given to the Company shall be addressed
-------
to the Company at its principal office and any notice to be given to the Grantee
shall be addressed to him at the address given beneath the signature hereto or
at such other address as the Grantee may hereafter designate in writing to the
Company. Any such notice shall be deemed duly given when personally delivered or
deposited in the United States mail.
8. Applicable Law and Severability. This document shall, in all
-------------------------------
respects, be governed by the laws of the State of
4
<PAGE>
California applicable to agreements executed and to be wholly performed within
the State of California. Nothing contained herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision contained herein and any present or future
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail but the provision of this
document which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law.
IN WITNESS WHEREOF, the parties have entered into this Incentive Stock
Option Agreement on the day and year first written above.
GRANTEE: COMPANY:
SHOPPING.COM
a California corporation
_____________________________ By:_________________________
_____________________________
Street Address
_____________________________
City, State, Zip Code
5
<PAGE>
SPOUSE'S CONSENT
By his or her signature below, the spouse of Grantee agrees to be bound by all
of the terms and conditions of the foregoing Agreement.
____________________________
Spouse
6
<PAGE>
EXHIBIT 4.03
SHOPPING.COM
------------
a California corporation
INCENTIVE STOCK OPTION AGREEMENT
UNDER STOCK OPTION PLAN OF 1997
1. Grant of Option. SHOPPING.COM, a California corporation
---------------
("Company"), wishing to provide __________________________ ("Grantee") an
opportunity to purchase shares of the Company's Common Stock, no par value,
("Common Stock") and to provide Grantee with an added incentive as an employee
of the Company, hereby grants to Grantee and Grantee hereby accepts on this __
day of________, 199_, an option to purchase ___________ (___) shares of Common
Stock ("Option Shares") at a price of $____ per share on the terms and
conditions stated herein.
2. Option Dates, Term of Option.
----------------------------
2.1 This Option may be exercisable at any time during the Term
hereof.
2.2 Term of Option. This Option shall terminate on_________ ___,
--------------
200_ unless earlier terminated as provided in this Section 2.
2.3 Term for Ten Percent Shareholders. If on the date hereof,
---------------------------------
Grantee owns shares of the Company's outstanding capital stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its affiliates, this Option shall terminate on______ __ 200_.
2.4 Termination of Employment. If the Grantee's employment by
-------------------------
the Company or any of its affiliates is terminated for any reason other than
death or permanent disability (within the meaning of Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended (the "Code")), this Option shall
become void and of no further force or effect thirty (30) days after the
termination of such employment; provided, however, that if such cessation of
employment shall be due to (i) Grantee's voluntary resignation with the consent
of the Board of Directors or a Committee thereof (the "Board") of the Company or
such affiliate, expressed in the form of a written resignation, or (ii)
Grantee's retirement under the provisions of any Pension or Retirement Plan of
the Company or such affiliate then in effect, this Option shall terminate three
(3) months after the date Grantee ceases to be an employee of the Company or
such affiliate. A leave of absence approved in writing by the Board, including
but not limited to, military service leave or other temporary employment with
the United States Government and sick leave, shall not be deemed a termination
of employment for the purposes of this Paragraph, but this Option may not be
exercised after the first three (3) months of such leave.
<PAGE>
2.5 Death or Permanent Disability. If the Grantee shall die or
-----------------------------
become permanently disabled while employed by the Company or one of its
affiliates, this Option shall expire one (1) year after the date of such death
or permanent disability. During such period after death, the Grantee's legal
representation or representatives, or the person or persons entitled to do so
under the Grantee's last will and testament or under applicable intestate laws,
shall have the right to exercise this Option as to only the number of shares to
which the Grantee was entitled to purchase on the date of his death.
2.6 Terminating Transactions. Upon the dissolution or
------------------------
liquidation of the Company, this Option shall terminate.
2.7 Assumption by Successor. Upon the reorganization, merger or
-----------------------
consolidation of the Company with one or more corporations as a result of which
the Company is not the surviving corporation, the Board shall cause the
surviving corporation to assume the Option by converting the Option into an
option to purchase the stock of such successor or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices, pursuant to the terms hereof.
3. Non-Transferability of Option. Except by will or the laws of
-----------------------------
descent and distribution, this Option shall not be transferred, or assigned,
pledged, hypothecated or otherwise disposed of in any way, whether by operation
of law of otherwise. During the Grantee's lifetime this Option is exercisable
only by the Grantee, regardless of any community property interest therein of
the spouse of the Grantee, or such spouse's successor-in-interest. If the
spouse of the Grantee shall have acquired a community property interest in this
Option, only the Grantee, or the Grantee's permitted successor-in-interest, may
exercise the Option on behalf of the spouse of the Grantee or such spouse's
successor-in-interest.
4. Adjustments. If the outstanding shares of the Common Stock are
-----------
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction, an appropriate and proportionate adjustment shall be made
in the maximum number and kind of shares subject to the unexercised portion of
this Option. Any such adjustment in the unexercised portion of this Option shall
be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option but with a corresponding adjustment and price
for each share or other unit of any security covered by the Option. Adjustments
shall be made by the Board, whose determination as to what adjustments shall be
2
<PAGE>
made and the extent thereof shall be final, binding and conclusive. No
fractional shares of stock shall be issued under this Option on any such
adjustment.
5. Mechanics. This Option may be exercised by the Grantee or other
---------
person then entitled to exercise it by giving ten (10) days' written notice of
exercise to the Company specifying the number of shares to be purchased and the
total purchase price, accompanied by payment of such purchase price, in cash or
by certified or cashier's check payable to Company.
6. Withholding Taxes. Company shall have the right to require
-----------------
Grantee or such other holder of the Option or the Option Shares to pay to
Company any and all sums equal to any taxes which Company may be required to
withhold by reason of the Option, the Option Shares or the disposition of the
Option or the Option Shares.
7. Company's Right of First Refusal Respecting Exercised Shares.
------------------------------------------------------------
7.1 Right of First Refusal. In the event that the Grantee
----------------------
proposes to sell, pledge, or otherwise transfer any Exercised Shares, the
Company shall have a right of first refusal (the "Right of First Refusal") with
respect to such Option Shares. If Grantee desires to transfer Exercised Shares
to any person or entity, Grantee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Exercised Shares proposed to be transferred, the proposed price and
the name and address of the proposed transferee. The Transfer Notice shall be
signed both by Grantee and by the proposed transferee and must constitute a
binding commitment of both such parties for the transfer of such Exercised
Shares. The Company shall have the right to purchase the Exercised Shares
subject to the Transfer Notice by delivery of a notice of exercise of the
Company's Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company. The purchase price paid by the Company
shall be at a price per share equal to the lower of (i) the proposed per share
transfer price or (ii) the fair market value of a share of Common Stock, as most
recently determined by the Board of Directors of the Company prior to delivery
of the Transfer Notice. The Company's right under this Section 7.1 shall be
freely assignable, in whole or in part.
7.2 Transfer of Exercised Shares. If the Company fails to
----------------------------
exercise the Right of First Refusal within 40 days from the date the Transfer
Notice is delivered to the Company, the Grantee may, not later than 75 days
following delivery to the Company of the Transfer Notice, conclude a transfer of
the Exercised Shares subject to the Transfer Notice on the terms and conditions
described in the Transfer Notice. Any proposed
3
<PAGE>
transfer on terms and conditions different from those described in the Transfer
Notice, as well as any subsequent proposed transfer by the Grantee, shall again
be subject to the Right of First Refusal and shall require compliance by the
Grantee with the procedure described in Section 7.1 of this Agreement. If the
Company exercises the Right of First Refusal, the parties shall consummate the
sale of exercised Shares on the terms, other than price, as applicable under
Section 7.1 set forth in the Transfer Notice; provided, however, in the event
the Transfer Notice provides for payment for the Exercised Shares other than in
cash, the Company shall have the option of paying for the Exercised Shares by he
discounted cash equivalent of the consideration described in the Transfer
Notice.
7.3 Binding Effect. The Right of First Refusal shall inure to
--------------
the benefit of the successors and assigns of the Company and shall be binding
upon any transferee of Exercised Shares other than a transferee acquiring
Exercised Shares in a transaction where the Company failed to exercise the Right
of First Refusal (a "Free Transferee") or a transferee of a Free Transferee.
7.4 Termination of Company's Right of First Refusal.
-----------------------------------------------
Notwithstanding anything in this Section 7, the Company shall have no Right of
First Refusal, and Grantee shall have no obligation to comply with the
procedures in Sections 7.1 through 7.3, after the earlier of (a) the closing of
the Company's initial registered public offering of Common Stock to the public
generally, or (b) the date ten years after the date set forth above.
8. Rights Before Issuance and Delivery. Neither Grantee nor any
-----------------------------------
holder of the Option shall be entitled to the privileges of stock ownership with
respect to the Option Shares unless and until such shares have been issued to
such person as fully paid shares.
9. Sale or Disposition of Option Shares.
------------------------------------
9.1 In the event Grantee is terminated by the Company for any
reason, or Grantee voluntarily terminates Grantee's employment with the Company,
prior to_______,_____, the Company shall have the right to repurchase
("Repurchase Option") the Option Shares ("Repurchase Shares") at either (1) the
higher of the original purchase price or fair value on the date of termination
of employment, if the right to repurchase must be exercised for cash or
cancellation of purchase money indebtedness for the shares within 90 days of
termination of employment, and the right terminates when the Company's
securities become publicly traded; or (2) the original purchase price, provided
that (A) the right to repurchase at the original purchase price lapses at the
rate of at least 20% per year over 5 years from the
4
<PAGE>
date the option is granted (without respect to the date the option was exercised
or became exercisable), which right must be exercised for cash or cancellation
of purchase money indebtedness for the shares within 90 days of termination of
employment, and (B), if the right is assignable, the assignee must pay the
Company upon assignment of the right, (unless the assignee is a 100% owned
subsidiary of the Company or is the parent of the Company owning 100% of the
Company) cash equal to the difference between the original purchase price and
fair value if the original purchase price is less than fair value ("Repurchase
Price").
9.2 The Company shall have the right, at any time within ninety
(90) days after the date of termination of Grantee's employment voluntarily by
Grantee or by the Company for cause, to purchase any and all Repurchase Shares
from Grantee or any Family Transferees (as defined below) as the case may be.
Any Repurchase Shares not purchased by the Company within such ninety (90) day
period shall no longer be subject to the Repurchase Option after the expiration
of such ninety (90) day period.
9.3 The Repurchase Option shall be exercised by written notice
(the "Repurchase Notice") signed by an officer of the Company and delivered or
mailed, within ninety (90) days after such termination date, to Grantee, or
Grantee's Family Transferees (if any), as the case may be. The Repurchase
Notice shall set forth the number of Repurchase Shares to be acquired from such
holder, the aggregate consideration to be paid for such shares and the time and
place for the settlement of such purchase, which must be made within ninety (90)
days of such termination date. The number of Repurchase Shares to be
repurchased by the Company shall first be satisfied to the extent possible from
the Repurchase Shares held by Grantee at the time of delivery of the Repurchase
Notice. The Company shall repurchase at least all of the Repurchase Shares held
by the Grantee. If the number of Repurchase Shares held by Grantee is less than
the total number of Repurchase Shares the Company has elected to purchase
hereunder, the Company shall purchase the remaining Repurchase Shares elected to
be purchased from the Family Transferees (if any) pro rata according to the
number of Repurchase Shares held at the time of delivery of such Repurchase
Notice (determined as nearly as practicable to the nearest share).
9.4 The closing of the repurchase shall take place on the date
designated by the Company in the Repurchase Notice, which date shall not be
greater than thirty (30) days from the date of termination of Grantee's
employment.
9.5 No Repurchase Shares may be sold, transferred or assigned
except to Grantee's family members ("Family
5
<PAGE>
Transferees"). A family member means an ancestor, descendant (whether natural or
adopted) or spouse and any trust solely for Grantee's benefit and/or the benefit
of Grantee's ancestors, spouse and/or descendants. Each Family Transferee will
succeed to all rights and obligations attributable to Grantee as a holder of
Repurchase Shares hereunder. The Repurchase Option with respect to the
Repurchase Shares transferred to the Family Transferee shall continue to be
applicable after such transfer and the Company may refuse to transfer on its
books any Repurchase Shares to a Family Transferee until the Company has
received such Family Transferee's written agreement to be bound by the
provisions of this agreement.
9.6 All Repurchase Shares shall bear a legend to the effect that
such shares are subject to the terms and provisions of this agreement,
including, the restrictions on transfer of such shares and the Company's
Repurchase Option.
9.7 For purposes of the Repurchase Option, the term Repurchase
Shares shall include any and all securities Grantee may receive with respect to
the Repurchase Shares as a result of stock dividends, stock splits,
reclassification, mergers, or reorganizations. In such events, the Repurchase
Price shall be appropriately adjusted.
9.8 By accepting this Option, the Grantee represents and agrees
for himself and his transferees by will or the laws of descent and distribution
that, unless a registration statement under the Securities Act of 1933 is in
effect as to the Option Shares purchased upon any exercise of this Option, any
and all Option Shares so purchased shall be acquired for his personal account
and not for sale or for distribution, and each notice of the exercise of any
portion of this Option shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the Option
Shares are being so acquired in good faith for his personal account and not for
sale or distribution. In the event the Company's legal counsel shall advise it
that registration under the Securities Act of 1933 of the Option Shares as to
which this Option is at the time being exercised is required prior to delivery
thereof, the Company shall not be required to issue or deliver such shares
unless and until such legal counsel shall advise that such registration has been
completed or that it is not required.
9.9 All stock certificates representing shares of Option
Shares, if the Option is exercised, may bear three (3) legends in a form
substantially similar to the following:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT
6
<PAGE>
OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES."
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO A
RIGHT OF REPURCHASE BY THE COMPANY."
10. Employment Obligation.
---------------------
10.1 In consideration for the granting of this Option, the
Grantee agrees that during the period of his employment by the Company or its
affiliates, he shall faithfully and to the best of his ability devote his time,
energy and skills during all normal working hours to the service of the Company
or its subsidiaries in the promotion of their interests.
10.2 Nothing in this Agreement shall be construed to confer
upon the Grantee any right to continued employment with the Company or its
affiliates or to restrict in any way the right of the Company or its affiliates
to terminate his employment or modify the terms and conditions thereof at any
time.
11. Stock Option Plan of 1997. This Option is subject to, and the
-------------------------
Company and the Grantee agree to be bound by, all of the terms and conditions of
the Company's Stock Option Plan of 1997 ("Plan") as the same may be amended from
time to time in accordance with the terms thereof. A copy of the Plan in its
present form is available for inspection during business hours by the Grantee or
other persons entitled to exercise the Option at the Company's principal office.
12. Notices. Any notice to be given to the Company shall be
-------
addressed to the Company at its principal office and any notice to be given to
the Grantee shall be addressed to him at the address given beneath the signature
hereto or at such other
7
<PAGE>
address as the Grantee may hereafter designate in writing to the Company. Any
such notice shall be deemed duly given when personally delivered or deposited in
the United States mail.
13. Applicable Law and Severability. This document shall, in all
-------------------------------
respects, be governed by the laws of the State of California applicable to
agreements executed and to be wholly performed within the State of California.
Nothing contained herein shall be construed so as to require the commission of
any act contrary to law, and wherever there is any conflict between any
provision contained herein and any present or future statute, law, ordinance or
regulation contrary to which the parties have no legal right to contract, the
latter shall prevail but the provision of this document which is affected shall
be curtailed and limited only to the extent necessary to bring it within the
requirements of the law.
IN WITNESS WHEREOF, the parties have entered into this Incentive Stock
Option Agreement on the day and year first written above.
GRANTEE: COMPANY:
SHOPPING.COM
a California corporation
_____________________________ By:_________________________
Robert J. McNulty
President
_____________________________
Street Address
_____________________________
City, State, Zip Code
8
<PAGE>
SPOUSE'S CONSENT
By his or her signature below, the spouse of Grantee agrees to be bound by all
of the terms and conditions of the foregoing Agreement.
____________________________
Spouse
9
<PAGE>
EXHIBIT 4.04
SHOPPING.COM
------------
a California corporation
INCENTIVE STOCK OPTION AGREEMENT
UNDER STOCK OPTION PLAN OF 1997
1. Grant of Option. SHOPPING.COM, a California corporation
---------------
("Company"), wishing to provide __________________________ ("Grantee") an
opportunity to purchase shares of the Company's Common Stock, no par value,
("Common Stock") and to provide Grantee with an added incentive as an employee
of the Company, hereby grants to Grantee and Grantee hereby accepts on this __
day of ________, 199_, an option to purchase ___________ (___) shares of Common
Stock ("Option Shares") at a price of $____ per share on the terms and
conditions stated herein.
2. Option Dates, Term of Option.
----------------------------
2.1 This Option may be exercisable at any time during the Term
hereof.
2.2 Term of Option. This Option shall terminate on_________ __,
--------------
200_ unless earlier terminated as provided in this Section 2.
2.3 Death or Permanent Disability. If the Grantee shall die or
-----------------------------
become permanently disabled, this Option shall expire one (1) year after the
date of such death or permanent disability. During such period after death, the
Grantee's legal representation or representatives, or the person or persons
entitled to do so under the Grantee's last will and testament or under
applicable intestate laws, shall have the right to exercise this Option as to
only the number of shares to which the Grantee was entitled to purchase on the
date of his death.
2.4 Terminating Transactions. Upon the dissolution or
------------------------
liquidation of the Company, this Option shall terminate.
2.5 Assumption by Successor. Upon the reorganization, merger or
-----------------------
consolidation of the Company with one or more corporations as a result of which
the Company is not the surviving corporation, the Board shall cause the
surviving corporation to assume the Option by converting the Option into an
option to purchase the stock of such successor or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices, pursuant to the terms hereof.
3. Non-Transferability of Option. Except by will or the laws of
-----------------------------
descent and distribution, this Option shall not be transferred, or assigned,
pledged, hypothecated or otherwise
<PAGE>
disposed of in any way, whether by operation of law of otherwise. During the
Grantee's lifetime this Option is exercisable only by the Grantee, regardless of
any community property interest therein of the spouse of the Grantee, or such
spouse's successor-in-interest. If the spouse of the Grantee shall have acquired
a community property interest in this Option, only the Grantee, or the Grantee's
permitted successor-in-interest, may exercise the Option on behalf of the spouse
of the Grantee or such spouse's successor-in-interest.
4. Adjustments. If the outstanding shares of the Common Stock
-----------
are increased, decreased, changed into or exchanged for a different number or
kind of shares or securities of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares subject to the
unexercised portion of this Option. Any such adjustment in the unexercised
portion of this Option shall be made without change in the aggregate purchase
price applicable to the unexercised portion of the Option but with a
corresponding adjustment and price for each share or other unit of any security
covered by the Option. Adjustments shall be made by the Board, whose
determination as to what adjustments shall be made and the extent thereof shall
be final, binding and conclusive. No fractional shares of stock shall be issued
under this Option on any such adjustment.
5. Mechanics. This Option may be exercised by the Grantee or
---------
other person then entitled to exercise it by giving ten (10) days' written
notice of exercise to the Company specifying the number of shares to be
purchased and the total purchase price, accompanied by payment of such purchase
price, in cash or by certified or cashier's check payable to Company.
6. Withholding Taxes. Company shall have the right to require
-----------------
Grantee or such other holder of the Option or the Option Shares to pay to
Company any and all sums equal to any taxes which Company may be required to
withhold by reason of the Option, the Option Shares or the disposition of the
Option or the Option Shares.
7. Rights Before Issuance and Delivery. Neither Grantee nor any
-----------------------------------
holder of the Option shall be entitled to the privileges of stock ownership with
respect to the Option Shares unless and until such shares have been issued to
such person as fully paid shares.
2
<PAGE>
8.1 All stock certificates representing shares of Option Shares, if
the Option is exercised, may bear three (3) legends in a form substantially
similar to the following:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES."
"THESE SECURITIES HAVE NOTE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO A
RIGHT OF REPURCHASE BY THE COMPANY."
9. Stock Option Plan of 1997. This Option is subject to, and
-------------------------
the Company and the Grantee agree to be bound by, all of the terms and
conditions of the Company's Stock Option Plan of 1997 ("Plan") as the same may
be amended from time to time in accordance with the terms thereof. A copy of the
Plan in its present form is available for inspection during business hours by
the Grantee or other persons entitled to exercise the Option at the Company's
principal office.
10. Notices. Any notice to be given to the Company shall be
-------
addressed to the Company at its principal office and any notice to be given to
the Grantee shall be addressed to him at the address given beneath the signature
hereto or at such other address as the Grantee may hereafter designate in
writing to the Company. Any such notice shall be deemed duly given when
personally delivered or deposited in the United States mail.
11. Applicable Law and Severability. This document shall, in all
-------------------------------
respects, be governed by the laws of the State of
3
<PAGE>
California applicable to agreements executed and to be wholly performed within
the State of California. Nothing contained herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision contained herein and any present or future
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail but the provision of this
document which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law.
IN WITNESS WHEREOF, the parties have entered into this Incentive Stock
Option Agreement on the day and year first written above.
GRANTEE: COMPANY:
SHOPPING.COM
a California corporation
_____________________________ By:_________________________
Robert J. McNulty
President
_____________________________
Street Address
_____________________________
City, State, Zip Code
4
<PAGE>
SPOUSE'S CONSENT
By his or her signature below, the spouse of Grantee agrees to be bound by all
of the terms and conditions of the foregoing Agreement.
____________________________
Spouse
5
<PAGE>
EXHIBIT 4.05
SHOPPING.COM
------------
a California corporation
INCENTIVE STOCK OPTION AGREEMENT
UNDER STOCK OPTION PLAN OF 1997
1. Grant of Option. SHOPPING.COM, a California corporation
---------------
("Company"), wishing to provide __________________________ ("Grantee") an
opportunity to purchase shares of the Company's Common Stock, no par value,
("Common Stock") and to provide Grantee with an added incentive as an employee
of the Company, hereby grants to Grantee and Grantee hereby accepts on this __
day of________, 199_, an option to purchase ___________ (___) shares of Common
Stock ("Option Shares") at a price of $____ per share on the terms and
conditions stated herein.
2. Option Dates, Term of Option.
----------------------------
2.1 This Option may be exercisable as follows:
2.1.1 One fourth (l/4) of the Option Shares after the first
anniversary of the date hereof;
2.1.2 One third (1/3) of the balance of the Option Shares
after the second anniversary of the date hereof;
2.1.3 One half (1/2) of the balance of the Option Shares
after the third anniversary of the date hereof; and
2.1.4 The entire number of Option Shares after the fourth
anniversary of the date hereof.
2.2 Term of Option. This Option shall terminate on ________ __,
--------------
200_ unless earlier terminated as provided in this Section 2.
2.3 Term for Ten Percent Shareholders. If on the date hereof,
---------------------------------
Grantee owns shares of the Company's outstanding capital stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its affiliates, this Option shall terminate on ______ __ 200_.
2.4 Termination of Employment. If the Grantee's employment by
-------------------------
the Company or any of its affiliates is terminated for any reason other than
death or permanent disability (within the meaning of Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended (the "Code")), this Option shall
become void and of no further force or effect thirty (30) days after the
termination of such employment; provided, however, that if such cessation of
employment shall be due to (i) Grantee's voluntary resignation with the consent
of the Board of Directors or a Committee thereof (the "Board") of the Company or
such affiliate,
<PAGE>
expressed in the form of a written resignation, or (ii) Grantee's retirement
under the provisions of any Pension or Retirement Plan of the Company or such
affiliate then in effect, this Option shall terminate three (3) months after the
date Grantee ceases to be an employee of the Company or such affiliate. A leave
of absence approved in writing by the Board, including but not limited to,
military service leave or other temporary employment with the United States
Government and sick leave, shall not be deemed a termination of employment for
the purposes of this Paragraph, but this Option may not be exercised after the
first three (3) months of such leave.
2.5 Death or Permanent Disability. If the Grantee shall die or
-----------------------------
become permanently disabled while employed by the Company or one of its
affiliates, this Option shall expire one (1) year after the date of such death
or permanent disability. During such period after death, the Grantee's legal
representation or representatives, or the person or persons entitled to do so
under the Grantee's last will and testament or under applicable intestate laws,
shall have the right to exercise this Option as to only the number of shares to
which the Grantee was entitled to purchase on the date of his death.
2.6 Terminating Transactions. Upon the dissolution or
-----------------------
liquidation of the Company, this Option shall terminate.
2.7 Assumption by Successor. Upon the reorganization, merger or
-----------------------
consolidation of the Company with one or more corporations as a result of which
the Company is not the surviving corporation, the Board shall cause the
surviving corporation to assume the Option by converting the Option into an
option to purchase the stock of such successor or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices, pursuant to the terms hereof.
3. Non-Transferability of Option. Except by will or the laws
-----------------------------
of descent and distribution, this Option shall not be transferred, or assigned,
pledged, hypothecated or otherwise disposed of in any way, whether by operation
of law of otherwise. During the Grantee's lifetime this Option is exercisable
only by the Grantee, regardless of any community property interest therein of
the spouse of the Grantee, or such spouse's successor-in-interest. If the
spouse of the Grantee shall have acquired a community property interest in this
Option, only the Grantee, or the Grantee's permitted successor-in-interest, may
exercise the Option on behalf of the spouse of the Grantee or such spouse's
successor-in-interest.
4. Adjustments. If the outstanding shares of
-----------
the Common Stock are increased, decreased, changed into or exchanged for a
different number or kind of shares or securities
2
<PAGE>
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares subject to the unexercised portion of this Option. Any such
adjustment in the unexercised portion of this Option shall be made without
change in the aggregate purchase price applicable to the unexercised portion of
the Option but with a corresponding adjustment and price for each share or other
unit of any security covered by the Option. Adjustments shall be made by the
Board, whose determination as to what adjustments shall be made and the extent
thereof shall be final, binding and conclusive. No fractional shares of stock
shall be issued under this Option on any such adjustment.
5. Mechanics. This Option may be exercised by the Grantee or other
---------
person then entitled to exercise it by giving ten (10) days' written notice of
exercise to the Company specifying the number of shares to be purchased and the
total purchase price, accompanied by payment of such purchase price, in cash or
by certified or cashier's check payable to Company.
6. Withholding Taxes. Company shall have the right to require
-----------------
Grantee or such other holder of the Option or the Option Shares to pay to
Company any and all sums equal to any taxes which Company may be required to
withhold by reason of the Option, the Option Shares or the disposition of the
Option or the Option Shares.
7. Company's Right of First Refusal Respecting Exercised Shares.
------------------------------------------------------------
7.1 Right of First Refusal. In the event that the Grantee
----------------------
proposes to sell, pledge, or otherwise transfer any Exercised Shares, the
Company shall have a right of first refusal (the "Right of First Refusal") with
respect to such Option Shares. If Grantee desires to transfer Exercised Shares
to any person or entity, Grantee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Exercised Shares proposed to be transferred, the proposed price and
the name and address of the proposed transferee. The Transfer Notice shall be
signed both by Grantee and by the proposed transferee and must constitute a
binding commitment of both such parties for the transfer of such Exercised
Shares. The Company shall have the right to purchase the Exercised Shares
subject to the Transfer Notice by delivery of a notice of exercise of the
Company's Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company. The purchase price paid by the Company shall
be at a price per share equal to the lower of (i) the proposed per share
transfer price or (ii) the fair market value of a share of Common Stock, as most
recently determined by the Board of
3
<PAGE>
Directors of the Company prior to delivery of the Transfer Notice. The Company's
right under this Section 7.1 shall be freely assignable, in whole or in part.
7.2 Transfer of Exercised Shares. If the Company fails to
----------------------------
excercise the Right of First Refusal within 40 days from the date the Transfer
Notice is delivered to the Company, the Grantee may, not later than 75 days
following delivery to the Company of the Transfer Notice, conclude a transfer of
the Exercised Shares subject to the Transfer Notice on the terms and conditions
described in the Transfer Notice. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed transfer by the Grantee, shall again be subject to the Right of First
Refusal and shall require compliance by the Grantee with the procedure described
in Section 7.1 of this Agreement. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of exercised Shares on the terms,
other than price, as applicable under Section 7.1 set forth in the Transfer
Notice; provided, however, in the event the Transfer Notice provides for payment
for the Exercised Shares other than in cash, the Company shall have the option
of paying for the Exercised Shares by he discounted cash equivalent of the
consideration described in the Transfer Notice.
7.3 Binding Effect. The Right of First Refusal shall inure
--------------
to the benefit of the successors and assigns of the Company and shall be binding
upon any transferee of Exercised Shares other than a transferee acquiring
Exercised Shares in a transaction where the Company failed to exercise the Right
of First Refusal (a "Free Transferee") or a transferee of a Free Transferee.
7.4 Termination of Company's Right of First Refusal.
-----------------------------------------------
Notwithstanding anything in this Section 7, the Company shall have no Right of
First Refusal, and Grantee shall have no obligation to comply with the
procedures in Sections 7.1 through 7.3, after the earlier of (a) the closing of
the Company's initial registered public offering of Common Stock to the public
generally, or (b) the date ten years after the date set forth above.
8. Rights Before Issuance and Delivery. Neither Grantee nor any
-----------------------------------
holder of the Option shall be entitled to the privileges of stock ownership with
respect to the Option Shares unless and until such shares have been issued to
such person as fully paid shares.
9. Sale or Disposition of Option Shares.
------------------------------------
9.1 In the event Grantee is terminated by the Company for any
reason, or Grantee voluntarily terminates
4
<PAGE>
Grantee's employment with the Company, prior to _______,_____, the Company shall
have the right to repurchase ("Repurchase Option") the Option Shares
("Repurchase Shares") at either (1) the higher of the original purchase price or
fair value on the date of termination of employment, if the right to repurchase
must be exercised for cash or cancellation of purchase money indebtedness for
the shares within 90 days of termination of employment, and the right terminates
when the Company's securities become publicly traded; or (2) the original
purchase price, provided that (A) the right to repurchase at the original
purchase price lapses at the rate of at least 20% per year over 5 years from the
date the option is granted (without respect to the date the option was exercised
or became exercisable), which right must be exercised for cash or cancellation
of purchase money indebtedness for the shares within 90 days of termination of
employment, and (B), if the right is assignable, the assignee must pay the
Company upon assignment of the right, (unless the assignee is a 100% owned
subsidiary of the Company or is the parent of the Company owning 100% of the
Company) cash equal to the difference between the original purchase price and
fair value if the original purchase price is less than fair value ("Repurchase
Price").
9.2 The Company shall have the right, at any time within ninety
(90) days after the date of termination of Grantee's employment voluntarily by
Grantee or by the Company for cause, to purchase any and all Repurchase Shares
from Grantee or any Family Transferees (as defined below) as the case may be.
Any Repurchase Shares not purchased by the Company within such ninety (90) day
period shall no longer be subject to the Repurchase Option after the expiration
of such ninety (90) day period.
9.3 The Repurchase Option shall be exercised by written notice
(the "Repurchase Notice") signed by an officer of the Company and delivered or
mailed, within ninety (90) days after such termination date, to Grantee, or
Grantee's Family Transferees (if any), as the case may be. The Repurchase
Notice shall set forth the number of Repurchase Shares to be acquired from such
holder, the aggregate consideration to be paid for such shares and the time and
place for the settlement of such purchase, which must be made within ninety (90)
days of such termination date. The number of Repurchase Shares to be
repurchased by the Company shall first be satisfied to the extent possible from
the Repurchase Shares held by Grantee at the time of delivery of the Repurchase
Notice. The Company shall repurchase at least all of the Repurchase Shares held
by the Grantee. If the number of Repurchase Shares held by Grantee is less than
the total number of Repurchase Shares the Company has elected to purchase
hereunder, the Company shall purchase the remaining Repurchase Shares elected to
be purchased from the Family Transferees (if any) pro rata according to the
number of
5
<PAGE>
Repurchase Shares held at the time of delivery of such Repurchase Notice
(determined as nearly as practicable to the nearest share).
9.4 The closing of the repurchase shall take place on the date
designated by the Company in the Repurchase Notice, which date shall not be
greater than thirty (30) days from the date of termination of Grantee's
employment.
9.5 No Repurchase Shares may be sold, transferred or assigned except
to Grantee's family members ("Family Transferees"). A family member means an
ancestor, descendant (whether natural or adopted) or spouse and any trust solely
for Grantee's benefit and/or the benefit of Grantee's ancestors, spouse and/or
descendants. Each Family Transferee will succeed to all rights and obligations
attributable to Grantee as a holder of Repurchase Shares hereunder. The
Repurchase Option with respect to the Repurchase Shares transferred to the
Family Transferee shall continue to be applicable after such transfer and the
Company may refuse to transfer on its books any Repurchase Shares to a Family
Transferee until the Company has received such Family Transferee's written
agreement to be bound by the provisions of this agreement.
9.6 All Repurchase Shares shall bear a legend to the effect that
such shares are subject to the terms and provisions of this agreement,
including, the restrictions on transfer of such shares and the Company's
Repurchase Option.
9.7 For purposes of the Repurchase Option, the term Repurchase
Shares shall include any and all securities Grantee may receive with respect to
the Repurchase Shares as a result of stock dividends, stock splits,
reclassification, mergers, or reorganizations. In such events, the Repurchase
Price shall be appropriately adjusted.
9.8 By accepting this Option, the Grantee represents and agrees for
himself and his transferees by will or the laws of descent and distribution
that, unless a registration statement under the Securities Act of 1933 is in
effect as to the Option Shares purchased upon any exercise of this Option, any
and all Option Shares so purchased shall be acquired for his personal account
and not for sale or for distribution, and each notice of the exercise of any
portion of this Option shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the Option
Shares are being so acquired in good faith for his personal account and not for
sale or distribution. In the event the Company's legal counsel shall advise it
that registration under the Securities Act of 1933 of the Option Shares as to
which this Option is at the time being exercised is required prior to delivery
thereof, the Company shall not be required to issue or deliver such shares
6
<PAGE>
unless and until such legal counsel shall advise that such registration has been
completed or that it is not required.
9.9 All stock certificates representing shares of Option Shares, if
the Option is exercised, may bear three (3) legends in a form substantially
similar to the following:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES."
"THESE SECURITIES HAVE NOTE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO A
RIGHT OF REPURCHASE BY THE COMPANY."
10. Employment Obligation.
---------------------
10.1 In consideration for the granting of this Option, the
Grantee agrees that during the period of his employment by the Company or its
affiliates, he shall faithfully and to the best of his ability devote his time,
energy and skills during all normal working hours to the service of the Company
or its subsidiaries in the promotion of their interests.
10.2 Nothing in this Agreement shall be construed to confer upon
the Grantee any right to continued employment with the Company or its affiliates
or to restrict in any way the right of the Company or its affiliates to
terminate his employment or modify the terms and conditions thereof at any time.
11. Stock Option Plan of 1997. This Option is
-------------------------
7
<PAGE>
subject to, and the Company and the Grantee agree to be bound by, all of the
terms and conditions of the Company's Stock Option Plan of 1997 ("Plan") as the
same may be amended from time to time in accordance with the terms thereof. A
copy of the Plan in its present form is available for inspection during business
hours by the Grantee or other persons entitled to exercise the Option at the
Company's principal office.
12. Notices. Any notice to be given to the Company shall be
-------
addressed to the Company at its principal office and any notice to be given to
the Grantee shall be addressed to him at the address given beneath the signature
hereto or at such other address as the Grantee may hereafter designate in
writing to the Company. Any such notice shall be deemed duly given when
personally delivered or deposited in the United States mail.
13. Applicable Law and Severability. This document shall, in all
-------------------------------
respects, be governed by the laws of the State of California applicable to
agreements executed and to be wholly performed within the State of California.
Nothing contained herein shall be construed so as to require the commission of
any act contrary to law, and wherever there is any conflict between any
provision contained herein and any present or future statute, law, ordinance or
regulation contrary to which the parties have no legal right to contract, the
latter shall prevail but the provision of this document which is affected shall
be curtailed and limited only to the extent necessary to bring it within the
requirements of the law.
IN WITNESS WHEREOF, the parties have entered into this Incentive Stock
Option Agreement on the day and year first written above.
GRANTEE: COMPANY:
SHOPPING.COM
a California corporation
_____________________________ By:___________________________
Robert J. McNulty
President
_____________________________
Street Address
_____________________________
City, State, Zip Code
8
<PAGE>
SPOUSE'S CONSENT
By his or her signature below, the spouse of Grantee agrees to be bound by all
of the terms and conditions of the foregoing Agreement.
____________________________
Spouse
9
<PAGE>
EXHIBIT 4.06
WARRANT CERTIFICATE
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN
EXEMPTION THEREFROM.
No.____ Date:_________ __ , 1997
Certificate for ___________ Common Stock Warrants
EXERCISABLE COMMENCING ON THE DATE OF ISSUANCE
HEREOF AND ENDING
ON THE EXPIRATION DATE AS DEFINED HEREIN
SHOPPING.COM
THIS CERTIFIES that _____________________ or his, her or its registered
assigns is the registered holder (the "Warrantholder") of the number of Common
Stock Purchase Warrants ("Warrants") set forth above, each of which represents
the right to purchase one share ("Share") of the common stock of Shopping.com, a
California corporation (the "Company"), no par value per share (the "Common
Stock"), at the exercise price of $3.00 per Share ("Exercise Price"), at any
time after the earlier of 90 days after the effective date of the Company's
Initial Public Offering or June 30, 1998, prior to the Expiration Date
hereinafter referred to, by surrendering this Warrant Certificate, with the form
of election to purchase set forth hereon duly executed, at the Company's
principal executive office (the "Office"), and by paying in full the Exercise
Price, plus transfer taxes, if any, in United States currency by cash, certified
check, bank cashier's check or money order payable to the order of the Company
or by delivering Common Stock pursuant to the cashless exercise herein.
Section 1. Registration.
------------
(a) Warrantholder List. This Warrant Certificate shall be numbered and
------------------
registered in the name of the record holder to whom it is distributed, as
provided by the Company; and the Company shall maintain a list showing the name,
address and number of Warrants held by each of the Warrantholders of record.
1
<PAGE>
(b) Warrantholder of Record. The Company may deem and treat the
-----------------------
Warrantholder of record as the absolute owner of the Warrant Certificate
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for the purpose of any exercise thereof and any distribution to the
holder thereof and for all other purposes, and the Company shall not be affected
by any notice to the contrary.
Section 2. Registration of Transfers and Exchanges.
---------------------------------------
(a) Registration of Transfer. The Company shall register the
------------------------
transfer of this Warrant Certificate upon the records to be maintained by it for
that purpose, upon surrender of this Warrant Certificate accompanied (if so
required by the Company) by (i) a written instrument or instruments of transfer
in form satisfactory to the Company, duly executed by the registered holder(s)
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney, and (ii) an opinion of counsel, reasonably satisfactory to
the Company, that such transfer is exempt from registration under the Act. Upon
any such registration or transfer, a new Warrant Certificate shall be issued to
the transferee, and the surrendered Warrant Certificate shall be canceled by
the Company.
(b) Exchange of Warrant Certificate. Warrant Certificates may be
-------------------------------
exchanged for another Warrant Certificate or Warrant Certificates of like tenor
entitling the holder thereof to purchase a like aggregate number of Shares as
the Warrant Certificate(s) surrendered then entitle such holder to purchase. Any
holder of a Warrant desiring to exchange Warrant Certificates shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, the certificate(s) evidencing the Warrant or Warrants to be so
exchanged. Thereupon, the Company shall countersign and deliver to the person
entitled thereto a new Warrant Certificate or Certificates, as the case may be,
as so requested. Warrant Certificates surrendered for exchange, transfer or
exercise shall be canceled by the Company.
(c) Legended Warrant Certificate. A Warrant Certificate presented for
----------------------------
registration of transfer or exchange having a legend endorsed thereon pursuant
to any agreement restricting transfer of such Warrant Certificate shall only be
registered for transfer or exchanged upon compliance with the requirements of
such agreement.
Section 3. Mutilated or Missing Warrant Certificates. In case this Warrant
-----------------------------------------
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Warrant Certificate and an indemnity or bond, if requested, also satisfactory to
the Company. Applicants for such substitute Warrant Certificates shall also
comply with such other reasonable requests and pay such other reasonable charges
as the Company may prescribe.
Section 4. Duration and Exercise of Warrants.
---------------------------------
2
<PAGE>
(a) Expiration. The Warrants represented by this Warrant
----------
Certificate shall expire at 5:00 p.m. Los Angeles Time, on May 31, 2002 (the
"Expiration Date"). Any Warrant Certificate not surrendered to the Company for
exercise in accordance with Section 4(b) or 4(c) prior to such time on the
Expiration Date shall be void.
(b) Cash Exercise. Subject to the provisions of this Warrant
-------------
Certificate and prior to the close of business on the Expiration Date, the
Warrantholder shall have the right to purchase from the Company the number of
Shares of Common Stock specified above at the per Share Exercise Price. In order
to exercise such right, the Warrantholder shall surrender this Warrant
Certificate(s) evidencing such Warrants to the office of the Company or any
transfer agent of the Common Stock with the form of Election to Purchase set
forth hereon duly completed and signed, and shall tender payment in full of the
Exercise Price to the Company for the Company's account, together with such
taxes as are specified in Section 6 hereof, for each Share with respect to which
such Warrants are being exercised. Such Exercise Price and taxes shall be paid
in full by cash, certified check, bank cashier's check or money order, payable
in United States currency to the order of the Company. In addition, if the
Shares deliverable upon exercise have not been registered under the Securities
Act of 1933, as amended (the "Act"), the Warrantholder shall, as a condition to
exercise of the Warrants, deliver a duly executed certificate substantially in
the form of Exhibit A hereto.
(c) Cashless Exercise (i) In lieu of the payment of the Purchase
-----------------
Price, the Holder shall have the right (but not the obligation), to require the
Company to convert this Warrant, in whole or in part, into shares of Common
Stock (the "Conversion Right"). Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of any of the
Purchase Price) that number of shares of Common Stock (the "Conversion Shares")
equal to the quotient obtained by (x) dividing the value of this Warrant (or
portion thereof as to which the Conversion Right is being exercised) at the time
the Conversion Right is exercised (determined by subtracting the aggregate
Purchase Price of the shares of Common Stock as to which the Conversion Right is
being exercised in effect immediately prior to the exercise of the Conversion
Right from the aggregate current market price (the "Current Market Price",
defined in subsection ii hereinafter) of the shares of Common Stock as to which
the Conversion Right is being exercised immediately prior to the exercise of the
Conversion Right) by (y) the Current Market Price of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
(ii) The Current Market Price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the five (5)
consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange
(including, for purposes hereof, the Nasdaq SmallCap Market) on which the shares
of Common Stock are listed or admitted to trading, or if the shares of Common
Stock are not listed or admitted to trading on any national securities exchange,
the highest reported bid price for the shares of Common Stock as furnished by
the National Association of Securities Dealers, Inc. through NASDAQ or a similar
organization if NASDQ is no longer reporting
3
<PAGE>
such information. If on any such date the shares of Common Stock are not listed
or admitted to trading on any national securities exchange and is not quoted by
NASDAQ or any similar organization, the fair value of the share of Common Stock
on such date, as determined in good faith by the board of directors of the
Company whose determination shall be conclusive absent manifest error, shall be
used.
(d) Remaining Warrants. The Warrants evidenced by this Warrant
------------------
Certificate shall be exercisable only in multiples of one (1) Warrant. In the
event that less than all of the Warrants evidenced by this Warrant Certificate
are exercised at any time prior to the close of business on the Expiration Date,
one or more new Warrant Certificate(s) shall be issued to the Warrantholder, or
his, her or its duly authorized assigns, by the Company for the remaining number
of Warrants evidenced by the Warrant Certificate so surrendered.
Section 5. Issuance of Share Certificates.
------------------------------
(a) Issuance of Certificate. Upon surrender of this Warrant
-----------------------
Certificate, payment of the Exercise Price, compliance with Section 2(c), if
applicable and, if the Shares deliverable on exercise have not been registered
under the Act, the delivery of a certificate in the form of Exhibit A hereto,
the Company shall issue certificates representing Shares ("Share Certificates")
in the name of the tendering Warrantholder and deliver the Share Certificates to
the tendering Warrantholder or his designee.
(b) Legend. If the Shares deliverable upon exercise of this Warrant
------
have not been registered under the Act, the Share Certificate shall bear a
legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
QUALIFICATION OR AN EXEMPTION THEREFROM.
Section 6. Adjustment of Exercise Price. Subject to Section 6(1), the
----------------------------
Exercise Price in effect from time to time for each Warrant shall be subject to
adjustment upon the occurrence of the events specified in this Section 6.
(a) Definitions. For purposes of this Section 6 the following
-----------
definitions shall apply:
"Common Stock Equivalent" shall mean Convertible Securities and rights
-----------------------
entitling the holder thereof to receive directly, or indirectly, additional
shares of Common Stock without the payment of any consideration by such holder
for such additional shares of Common Stock or Common Stock Equivalents.
"Common Stock Outstanding" shall mean the aggregate of all Common
------------------------
Stock outstanding and all Common Stock issuable upon exercise of all outstanding
Options and conversion of all outstanding Convertible Securities.
"Convertible Securities" shall mean any indebtedness or shares of
----------------------
stock convertible into or exchangeable for Common Stock, including, but not
limited to, Series A Preferred Stock, and Series B Preferred Stock.
"Current Exercise Price" shall mean the Exercise Price immediately
----------------------
before the occurrence of any event, which, pursuant to Section 6(b), causes an
adjustment to the Exercise Price.
"Exercise Price" shall mean the price, determined pursuant to this
--------------
Section 6, at which shares of Common Stock shall be deliverable upon exercise of
the Warrant.
"Issuance Date" shall mean the first date on which the Company issues
-------------
the Warrants.
"Options" shall mean any rights, warrants or options to subscribe for
-------
or purchase Common Stock or Convertible Securities.
(b) Stock Splits, Dividends, Distributions and Combinations. If the
-------------------------------------------------------
Company should at any time for from time to time after the Issuance Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or Common Stock Equivalents, then, following such record date (or
the date of such dividend, distribution, split or subdivision if no record date
is fixed), the Exercise Price shall be appropriately decreased so that the
number of shares of Common Stock issuable on exercise of any Warrant shall be
increased in proportion to such increase in the number of outstanding shares of
Common Stock (including, for this purpose, Common Stock Equivalents) determined
in accordance with Section 6(d). If the number of shares of Common Stock
outstanding at any time after the Issuance Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Exercise Price shall be appropriately increased so that the
number of shares of Common Stock issuable on exercise of any Warrant shall be
decreased in proportion to such decrease in the number of outstanding shares of
Common Stock.
(c) Other Dividends. If the Company shall declare a distribution
---------------
payable in securities of other persons, evidences of indebtedenss issued by the
Company or other persons, assets (excluding cash dividends) or options or
rights, then, in each such case for the purpose of this Section 6(c),
Warrantholders shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Company into which their Warrants are exercisable as of the record
date fixed for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
(d) Recapitalizations. If at any time or from time to time there
------------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or a sale of assets transaction provided for elsewhere in
this Section 6) provision shall be made so that the Warrantholders shall
thereafter be entitled to receive upon exercise of such Warrants the number of
shares of stock or other securities or property of the Company or otherwise, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 6 with
respect to the rights of the Warrantholders after the recapitalization to the
end that the provisions of this Section 6 (including adjustment of the Exercise
Price then in effect and the number of shares purchasable upon exercise of such
Warrants) shall be applicable after that event so that the number of shares of
stock or other securities or property of the Company or otherwise shall be as
nearly equivalent as may be practicable.
(e) Successive Changes. The above provisions of this Section 6
------------------
shall similarly apply to successive issuances, changes, sales, dividends or
other distributions, subdivisions and combinations on or of the Common Stock.
(f) Other Events Altering Conversion Price. Upon the occurrence of
--------------------------------------
any event not specifically denominated in this Section 6 as altering the
Exercise Price that, in the reasonable exercise of the business judgment of the
board of directors of the Company requires, on equitable principles, the
alteration of the Exercise Price, the Exercise Price will be equitably altered.
(g) No Impairment. The Company will not, by amendment of its
--------------
Amended and Restated Certificate of Incorporation, including the filing of a
certificate of designation, or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 6 and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrantholders
against impairment.
(h) Miscellaneous Conversion Price Matter. The Company shall at all
-------------------------------------
times reserve and keep available out of its authorized but unissued Common Stock
the full number of shares of Common Stock deliverable upon exercise of all the
then outstanding Warrants and shall, at its own expense, take all such actions
and obtain all such permits and orders as may be necessary to enable the Company
lawfully to issue such Common Stock upon the exercise of such Warrants.
(i) Excluded Events. Notwithstanding anything in this Section 6 to
---------------
the contrary, the Exercise Price shall not be adjusted by virtue of (i) the
conversion of shares of Series A Preferred Stock, or Series B Preferred Stock
into shares of Common Stock, or exercise of the Warrants issued in connection
with the sale of the said Series A or Series B Preferred Stock, (ii) the
repurchase of shares from the Company's employees, consultants, officers or
directors at such person's cost (or at such other price as may be agreed to by
the Company's board of directors), or (iii) the issuance and sale of, or the
grant of options to purchase, shares of Common Stock to employees, advisors,
directors, officers or consultants of the Company and its subsidiaries at a
price which is less than the Exercise Price at the time of such issuance or sale
(all as determined in accordance with this Section 6) as may be approved by
the board of directors, and none of such shares shall be included in any manner
in the computation from time to time of the Exercise Price or in Common Stock
Outstanding for purposes of such computation.
(j) No Fractional Shares. No fractional shares shall be issued upon
--------------------
exercise of Warrants and the number of shares of Common Stock to be issued shall
be rounded up to the nearest whole share determined on the basis of the total
number of Warrants the Warrantholder is at the time exercising for Common Stock
and the aggregate number of shares of Common Stock (including the aggregation of
all fractional shares) issuable upon such aggregate exercise.
(k) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Exercise Price pursuant to this Section 6, the
Company, at its expense upon request by any Warrantholder, shall compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each Warrantholder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any Warrantholder, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the Current
Exercise Price at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the exercise of a Warrant.
Section 7. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the initial issuance of Shares issuable upon the exercise
of Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes that may be payable in respect of any transfer involved in the
issuance of any Warrant Certificates or any Share Certificates in a name other
than that of the Warrantholder of record, and the Company shall not be required
to issue or deliver such Share Certificates unless and until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid and the Company may withhold from any funds payable
to a Warrantholder or require the Warrantholder to pay, any tax subject to
withholding pursuant to any law or governmental regulation before issuing or
delivering any Share Certificate.
4
<PAGE>
Section 8. Voting Rights or Notice. Nothing contained in this Warrant
-----------------------
Certificate shall be construed as conferring upon the Warrantholder the right to
vote or to consent or to receive notice as a Shareholder in respect of any
rights or other matter whatsoever as a Shareholder of the Company, or any other
rights or liabilities as a Shareholder of the Company.
Section 9. Notice Any notice pursuant to this Warrant Certificate to be
------
given by the Company to the Warrantholder shall be sufficiently given if
personally delivered or sent by first class United States mail, by overnight
courier guaranteeing next-day delivery, or by facsimile confirmed by letter,
addressed (until another address is filed in writing by the Warrantholder with
the Company) to the address specified in the Warrant register maintained by the
Company.
Section 10. Supplements and Amendments. The Company may from time to time
--------------------------
supplement or amend this Warrant Certificate without the consent or concurrence
of the Warrantholder in order to cure any ambiguity, manifest error or other
mistake in this Warrant Certificate, or to make provision in regard to any
matters or questions arising hereunder that the Company may deem necessary or
desirable and that shall not adversely affect, alter or change the interests of
the Warrantholder.
Section 11. Warrant Agent. The Company may, by written notice to the
-------------
Warrantholder, appoint an agent having an office in either New York, New York or
Los Angeles, California, for the purpose of issuing Shares on the exercise of
the Warrants, exchanging Warrants, replacing Warrants or any of the foregoing,
and thereafter any such issuance, exchange or replacement shall be made at such
office by such agent.
Section 12. Successors. All the representations, warranties, agreements,
----------
covenants and provisions of this Warrant Certificate by or for the benefit of
the Company or the Warrantholder shall bind and inure to the benefit of their
respective permitted successors and assigns hereunder.
Section 13. Governing Law. This Warrant Certificate shall be deemed to be a
-------------
contract made under the laws of the State of California and for all purposes
shall be construed in accordance with the internal laws of said State without
regard to conflicts of laws principles.
Section 14. Benefits of This Agreement. Nothing in this Warrant Certificate
--------------------------
shall be construed to give to any person or entity other than the Company and
the Warrantholder any legal or equitable right, remedy or claim under this
Warrant Certificate; and this Warrant Certificate shall be for the sole and
exclusive benefit of the Company and the Warrantholder.
Section 15. Invalidity of Provisions. If any provision of this Warrant
------------------------
Certificate is or becomes invalid, illegal or unenforceable in any respect, such
provision shall be deemed amended to the extent necessary to cause it to express
the intent of the parties to the maximum possible extent and be valid, legal and
enforceable. The invalidity or deemed amendment of
5
<PAGE>
such provision shall not affect the validity, legality or enforceability of any
other provision hereof.
Section 16. No Impairment. The Company will not, by amendment of its
-------------
certificate of incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrantholder
against impairment.
Section 17. Section Headings. The section headings contained in this Warrant
----------------
Certificate are for convenience only and shall be without substantive meaning or
content.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary, as of the day and year first above written.
COMPANY:
SHOPPING.COM
By: ________________________________________
Title: President
Attest:
By: ___________________________
Secretary
6
<PAGE>
COMMON STOCK WARRANTS
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise ______________ of the
Warrants represented by this Warrant Certificate and to purchase the Shares
issuable upon the exercise of said Warrants, and requests that Share
Certificates for such Shares be issued and delivered as follows:
ISSUE TO: ______________________________________________
(Name)
______________________________________________
(Address, Including Zip Code)
______________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: ______________________________________________
(Name)
at ___________________________________________
(Address, Including Zip Code)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth above or otherwise as the undersigned shall
direct in writing.
7
<PAGE>
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$ _________ by cash, certified check, bank cashier's check or money order
payable in United States currency to the order of the Company, or the number of
shares of Common Stock to be delivered for the Cashless Exercise as follows:
Dated: __________________,____
____________________________________
Signature
(Signature must conform in all respects to
the name of holder as specified on the face
of the Warrant Certificate.)
Signature Guaranteed: PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
_______________________________ ____________________________________
8
<PAGE>
ASSIGNMENT
COMMON STOCK WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the Assignee named below all of the rights of the undersigned represented
by the within Warrant Certificate, with respect to the number of Warrants set
forth below:
Social
Name of Security No.
Assignee or Tax I.D. Address # of Warrants
- -------- ----------- ------- -------------
and does hereby irrevocably constitute and appoint __________________________,
Attorney, to make such transfer on the books of Shopping.com, maintained for
that purpose, with full power of substitution in the premises.
Dated: __________________,____
____________________________________
Signature
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
Signature Guaranteed:
____________________________________
9
<PAGE>
EXHIBIT A TO WARRANT CERTIFICATE
REPRESENTATIONS AND WARRANTIES BY WARRANTHOLDER
UPON EXERCISE OF COMMON STOCK WARRANTS
THE UNDERSIGNED (hereinafter referred to as "Purchaser") is exercising the
Warrants tendered with this Certificate, and in connection with such exercise,
makes the following representations and warranties to Shopping.com (the
"Company") with the knowledge and intent that the Company shall be entitled to
rely thereon in delivering shares of the Company's Common Stock (the "Shares")
to purchaser upon exercise of the Warrants:
1. Purchaser is acquiring the Shares either (a) for investment for its
own account, and not with a view to or for sale in connection with any
distribution thereof or (b) for offer and sale solely pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act").
Purchaser understands that the Shares to be purchased have not been registered
pursuant to the Act, and the offer and sale of the Shares is intended to be
exempt from registration under the Act, which exemption depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
Purchaser's representations as expressed herein.
2. Purchaser understands that no public market now exists for any of the
securities issued by the Company and that there is no assurance that a public
market will ever exist for the Shares.
3. Purchaser has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares, and Purchaser is capable of bearing the economic risks of such
investment, including the risk of loss of its entire investment in the Shares.
4. Purchaser acknowledges that the Company has made available to
Purchaser or its agents all documents and information relating to an investment
in the Shares requested by or on behalf of Purchaser.
5. Purchaser is an "Accredited Investor" as such term is defined in
Regulation D under the Act.
10
<PAGE>
6. All shares issued on delivery of this Certificate shall bear the
legend set forth in Section 5 of the annexed Warrant Certificate, and the Shares
received on delivery of this Certificate shall be subject to the restrictions
set forth therein.
Executed as of _______________, ___.
Purchaser: ___________________________________
___________________________________
___________________________________
Signature: ___________________________________
11
<PAGE>
EXHIBIT 4.07
WARRANT CERTIFICATE
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN
EXEMPTION THEREFROM.
No. Date:_____________
Certificate for_________ Common Stock Warrants
EXERCISABLE COMMENCING ON THE DATE OF ISSUANCE
HEREOF AND ENDING
ON THE EXPIRATION DATE AS DEFINED HEREIN
SHOPPING.COM
THIS CERTIFIES that______________________________ or his, her or its
registered assigns is the registered holder (the "Warrantholder") of the number
of Common Stock Purchase Warrants ("Warrants") set forth above, each of which
represents the right to purchase one share ("Share") of the common stock of
Shopping.com, a California corporation (the "Company"), no par value per share
(the "Common Stock"), at the exercise price of $1.50 per Share (such exercise
price per Share as adjusted from time to time is referred to herein as the
"Exercise Price"), at any time after the earlier of 90 days after the effective
date the Company's Initial Public Offering or June 30, 1998 prior to the
Expiration Date hereinafter referred to, by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon duly
executed, at the Company's principal executive office (the "Office"), and by
paying in full the Exercise Price, plus transfer taxes, if any, in United States
currency by cash, certified check, bank cashier's check or money order payable
to the order of the Company or by delivering Common Stock pursuant to the
cashless exercise provisions herein.
Section 1. Registration.
------------
(a) Warrantholder List. This Warrant Certificate shall be numbered and
------------------
registered in the name of the record holder to whom it is distributed, as
provided by the
-1-
<PAGE>
Company; and the Company shall maintain a list showing the name, address and
number of Warrants held by each of the Warrantholders of record.
(b) Warrantholder of Record. The Company may deem and treat the
-----------------------
Warrantholder of record as the absolute owner of the Warrant Certificate
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for the purpose of any exercise thereof and any distribution to the
holder thereof and for all other purposes, and the Company shall not be affected
by any notice to the contrary.
Section 2. Registration of Transfers and Exchanges.
---------------------------------------
(a) Registration of Transfer. The Company shall register the transfer of
------------------------
this Warrant Certificate upon the records to be maintained by it for that
purpose, upon surrender of this Warrant Certificate accompanied (if so required
by the Company) by (i) a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered holder(s) thereof
or by the duly appointed legal representative thereof or by a duly authorized
attorney, and (ii) an opinion of counsel, reasonably satisfactory to the
Company, that such transfer is exempt from registration under the Act. Upon any
such registration or transfer, a new Warrant Certificate shall be issued to the
transferee, and the surrendered Warrant Certificate shall be cancelled by the
Company.
(b) Exchange of Warrant Certificate. Warrant Certificates may be exchanged
-------------------------------
for another Warrant Certificate or Warrant Certificates of like tenor entitling
the holder thereof to purchase a like aggregate number of Shares as the Warrant
Certificate(s) surrendered then entitle such holder to purchase. Any holder of
a Warrant desiring to exchange Warrant Certificates shall make such request in
writing delivered to the Company, and shall surrender, properly endorsed, the
certificate(s) evidencing the Warrant or Warrants to be so exchanged.
Thereupon, the Company shall countersign and deliver to the person entitled
thereto a new Warrant Certificate or Certificates, as the case may be, as so
requested. Warrant Certificates surrendered for exchange, transfer or exercise
shall be cancelled by the Company.
(c) Legended Warrant Certificate. A Warrant Certificate presented for
----------------------------
registration of transfer or exchange having a legend endorsed thereon pursuant
to any agreement restricting transfer of such Warrant Certificate shall only be
registered for transfer or exchanged upon compliance with the requirements of
such agreement.
Section 3. Mutilated or Missing Warrant Certificates. In case this Warrant
-----------------------------------------
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Warrant Certificate and an indemnity or bond, if requested, also satisfactory to
the Company.
-2-
<PAGE>
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable requests and pay such other reasonable charges as the Company
may prescribe.
Section 4. Duration and Exercise of Warrants.
---------------------------------
(a) Expiration. The Warrants represented by this Warrant Certificate shall
----------
expire at 5:00 p.m. Los Angeles Time, on May 31, 2002 (the "Expiration Date").
Any Warrant Certificate not surrendered to the Company for exercise in
accordance with Section 4(b) or 4(c) prior to such time on the Expiration Date
shall be void.
(b) Cash Exercise. Subject to the provisions of this Warrant Certificate
-------------
and prior to the close of business on the Expiration Date, the Warrantholder
shall have the right to purchase from the Company the number of Shares of Common
Stock specified above at the per Share Exercise Price. In order to exercise
such right, the Warrantholder shall surrender this Warrant Certificate(s)
evidencing such Warrants to the office of the Company or any transfer agent of
the Common Stock with the form of Election to Purchase set forth hereon duly
completed and signed, and shall tender payment in full of the Exercise Price to
the Company for the Company's account, together with such taxes as are specified
in Section 7 hereof, for each Share with respect to which such Warrants are
being exercised. Such Exercise Price and taxes shall be paid in full by cash,
certified check, bank cashier's check or money order, payable in United States
currency to the order of the Company. In addition, if the Shares deliverable
upon exercise have not been registered under the Securities Act of 1933, as
amended (the "Act"), the Warrantholder shall, as a condition to exercise of the
Warrants, deliver a duly executed certificate substantially in the form of
Exhibit A hereto.
(c) Cashless Exercise (i) In lieu of the payment of the Purchase Price,
-----------------
the Holder shall have the right (but not the obligation), to require the Company
to convert this Warrant, in whole or in part, into shares of Common Stock (the
"Conversion Right"). Upon exercise of the Conversion Right, the Company shall
deliver to the Holder (without payment by the Holder of any of the Purchase
Price) that number of shares of Common Stock (the "Conversion Shares") equal to
the quotient obtained by (x) dividing the value of this Warrant (or portion
thereof as to which the Conversion Right is being exercised) at the time the
Conversion Right is exercised (determined by subtracting the aggregate Purchase
Price of the shares of Common Stock as to which the Conversion Right is being
exercised in effect immediately prior to the exercise of the Conversion Right
from the aggregate current market price (the "Current Market Price", defined in
subsection ii hereinafter) of the shares of Common Stock as to which the
Conversion Right is being exercised immediately prior to the exercise of the
Conversion Right) by (y) the Current Market Price of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
(ii) The Current Market Price per share of Common Stock on any date shall
be deemed to be the average of the daily closing prices for the five (5)
consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the
-3-
<PAGE>
closing bid price regular way, in either case on the principal national
securities exchange (including, for purposes hereof, the Nasdaq SmallCap Market)
on which the shares of Common Stock are listed or admitted to trading, or if the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange, the highest reported bid price for the shares of Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through NASDAQ or a similar organization if NASDQ is no longer reporting such
information. If on any such date the shares of Common Stock are not listed or
admitted to trading on any national securities exchange and is not quoted by
NASDAQ or any similar organization, the fair value of the share of Common Stock
on such date, as determined in good faith by the board of directors of the
Company whose determination shall be conclusive absent manifest error, shall be
used.
(d) Remaining Warrants. The Warrants evidenced by this Warrant Certificate
------------------
shall be exercisable only in multiples of one (1) Warrant. In the event that
less than all of the Warrants evidenced by this Warrant Certificate are
exercised at any time prior to the close of business on the Expiration Date, one
or more new Warrant Certificate(s) shall be issued to the Warrantholder, or his,
her or its duly authorized assigns, by the Company for the remaining number of
Warrants evidenced by the Warrant Certificate so surrendered.
Section 5. Issuance of Share Certificates.
------------------------------
(a) Issuance of Certificate. Upon surrender of this Warrant Certificate,
-----------------------
payment of the Exercise Price, compliance with Section 2(c), if applicable and,
if the Shares deliverable on exercise have not been registered under the Act,
the delivery of a certificate in the form of Exhibit A hereto, the Company shall
issue certificates representing Shares ("Share Certificates") in the name of the
tendering Warrantholder and deliver the Share Certificates to the tendering
Warrantholder or his designee.
(b) Legend. If the Shares deliverable upon exercise of this Warrant have
------
not been registered under the Act, the Share Certificate shall bear a legend in
substantially the following form: THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR QUALIFICATION OR AN EXEMPTION THEREFROM.
Section 6. Adjustment of Exercise Price. Subject to Section 6(l), the
----------------------------
Exercise Price in effect from time to time for each Warrant shall be subject to
adjustment upon the occurrence of the events specified in this Section 6.
(a) Definitions. For purposes of this Section 6 the following definitions
-----------
shall apply:
-4-
<PAGE>
"Common Stock Equivalent" shall mean Convertible Securities and rights
-----------------------
entitling the holder thereof to receive directly, or indirectly, additional
shares of Common Stock without the payment of any consideration by such holder
for such additional shares of Common Stock or Common Stock Equivalents.
"Common Stock Outstanding" shall mean the aggregate of all Common Stock
------------------------
outstanding and all Common Stock issuable upon exercise of all outstanding
Options and conversion of all outstanding Convertible Securities.
"Convertible Securities" shall mean any indebtedness or shares of stock
----------------------
convertible into or exchangeable for Common Stock, including, but not limited
to, Series A Preferred Stock, and Series B Preferred Stock.
"Current Exercise Price" shall mean the Exercise Price immediately before
----------------------
the occurrence of any event, which, pursuant to Section 6(b), causes an
adjustment to the Exercise Price.
"Exercise Price" shall mean the price, determined pursuant to this Section
--------------
6, at which shares of Common Stock shall be deliverable upon exercise of the
Warrant.
"Issuance Date" shall mean the first date on which the Company issues the
-------------
Warrants.
"Options" shall mean any rights, warrants or options to subscribe for or
-------
purchase Common Stock or Convertible Securities.
(b) Issuance of Securities. Subject to Section 6(l), in case the Company
----------------------
shall at any time after the Issuance Date issue or sell any Common Stock,
Options or Convertible Securities (other than the issuance of the Common Stock
on the conversion of the Series A Preferred Stock, or Series B Preferred
Stock)for a consideration per share less than the Current Exercise Price then,
and thereafter successively upon each such issuance or sale, the Current
Exercise Price shall simultaneously with such issuance or sale be adjusted to an
Exercise Price determined by multiplying the Current Exercise Price by a
fraction (i) the numerator of which shall be (A) the number of shares of Common
Stock outstanding at the close of business on the day next preceding the date of
such issue or sale, plus (B) the number of shares of Common Stock which the
aggregate consideration received (or by the express provisions hereof deemed to
have been received) by the Company would purchase at the Current Exercise Price,
and (ii) the denominator of which shall be the number of shares of Common Stock
outstanding at the close of business on the date of such issue after giving
effect to such issue of Common Stock, Options or Convertible Securities;
provided, however, that for the purposes of this subsection, all shares of
Common Stock then issuable upon conversion or exercise of then outstanding
rights or options to acquire Common Stock at a Current Exercise Price or other
stocks or securities convertible into Common Stock at a price less than the
Current Exercise Price shall be deemed to be outstanding.
-5-
<PAGE>
For the purposes of this subsection 6(b), the following provisions shall
also be applicable:
(1) Cash Consideration. In case of the issuance or sale of additional
------------------
Common Stock, Options or Convertible Securities for cash, the per share price
therefor shall be deemed to be the amount of cash received by the Company for
such shares or, if such shares are offered by the Company for subscription, the
subscription price, or, if such shares are sold to underwriters or dealers for
public offering without a subscription offering, the initial public offering
price, without deducting therefrom any compensation or discount paid or allowed
to underwriters or dealers or others performing similar services or for any
expenses incurred in connection therewith.
(2) Non-Cash Consideration. In case of the issuance (otherwise than
----------------------
upon conversion or exchange of Convertible Securities) or sale of additional
Common Stock, Options or Convertible Securities for a consideration other than
cash or a consideration, a part of which shall be other than cash, the fair
value of such consideration as determined by the board of directors of the
Company in the good faith exercise of its business judgment, irrespective of the
accounting treatment thereof, shall be deemed to be the value, for purposes of
this Section 6, of the per share price, other than cash, received by the Company
for such securities.
(3) Options and Convertible Securities. In case the Company shall in
----------------------------------
any manner issue or grant any Options or any Convertible Securities, the sum of
(i) the portion of the consideration received by the Company as payment for the
grant or issuance of the Option or Convertible Security reasonably determined in
good faith by the board of directors to be allocable to the Options or
Convertible Securities plus (ii) the minimum amount (if any) payable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities at the time such Convertible Securities first become convertible or
exchangeable shall, in the aggregate, be deemed to be the per share price of
such securities; provided that, subject to the provisions of Section 6(c), no
further adjustment of the Exercise Price shall be made upon the actual issuance
of any such Common Stock or Convertible Securities or upon the conversion or
exchange of any such Convertible Securities.
(c) Change in Option Price or Conversion Rate. If the purchase price
-----------------------------------------
provided for in any Option referred to in subsection 6(b)(3), or the rate at
which any Convertible Securities referred to in subsection 6(b)(3) are
convertible into or exchangeable for shares of Common Stock shall change at any
time (other than under or by reason of provisions designed to protect against
dilution), the Current Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Exercise Price that would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold. (If the purchase
price provided for in any such Option referred to in subsection 6(b)(3), or the
additional consideration (if any) payable upon the conversion or exchange of any
Convertible Securities referred to in subsection 6(b)(3) or the rate at which
-6-
<PAGE>
any Convertible Securities referred to in subsection 6(b)(3) are convertible
into or exchangeable for shares of Common Stock, shall be reduced at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of shares of Common Stock upon
the exercise of any such Option or upon conversion or exchange of any such
Convertible Security, the Current Exercise Price then in effect hereunder shall,
upon issuance of such shares of Common Stock, be adjusted to such amount as
would have obtained had such Option or convertible Security never been issued
and had adjustments been made only upon the insurance of the shares of Common
Stock delivered as aforesaid and for the consideration actually received for
such Option or Convertible Security and the Common Stock.
(d) Termination of Option or Conversion Rights. In the event of the
------------------------------------------
termination or expiration of any right to purchase Common Stock under any Option
or of any right to convert or exchange Convertible Securities, the Current
Exercise Price shall, upon such termination, be changed to the Exercise Price
that would have been in effect at the time of such expiration or termination had
such Option or Convertible Security, to the extent outstanding immediately prior
to such expiration or termination, never been issued, and the shares of the
Common Stock issuable thereunder shall no longer be deemed to be Common Stock
Outstanding.
(e) Stock Splits, Dividends, Distributions and Combinations. If the
-------------------------------------------------------
Company should at any time for from time to time after the Issuance Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or Common Stock Equivalents, then, following such record date (or
the date of such dividend, distribution, split or subdivision if no record date
is fixed), the Exercise Price shall be appropriately decreased so that the
number of shares of Common Stock issuable on exercise of any Warrant shall be
increased in proportion to such increase in the number of outstanding shares of
Common Stock (including, for this purpose, Common Stock Equivalents) determined
in accordance with Section 6(g). If the number of shares of Common Stock
outstanding at any time after the Issuance Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Exercise Price shall be appropriately increased so that the
number of shares of Common Stock issuable on exercise of any Warrant shall be
decreased in proportion to such decrease in the number of outstanding shares of
Common Stock.
(f) Other Dividends. If the Company shall declare a distribution payable
---------------
in securities of other persons, evidences of indebtedness issued by the Company
or other persons, assets (excluding cash dividends) or options or rights not
referred to in subsection 6(b)(3), then, in each such case for the purpose of
this Section 6(f), Warrantholders shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of shares of
Common Stock of the Company into which their Warrants are exercisable as of the
record date fixed for the determination of the holders of Common Stock of the
Company entitled to receive such distribution.
-7-
<PAGE>
(g) Recapitalizations. If at any time or from time to time there shall be
-----------------
a recapitalization of the Common Stock (other than a subdivision, combination or
merger or a sale of assets transaction provided for elsewhere in this Section 6)
provision shall be made so that the Warrantholders shall thereafter be entitled
to receive upon exercise of such Warrants the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 6 with respect to the rights of
the Warrantholders after the recapitalization to the end that the provisions of
this Section 6 (including adjustment of the Exercise Price then in effect and
the number of shares purchasable upon exercise of such Warrants) shall be
applicable after that event so that the number of shares of stock or other
securities or property of the Company or otherwise shall be as nearly equivalent
as may be practicable.
(h) Successive Changes. The above provisions of this Section 6 shall
------------------
similarly apply to successive issuances, changes, sales, dividends or other
distributions, subdivisions and combinations on or of the Common Stock.
(i) Other Events Altering Conversion Price. Upon the occurrence of any
--------------------------------------
event not specifically denominated in this Section 6 as altering the Exercise
Price that, in the reasonable exercise of the business judgment of the board of
directors of the Company requires, on equitable principles, the alteration of
the Exercise Price, the Exercise Price will be equitably altered.
(j) No Impairment. The Company will not, by amendment of its Amended and
-------------
Restated Certificate of Incorporation, including the filing of a certificate of
designation, or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrantholders against
impairment.
(k) Miscellaneous Conversion Price Matter. The Company shall at all times
-------------------------------------
reserve and keep available out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon exercise of all the then
outstanding Warrants and shall, at its own expense, take all such actions and
obtain all such permits and orders as may be necessary to enable the Company
lawfully to issue such Common Stock upon the exercise of such Warrants.
(l) Excluded Events. Notwithstanding anything in this Section 6 to the
---------------
contrary, the Exercise Price shall not be adjusted by virtue of (i) the
conversion of shares of Series A Preferred Stock, or Series B Preferred Stock
into shares of Common Stock, (ii) the repurchase of shares from the Company's
employees, consultants, officers or directors at such
-8-
<PAGE>
person's cost (or at such other price as may be agreed to by the Company's board
of directors), or (iii) the issuance and sale of, or the grant of options to
purchase, shares of Common Stock to employees, advisors, directors, officers or
consultants of the Company and its subsidiaries at a price which is less than
the Exercise Price at the time of such issuance or sale (all as determined in
accordance with this Section 6) as may be approved by the board of directors,
and none of such shares shall be included in any manner in the computation from
time to time of the Exercise Price under subsection 6(b) or in Common Stock
Outstanding for purposes of such computation.
(m) No Fractional Shares. No fractional shares shall be issued upon
--------------------
exercise of Warrants and the number of shares of Common Stock to be issued shall
be rounded up to the nearest whole share determined on the basis of the total
number of Warrants the Warrantholder is at the time exercising for Common Stock
and the aggregate number of shares of Common Stock (including the aggregation of
all fractional shares) issuable upon such aggregate exercise.
(n) Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the Exercise Price pursuant to this Section 6, the Company,
at its expense upon request by any Warrantholder, shall compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish to
each Warrantholder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of any
Warrantholder, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the Current
Exercise Price at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the exercise of a Warrant.
Section 7. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the initial issuance of Shares issuable upon the exercise
of Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes that may be payable in respect of any transfer involved in the
issuance of any Warrant Certificates or any Share Certificates in a name other
than that of the Warrantholder of record, and the Company shall not be required
to issue or deliver such Share Certificates unless and until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid and the Company may withhold from any funds payable
to a Warrantholder or require the Warrantholder to pay, any tax subject to
withholding pursuant to any law or governmental regulation before issuing or
delivering any Share Certificate.
Section 8. Voting Rights or Notice. Nothing contained in this Warrant
-----------------------
Certificate shall be construed as conferring upon the Warrantholder the right to
vote or to consent or to receive notice as a Shareholder in respect of any
rights or other matter whatsoever as a Shareholder of the Company, or any other
rights or liabilities as a Shareholder of the Company.
-9-
<PAGE>
Section 9 Notice Any notice pursuant to this Warrant Certificate to be
------
given by the Company to the Warrantholder shall be sufficiently given if
personally delivered or sent by first class United States mail, by overnight
courier guaranteeing next-day delivery, or by facsimile confirmed by letter,
addressed (until another address is filed in writing by the Warrantholder with
the Company) to the address specified in the Warrant register maintained by the
Company.
Section 10 Supplements and Amendments. The Company may from time to time
--------------------------
supplement or amend this Warrant Certificate without the consent or concurrence
of the Warrantholder in order to cure any ambiguity, manifest error or other
mistake in this Warrant Certificate, or to make provision in regard to any
matters or questions arising hereunder that the Company may deem necessary or
desirable and that shall not adversely affect, alter or change the interests of
the Warrantholder.
Section 11 Warrant Agent. The Company may, by written notice to the
-------------
Warrantholder, appoint an agent having an office in either New York, New York or
Los Angeles, California, for the purpose of issuing Shares on the exercise of
the Warrants, exchanging Warrants, replacing Warrants or any of the foregoing,
and thereafter any such issuance, exchange or replacement shall be made at such
office by such agent.
Section 12 Successors. All the representations, warranties, agreements,
----------
covenants and provisions of this Warrant Certificate by or for the benefit of
the Company or the Warrantholder shall bind and inure to the benefit of their
respective permitted successors and assigns hereunder.
Section 13 Governing Law. This Warrant Certificate shall be deemed to be a
-------------
contract made under the laws of the State of California and for all purposes
shall be construed in accordance with the internal laws of said State without
regard to conflicts of laws principles.
Section 14 Benefits of This Agreement. Nothing in this Warrant Certificate
--------------------------
shall be construed to give to any person or entity other than the Company and
the Warrantholder any legal or equitable right, remedy or claim under this
Warrant Certificate; and this Warrant Certificate shall be for the sole and
exclusive benefit of the Company and the Warrantholder.
Section 15 Invalidity of Provisions. If any provision of this Warrant
------------------------
Certificate is or becomes invalid, illegal or unenforceable in any respect, such
provision shall be deemed amended to the extent necessary to cause it to express
the intent of the parties to the maximum possible extent and be valid, legal and
enforceable. The invalidity or deemed amendment of such provision shall not
affect the validity, legality or enforceability of any other provision hereof.
Section 16 No Impairment. The Company will not, by amendment of its
-------------
certificate of incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action,
-10-
<PAGE>
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
Section 17 Section Headings. The section headings contained in this Warrant
----------------
Certificate are for convenience only and shall be without substantive meaning or
content.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary, as of the day and year first above written.
COMPANY:
SHOPPING.COM
By: __________________________
Title: President
Attest:
By: ___________________________
Secretary
-11-
<PAGE>
COMMON STOCK WARRANTS
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise ______________ of the
Warrants represented by this Warrant Certificate and to purchase the Shares
issuable upon the exercise of said Warrants, and requests that Share
Certificates for such Shares be issued and delivered as follows:
ISSUE TO: ______________________________________________
(Name)
______________________________________________
(Address, Including Zip Code)
______________________________________________
(Social Security or Tax Identification Number)
DELIVER TO: ______________________________________________
(Name)
at ___________________________________________
(Address, Including Zip Code)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth above or otherwise as the undersigned shall
direct in writing.
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<PAGE>
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$ _________ by cash, certified check, bank cashier's check or money order
payable in United States currency to the order of the Company, or the number of
shares of Common Stock to be delivered for the Cashless Exercise as follows:
Dated: __________________,____
____________________________________
Signature
(Signature must conform in all respects to
the name of holder as specified on the face
of the Warrant Certificate.)
Signature Guaranteed: PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF HOLDER
_____________________________ ___________________________________
-13-
<PAGE>
ASSIGNMENT
COMMON STOCK WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the Assignee named below all of the rights of the undersigned represented
by the within Warrant Certificate, with respect to the number of Warrants set
forth below:
Social
Name of Security No.
Assignee or Tax I.D. Address # of Warrants
- -------- ----------- ------- -------------
and does hereby irrevocably constitute and appoint ___________________________,
Attorney, to make such transfer on the books of Shopping.com, maintained for
that purpose, with full power of substitution in the premises.
Dated: __________________,____ ____________________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
Signature Guaranteed:
____________________________________
-14-
<PAGE>
EXHIBIT A TO WARRANT CERTIFICATE
REPRESENTATIONS AND WARRANTIES BY WARRANTHOLDER
UPON EXERCISE OF COMMON STOCK WARRANTS
THE UNDERSIGNED (hereinafter referred to as "Purchaser") is exercising the
Warrants tendered with this Certificate, and in connection with such exercise,
makes the following representations and warranties to Shopping.com (the
"Company") with the knowledge and intent that the Company shall be entitled to
rely thereon in delivering shares of the Company's Common Stock (the "Shares")
to purchaser upon exercise of the Warrants:
1. Purchaser is acquiring the Shares either (a) for investment for its
own account, and not with a view to or for sale in connection with any
distribution thereof or (b) for offer and sale solely pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act").
Purchaser understands that the Shares to be purchased have not been registered
pursuant to the Act, and the offer and sale of the Shares is intended to be
exempt from registration under the Act, which exemption depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
Purchaser's representations as expressed herein.
2. Purchaser understands that no public market now exists for any of the
securities issued by the Company and that there is no assurance that a public
market will ever exist for the Shares.
3. Purchaser has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares, and Purchaser is capable of bearing the economic risks of such
investment, including the risk of loss of its entire investment in the Shares.
4. Purchaser acknowledges that the Company has made available to
Purchaser or its agents all documents and information relating to an investment
in the Shares requested by or on behalf of Purchaser.
5. Purchaser is an "Accredited Investor" as such term is defined in
Regulation D under the Act.
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<PAGE>
6. All shares issued on delivery of this Certificate shall bear the
legend set forth in Section 5 of the annexed Warrant Certificate, and the Shares
received on delivery of this Certificate shall be subject to the restrictions
set forth therein.
Executed as of _______________, ___.
Purchaser: ___________________________________
___________________________________
___________________________________
Signature: ___________________________________
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<PAGE>
EXHIBIT 4.08
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME
OF SUCH OFFER OR SALE, THE PERSON MAKING SUCH OFFER OR SALE DELIVERS A
PROSPECTUS MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") FORMING A PART OF A REGISTRATION STATEMENT, OR POST-
EFFECTIVE AMENDMENT THERETO, WHICH IS EFFECTIVE UNDER SAID ACT, UNLESS IN THE
OPINION OF COUNSEL TO THE COMPANY SUCH OFFER AND SALE IS EXEMPT FROM THE
PROVISIONS OF SECTION 5 OF SAID ACT.
WARRANT
For the Purchase of Shares of Common Stock
of
SHOPPING.COM
Void After 5 P.M., _________, 2002
No.1
Warrant to Purchase ________ Thousand (_________) Shares of Common Stock, no
par value per share, of Shopping.com, a California corporation (the "Company").
THIS IS TO CERTIFY, that, for value received, Waldron & Co., Inc. (the
"Underwriter") or registered assigns, is entitled, subject to the terms and
conditions hereinafter set forth, on or after __________, 1998 and at any time
prior to 5 P.M., Pacific Standard Time ("PST"), on ________, 2002, but not
thereafter, to purchase such number of shares of Common Stock (the "Shares") of
the Company, from the Company as is set forth above and upon payment to the
Company of $_____ per Share (the "Purchase Price"), if and to the extent this
Warrant is exercised, in whole or in part, during the period this Warrant
remains in force, subject in all cases to adjustment as provided in Section 2
hereof, and to receive a certificate or certificates representing the Shares so
purchased, upon presentation and surrender to the Company of this Warrant, with
the form of subscription attached hereto, including changes thereto reasonably
requested by the Company, duly executed, and accompanied by payment of the
Purchase Price of each Share.
SECTION 1.
Terms of this Warrant
1.1 Time of Exercise. Subject to the provisions of Sections 1.5 and 3.1
hereof, this Warrant may be exercised at any time and from time to time after
9:00 A.M., PST, on _________ ,1998 (the "Exercise Commencement Date"), but no
later than 5:00 P.M., ______________ 2002 (the "Expiration Time") at which it
shall become void, and all rights hereunder shall thereupon cease.
<PAGE>
1.2 Manner of Exercise.
1.2.1 The holder of this Warrant (the "Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form of
subscription attached hereto duly executed, to the Company at its corporate
office in Corona del Mar, California together with the full Purchase Price for
each Share to be purchased in lawful money of the United States, or by certified
check, bank draft or postal or express money order payable in United States
dollars to the order of the Company or upon delivery by Warrant Shares (as more
fully set forth below), and upon compliance with and subject to the conditions
set forth herein.
1.2.2 Upon receipt of this Warrant with the form of subscription duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall cause
to be issued certificates for the total number of whole Shares for which this
Warrant is being exercised in such denominations as are required for delivery to
the Holder, and the Company shall thereupon deliver such certificates to the
Holder or its nominee. Such payment shall be made either by check payable to the
order of the Company or the holder may elect to receive that number of Warrant
Shares equal to the value (as determined below) of this Warrant, in which event
the Company shall issue to the holder of this Warrant the number of shares of
Common Stock determined by using the following formula:
Y (A-B)
X = -----------
A
where X = the number of shares of Common Stock (or Warrant Shares) to be issued
to the holder; Y = the number of Warrant Shares subject to this Warrant; A = the
Fair Market Value of one (1) Warrant Share; B = the Exercise Price per Warrant
Share. Certificates for the Warrant Shares so purchased shall be delivered to
the Warrantholders, at their respective addresses designated in the completed
Exercise Forms, within a reasonable time, in no event exceeding 10 days after
the rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired or been exercised in full, a new Warrant representing
the number of shares (if any) with respect to which this Warrant shall not then
have been exercised shall also be issued to the Warrantholders within such time.
1.2.3 In case the Holder shall exercise this Warrant with respect to
less than all of the Shares that may be purchased under this Warrant, the
Company shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
1.2.4 The Company covenants and agrees that it will pay when due and
payable any and all taxes which may be payable in respect of the issue of this
Warrant, or the issue of any Shares upon the exercise of this Warrant. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance or delivery of this Warrant or
of the Shares in a name other than that of the Holder at the time of surrender,
and until the payment of such tax the Company shall not be required to issue
such Shares.
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<PAGE>
1.3 Exchange of Warrant. This Warrant may be split-up, combined or
exchanged for another Warrant or Warrants of like tenor to purchase a like
aggregate number of Shares. If the Holder desires to split-up, combine or
exchange this Warrant, he shall make such request in writing delivered to the
Company at its corporate office and shall surrender this Warrant and any other
Warrants to be so split-up, combined or exchanged, the Company shall execute and
deliver to the person entitled thereto a Warrant or Warrants, as the case may
be, as so requested. The Company shall not be required to effect any split-up,
combination or exchange which will result in the issuance of a Warrant entitling
the Holder to purchase upon exercise a fraction of a Share. The Company may
require the Holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split-up, combination or
exchange of Warrants.
1.4 Holder as Owner. Prior to due presentment for registration of transfer
of this Warrant, the Company may deem and treat the Holder as the absolute owner
of this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes, and
the Company shall not be affected by any notice to the contrary.
1.5 Transfer and Assignment. Prior to one year from the date hereof, this
Warrant may not be sold, hypothecated, exercised, assigned or transferred,
except to individuals who are officers of the Underwriter or any successor to
its business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance with
and subject to the provisions of the Securities Act of 1933, as amended (the
"Act") and applicable state securities laws; provided, however, that if not
exercised immediately upon such transfer, this Warrant shall lapse.
1.6 Method of Assignment. Any assignment permitted hereunder shall be made
by surrender of this Warrant to the Company at its principal office with the
form of assignment attached hereto duly executed and funds sufficient to pay any
transfer tax. In such event, the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the corporate office of the Company together with a
written notice signed by the Holder, specifying the names and denominations in
which such new Warrants are to be issued.
1.7 Rights of Holder. Nothing contained in this Warrant shall be construed
as conferring upon the Holder the right to vote or to consent or to receive
notice as a shareholder in respect of any meetings of shareholders for the
election of directors or any other matter, or as having any rights whatsoever as
a shareholder of the Company. If, however, at any time prior to the expiration
of this Warrant and prior to its exercise, any of the following shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or
3
<PAGE>
retained earnings; as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor, or
(c) there shall be proposed any capital reorganization or
reclassification of the Common Stock, or a sale of all or substantially all of
the assets of the Company, or a consolidation or merger of the Company with
another entity; or
(d) there shall be proposed a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, at the earliest practicable time (and, in any event, not less than
twenty (20) days before any record date or other date set for definitive
action), written notice of the date on which the books of the Company shall
close or a record shall be taken to determine the shareholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, or entitled to vote on such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Purchase Price and the kind and amount of the Shares and other securities
and property deliverable upon exercise of this Warrant. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation or winding up, as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the right to exercise this Warrant shall terminate)
Without limiting the obligation of the Company to provide notice to the
holder of actions hereunder, it is agreed that failure of the Company to give
notice shall not invalidate such action of the Company.
1.8 Lost Certificates. if this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such reasonable terms as to indemnity or
otherwise as it may impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like denomination and
tenor as, and in substitution for, this Warrant, which shall thereupon become
void. Any such new Warrant shall constitute an additional contractual obligation
of the Company, whether or not the Warrant so lost, stolen, destroyed or
mutilated shall be at any time enforceable by anyone.
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<PAGE>
1.9 Covenants of the Company. The Company covenants and agrees as follows:
1.9.1 At all times it shall reserve and keep available for the
exercise of this Warrant such number of authorized shares of Common Stock as are
sufficient to permit the exercise in full of this Warrant.
1.9.2 Prior to the issuance of any Shares upon exercise of this
Warrant, the Company shall secure the listing of such Shares upon any securities
exchange or automated quotation system upon which the Company's Common Stock is
listed for trading.
1.9.3 The Company covenants that all Shares when issued upon the
exercise of this Warrant will be validly issued, fully paid, non-assessable and
free of preemptive rights.
SECTION 2.
Adjustment of Purchase Price
and Number of Shares Purchasable upon Exercise
2.1 Stock Splits. If the Company at any time or from time to time
after the issuance date of this Warrant effects a subdivision of the outstanding
Common Stock, the Purchase Price then in effect immediately before that
subdivision shall be proportionately decreased and the number of shares
purchasable hereunder shall be proportionately increased, and conversely, if the
Company at any time or from time to time after the issuance date of this Warrant
combines the outstanding shares of Common Stock, the Purchase Price then in
effect immediately before the combination shall be proportionately increased and
the number of shares purchasable hereunder shall be proportionately decreased.
Any adjustment under this subsection 2.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
2.2 Dividends and Distributions. In the event the Company at any time, or
from time to time after the issuance date of this Warrant makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Purchase Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Purchase Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; provided, however,
that if such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Purchase Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Purchase Price shall be adjusted pursuant to this subsection
2.2 as of the time of actual payment of such dividends or distributions.
5
<PAGE>
2.3 Recapitalization or Reclassification. If the Shares issuable upon the
exercise of the Warrant are changed into the same or a different number of
shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 2, then and in any such event each holder
of Warrants shall have the right thereafter to exercise such Warrant as to the
kind and amount of stock and/or other securities and property receivable upon
such reclassification or other change, by the holder of the number of shares of
Shares as to which such Warrant might have been exercised immediately prior to
such reclassification or exchange, all subject to further adjustment as
provided herein.
2.4 Sale of the Company. If at any time or from time to time there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 2 or a merger or consolidation of the Company with or
into another Company, or the sale of all or substantially all of the Company's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Warrants shall thereafter be entitled to receive upon
exercise of the Warrants, the number of shares of stock or other securities or
property of the Company, or of the successor Company resulting from such merger
or consolidation or sale, to which a holder of Shares deliverable upon exercise
would have been entitled on such capital reorganization, merger, consolidation,
or sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 2 with respect to the rights of
the holders of the Warrants after the reorganization, merger, consolidation or
sale to the end that the provisions of this Section (including adjustment of the
Purchase Price then in effect and number of shares purchasable upon exercise of
the Warrants) shall be applicable after that event and be as nearly equivalent
to the provisions hereof as may be practicable.
2.5 Observance of Duties. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of this
section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Exercise Rights of the holders of the
Warrants against dilution or other impairment.
SECTION 3.
Registration Under the Securities Act of 1933
3.1 Registration and Legends. This Warrant and the Shares issuable upon
exercise of this Warrant have not been registered under the Securities Act of
1933, as amended ("the Act"). Upon exercise, in part or in whole, of this
Warrant, the certificates representing the Shares shall bear the following
legend:
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<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE AND MAY NOT BE OFFERED AND SOLD UNLESS REGISTERED AND/OR QUALIFIED
PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE
SKY LAWS OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION
APPLICABLE. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHAll BE MADE,
NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH
TRANSACTION SHALL HAVE BEEN DULY REGISTERED UNDER THE ACT AND QUALIFIED OR
APPROVED UNDER APPROPRIATE STATE OR BLUE SKY LAWS, OR (B) THE ISSUER SHALL
HAVE FIRST RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH
REGISTRATION, QUALIFICATION OR APPROVAL IS NOT REQUIRED.
3.2 No Action Letter. The Company agrees that it shall be satisfied that
no post-effective amendment or new registration is required for the public sale
of the Shares if it shall be presented with a letter from the Staff of the
Securities and Exchange Commission (the "Commission") stating in effect that,
based upon stated facts which the Company shall have no reason to believe are
not true in any material respect, the Staff will not recommend any action to the
Commission if such shares are offered and sold without delivery of a prospectus,
and that, therefore, no post-effective amendment to the Registration Statement
under which such Shares are to be registered or new registration statement is
required to be filed.
3.3 Demand Registration Rights. The Company has agreed, upon the
Underwriter's demand, to register the Shares, to file a new Registration
Statement, and to file all necessary undertakings with the Commission so as to
permit the Underwriter, or any assignee of the Underwriter, the right to sell
publicly the Shares issued on exercise of this Warrant on two occasions at any
time within five (5) years from the effective date of the Company's first
Registration Statement as filed in 1997. In connection with the first request,
the Company will bear all expenses attendant to registering the securities
(subject to Section 3.5(e)), and in connection with the second request, the
holders of the securities will bear all expenses.
3.4 Piggyback Registration Rights. In the event that the Underwriter does
not exercise its right to demand that the Shares be registered, the Company
agrees to include any appropriate Shares issuable upon exercise of the Warrants
in any Registration Statement filed by the Company at any time within seven (7)
years from the effective date of the Company's first Registration Statement as
filed in 1997 (except for any registration on Forms S-4 or S-8 or similar
forms).
3.5 Covenants Regarding Registration. In connection with any registration
under Section 3.3 or 3.4 hereof, the Company covenants and agrees as follows:
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<PAGE>
(a) The Company will, within twenty days after written request from
the Representative, take all steps necessary to effectuate preparation and
filing with the Securities and Exchange Commission of the registration statement
as required by and in compliance with the Act.
(b) The Company shall keep such registration statement effective for
the lesser of (i) one hundred twenty (120) days, or (ii) the period of time in
which the Holders of such securities have effected the distribution of their
Shares. During such period the Company shall prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) The Company shall notify each Holder of Shares covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
(d) The Company shall furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of the Shares owned by them.
(e) The Company shall pay all costs, fees, and expenses in connection
with new registration statements under Section 3.3 (excluding the costs
attendant to a second demand registration) and Section 3.4 hereof including,
without limitation, the Company's legal and accounting fees, printing expenses,
blue sky fees and expenses, except that the Company shall not pay for any of the
following costs and expenses: (i) underwriting discounts and commissions
allocable to the Shares, (ii) state transfer taxes, (iii) brokerage commissions,
(iv) fees and expenses of counsel and accountants for the holders of this
Warrant or the Shares.
(f) The Company will take all necessary action which may be required
in qualifying or registering the Shares included in any Registration Statement
or post-effective amendment or new registration statement for offering and sale
under the securities or blue sky laws of such states as are reasonably requested
by the holders of such Shares, provided that the Company shall not be obligated
to execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
(g) The Holder shall be entitled to pay the Purchase Price for the
Shares purchasable upon the exercise of this Warrant out of the proceeds of any
sale of the Shares purchasable upon its exercise.
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<PAGE>
3.6 Indemnity.
3.6.1 The Company shall indemnify and hold harmless each person
registering securities pursuant to this Section (the "Seller") and each
underwriter, within the meaning of the Act, who may purchase from or sell for
any Seller any of the Common Stock from and against any and all losses, claims,
damages, and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any new registration statement or any
supplemented prospectus under the Act included therein required to be filed or
furnished by reason of this Section, or caused by any omission or alleged
omission to state therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished or required to be furnished in
writing to the Company by such Seller or underwriter within the meaning of such
Act; provided, however, that the indemnity agreement set forth in this Section
3.6 with respect to any prospectus which shall be subsequently amended prior to
the written confirmation of sale of any Shares shall not inure to the benefit of
any Seller or underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased such Shares which are the subject
thereof (or to the benefit of any person controlling such Seller or
underwriter), if such Seller or underwriter failed to send or give a copy of the
prospectus as amended to such person at or prior to the written confirmation of
the sale of such Shares and if such amended prospectus did not contain any
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such cause, claim, damage, or liability.
3.6.2 Each Seller which avails itself of the procedures under this
Section 3 shall indemnify and secure the agreement of any underwriter which the
Seller employs to indemnify the Company, its directors, each officer signing the
related post-effective amendment or registration statement and each person, if
any, who controls the Company, within the meaning of the Act from and against
any losses, claims, damages, and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any post-effective
amendment or registration statement or any prospectus required to be filed or
furnished by reason of this Section 3 or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, insofar as such losses,
claims, damages, or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission based upon information
furnished in writing to the Company by any such Seller or underwriter expressly
for use therein.
3.7 Survival of Obligations. The agreements in this Section 3 shall
continue in effect regardless of the exercise and surrender of this Warrant.
SECTION 4.
Other Matters
4.1 Payment of Taxes. The Company will from time to time promptly pay,
subject to the provisions of paragraph (4) of Section 1.2 hereof, all taxes and
charges that may be imposed upon
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<PAGE>
the Company in respect of the issuance or delivery of this Warrant or the Shares
purchasable upon the exercise of this Warrant.
4.2 Binding Effect. All the covenants and provisions of this Warrant by or
for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
4.3 Notices. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made if
sent by certified or registered mail, return receipt requested, postage prepaid,
or facsimile and addressed, until another address is designated in writing by
the Company, as follows:
Shopping.com
2101 East Coast Highway
Garden Level
Corona del Mar, California 92625
Notices to the Holder provided for in this Warrant shall be deemed given or made
by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
4.4 Governing Law. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of California.
4.5 Parties Bound and Benefitted. Nothing in this Warrant expressed and
nothing that may be implied from any of the provisions hereof is intended, or
shall be construed, to confer upon, or give to, any person or corporation other
than the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements contained in this Warrant shall be for the sole and exclusive benefit
of the Company and its successors and of the Holder, its successors and, if
permitted, its assignees.
4.6 Headings. The Section headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the ______ day of 1997.
SHOPPING.COM
By: __________________________________
Robert J. McNulty, Chief Executive
Officer and President
10
<PAGE>
SHOPPING.COM
Assignment of Warrant
FOR VALUE RECEIVED, Waldron & Co., Inc. hereby sells, assigns and
transfers unto __________________________ the within Warrant and the rights
represented thereby, and does hereby irrevocably constitute and appoint
________________________ Attorney, to transfer said Warrant on the books of
Shopping.com with full power of substitution.
Dated: _________________
Signed: ___________________________
Signature guaranteed:
________________________
11
<PAGE>
SHOPPING.COM
2101 East Coast Highway
Garden Level
Corona del Mar, California 92625
Subscription Agreement for the Exercise of Warrants
The undersigned hereby irrevocably subscribes for the purchase
of_____________ Shares pursuant to and in accordance with the terms and
conditions of this Warrant, and herewith makes payment, covering such Shares
which should be delivered to the undersigned at the address stated below, and,
if said number of Shares shall not be all of the Shares purchasable hereunder,
that a new Warrant of like tenor for the balance of the remaining Shares
purchasable hereunder be delivered to the undersigned at the address stated
below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any Shares unless either (a) a registration
statement, or post-effective amendment thereto, covering the Shares has been
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), such sale, transfer or other disposition is
accompanied by a prospectus meeting the requirements of Section 10 of the Act
forming a part of such registration statement, or post-effective amendment
thereto, which is in effect under the Act covering the Shares to be so sold,
transferred or otherwise disposed of, and all applicable state securities laws
have been complied with, or (b) counsel to Shopping.com satisfactory to the
undersigned has rendered an opinion in writing and addressed to Shopping.com
that such proposed offer, sale, transfer or other disposition of the Shares is
exempt from the provisions of Section 5 of the Act in view of the circumstances
of such proposed offer, sale, transfer or other disposition; (2) Shopping.com
may notify the transfer agent for the Shares that the certificates for the
Shares acquired by the undersigned are not to be transferred unless the transfer
agent receives advice from Shopping.com that one or both of the conditions
referred to in (l)(a) and (1)(b) above have been satisfied; and (3) Shopping.com
may affix the legend set forth in Section 3.1 of this Warrant to the
certificates for the Shares hereby subscribed for, if such legend is applicable.
Dated: _____________________ Signed: _______________________________
Signature guaranteed: Address: ______________________________
_______________________________________
____________________________
12
<PAGE>
EXHIBIT 4.09
SHOPPING.COM
DEMAND REGISTRATION RIGHTS AGREEMENT
This DEMAND REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as
of May 30, l997 is made by and among SHOPPING.COM, a California corporation (the
"Company") and the persons listed on the attached Schedule A who become
signatories to this Agreement (collectively, the "Investors").
RECITALS
--------
A. The Company and the Investors have entered into agreements for
the sale by the Company, and purchase by the Investors, of certain of the
Company's securities.
B. In connection with the purchase and sale of the Company's
securities, the Company and the Investors desire to provide for the rights of
the Investors with respect to registration of the common stock of the Company,
no par value per share (the "Common Stock") issued upon conversion or exercise
of the securities all according to the terms of this Agreement.
AGREEMENT
---------
THE PARTIES AGREE AS FOLLOWS:
1. Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following respective meanings:
1.1 "Commission" shall mean the Securities and Exchange
------------
Commission or any other federal agency at the time administering the Securities
Act.
1.2 "Common Stock Outstanding" shall mean the aggregate of all
--------------------------
Common Stock outstanding and all Common Stock issuable upon (i) shares of stock
convertible into or exchangeable for Common Stock, including Preferred Stock,
and (ii) exercise of all outstanding rights, warrants or options to subscribe
for or purchase Common Stock or any securities set forth in (i) hereof.
1.3 "Convertible Securities" shall mean any warrants or shares
------------------------
of stock of the Company convertible into or exchangeable for Common Stock.
1.4 "Form S-3" shall mean Form S-3 issued by the Commission or
----------
any substantially similar form then in effect.
1.5 "Holder" shall mean any holder of outstanding Registrable
--------
Securities which have not been sold to the public, but only if such holder is an
Investor or an assignee or transferee of registration rights as permitted by
Section 9.
1.6 "Initiating Holders" shall mean, in the case of a demand
--------------------
Registration other than on Form S-3 pursuant to
<PAGE>
Section 2.1, Holders who in the aggregate hold at least fifty percent (50%) of
the Registrable Securities; and in the case of a demand Registration on Form S-3
effected pursuant to Section 2.3, Holders who in the aggregate hold at least
seventy percent (70%) of the Registrable Securities.
1.7 "Material Adverse Event" shall mean an occurrence having a
------------------------
consequence that either (a) is materially adverse as to the business,
properties, prospects or financial condition of the Company or (b) is reasonably
foreseeable, has a reasonable likelihood of occurring, and if it were to occur
might materially adversely affect the business, properties, prospects or
financial condition of the Company.
1.8 The terms "Register", "Registered" and "Registration" refer
---------- ------------ --------------
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act ("Registration Statement"), and the
declaration or ordering of the effectiveness of such Registration Statement.
1.9 "Registrable Securities" shall mean (i) all Common Stock not
------------------------
previously sold to the public which is (A) issued, or issuable upon conversion
or exercise of any of the Company's Convertible Securities purchased by or
issued to the Investors, or (B) issued pursuant to stock splits, stock dividends
and similar distributions with respect to securities referred to in clauses (A)
or (B) of this paragraph (i), and (ii) any securities of the Company granted
registration rights pursuant to Section 11 of this Agreement.
1.10 "Registration Expenses" shall mean all expenses incurred by
-----------------------
the Company in complying with Sections 2 or 3 of this Agreement, including,
without limitation, all federal and state registration, qualification and filing
fees, printing expenses, fees and disbursements of counsel for the Company, Blue
Sky fees and expenses, and the expense of any special audits incident to or
required by any such registration. Registration Expenses shall not include
Selling Expenses.
1.11 "Securities Act" shall mean the Securities Act of 1933, as
----------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.12 "Selling Expenses" shall mean all underwriting discounts,
------------------
selling commissions and special counsel fees of the selling stockholder(s)
applicable to the sale of Registrable Securities pursuant to this Agreement.
2. Demand Registration.
-------------------
2.1 Request for Registration on Form Other than Form S-3.
----------------------------------------------------
Subject to the terms of this Agreement, in the event that the Company shall
receive from the Initiating Holders at any time after the Company's initial
public offering of shares of
2
<PAGE>
Common Stock under a Registration Statement, the Initiating Holders may make one
written request that the Company effect any Registration with respect to all or
a part of the Registrable Securities on a Form other than Form S-3 for an
offering of at least twenty percent (20%) of the then outstanding Registrable
Securities (or any lesser percent if the reasonably anticipated aggregate
offering price to the public would exceed $5,000,000), the Company shall (i)
promptly give written notice of the proposed Registration to all other Holders,
and shall (ii) as soon as practicable, use its best efforts to effect
Registration of the Registrable Securities specified in such request, together
with any Registrable Securities of any Holder joining in such request as are
specified in a written request given within twenty (20) days after written
notice from the Company. The Company shall not be obligated to take any action
to effect any such Registration pursuant to this Section 2.1 within six (6)
months of the effective date of a Registration initiated by the Company.
2.2 Right of Deferral of Registration on Form Other than Form S-
-----------------------------------------------------------
3. If the Company shall furnish to all such Holders who joined in the request a
- -
certificate signed by the Chief Executive Officer of the Company stating that,
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for any Registration to be effected as
requested under Section 2.1, the Company shall have the right, exercisable one
(1) time only with respect to the demand registration request, to defer the
filing of a Registration Statement with respect to such offering for a period of
not more than one hundred twenty (120) days from delivery of the request of the
Initiating Holders.
2.3 Request for Registration on Form S-3. Subject to the terms
------------------------------------
of this Agreement, in the event that the Company receives from Holders who in
the aggregate hold at least fifty percent (50%) of the then outstanding
Registrable Securities a written request that the Company effect any
Registration on Form S-3 (or any successor form to Form S-3 regardless of its
designation) at a time when the Company is eligible to register securities on
Form S-3 (or any successor form to Form S-3 regardless of its designation) for
an offering of Registrable Securities with an aggregate offering price of not
less than $500,000, the Company will promptly give written notice of the
proposed Registration to all the Holders and will as soon as practicable use its
best efforts to effect Registration of the Registrable Securities specified in
such request, together with all or such portion of the Registrable Securities of
any Holder joining in such request as are specified in a written request
delivered to the Company within thirty (30) days after written notice from the
Company of the proposed Registration. There shall be no limit to the number of
occasions on which the Company shall be obligated to effect Registration under
this Section 2.3.
3
<PAGE>
2.4 Registration of Other Securities in Demand Registration.
-------------------------------------------------------
Any Registration Statement filed pursuant to the request of the Initiating
Holders under this Section 2 may, subject to the provisions of Section 2.5,
include securities of the Company other than Registrable Securities.
2.5 Underwriting in Demand Registration.
-----------------------------------
2.5.1 Notice of Underwriting. If the Initiating Holders
----------------------
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 2, and the Company shall include such
information in the written notice referred to in Section 2.1 or 2.3. The right
of any Holder to Registration pursuant to Section 2 shall be conditioned upon
such Holder's agreement to participate in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting.
2.5.2 Inclusion of Other Holders in Demand Registration.
-------------------------------------------------
If the Company, officers or directors of the Company holding Common Stock other
than Registrable Securities or holders of securities other than Registrable
Securities, request inclusion in such Registration, the Initiating Holders, to
the extent they deem advisable and consistent with the goals of such
Registration, shall, on behalf of all Holders, offer to any or all of the
Company, such officers or directors and such holders of securities other than
Registrable Securities that such securities other than Registrable Securities be
included in the underwriting and may condition such offer on the acceptance by
such persons of the terms of this Section 2. In the event, however, that the
number of shares so included exceeds the number of shares of Registrable
Securities included by all Holders, such Registration shall be treated as
governed by Section 3 hereof rather than Section 2, and it shall not count as a
Registration for purposes of Section 2.1 hereof.
2.5.3 Selection of Underwriter in Demand Registration. The
-----------------------------------------------
Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement with
the representative ("Underwriter's Representative") of the underwriter or
underwriters selected for such underwriting by the Holders of a majority of the
Registrable Securities being registered by the Initiating Holders and agreed to
by the Company.
2.5.4 Marketing Limitation in Demand Registration. In the
-------------------------------------------
event the Underwriter's Representative advises the Initiating Holders in writing
that market factors (including, without limitation, the aggregate number of
shares of Common Stock requested to be Registered, the general condition of the
market, and the status of the persons proposing to sell securities pursuant to
the Registration) require a limitation of the number of shares to be
underwritten, then (i) first, the
4
<PAGE>
Common Stock (other than Registrable Securities) held by officers or directors
of the Company, (ii) next, the securities other than Registrable Securities, and
(iii) last, the securities requested to be registered by the Company, shall be
excluded from such Registration to the extent required by such limitation. If a
limitation of the number of shares is still required, the Initiating Holders
shall so advise all Holders and the number of shares of Registrable Securities
that may be included in the Registration and underwriting shall be allocated
among all Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities entitled to inclusion in such Registration
held by such Holders at the time of filing the Registration Statement. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 2.5.4 shall be included in such Registration Statement.
2.5.5 Right of Withdrawal in Demand Registration. If any
------------------------------------------
Holder of Registrable Securities, or a holder of other securities entitled (upon
request) to be included in such Registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the Underwriter's Representative and the Initiating Holders
delivered at least seven (7) days prior to the effective date of the
Registration Statement. The securities so withdrawn shall also be withdrawn from
the Registration Statement.
2.6 Blue Sky in Demand Registration. In the event of any
-------------------------------
Registration pursuant to Section 2, the Company will exercise its best efforts
to Register and qualify the securities covered by the Registration Statement
under such other securities or Blue Sky laws of such states or other
jurisdictions (not exceeding twenty (20) at the expense of the Company) as shall
be reasonably appropriate for the distribution of such securities; provided,
however, that (i) the Company shall not be required to qualify to do business or
to file a general consent to service of process in any such jurisdictions, and
(ii) notwithstanding anything in this Agreement to the contrary, in the event
any jurisdiction in which the securities shall be qualified imposes a non-
waivable requirement that expenses incurred in connection with the qualification
of the securities be borne by selling stockholders, such expenses shall be
payable pro rata by selling stockholders.
3. Piggyback Registration.
----------------------
3.1 Notice of Piggyback Registration and Inclusion of
-------------------------------------------------
Registrable Securities. Subject to the terms of this Agreement, in the event the
- ----------------------
Company decides to Register any of its Common Stock (either for its own account
or the account of a Holder(s) exercising its respective demand registration
rights), on a form that would be suitable for a registration involving solely
Registrable Securities, the Company will: (i) promptly give each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable Blue
Sky or other
5
<PAGE>
state securities compliance), and (ii) include in such Registration (and any
related qualification under Blue Sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request delivered to the Company by any Holder within fifteen (15) days
after delivery of such written notice from the Company.
3.2 Underwriting in Piggyback Registration.
--------------------------------------
3.2.1 Notice of Underwriting in Piggyback Registration. If
------------------------------------------------
the Registration of which the Company gives notice is for a Registered public
offering involving an underwriting, the Company shall so advise the Holders as a
part of the written notice given pursuant to Section 3.1. In such event the
right of any Holder to Registration shall be conditioned upon such underwriting
and the inclusion of such Holder's Registrable Securities in such underwriting
to the extent provided in this Section 3. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting,)
enter into an underwriting agreement with the Underwriter's Representative for
such offering. The Holders shall have no right to participate in the selection
of the underwriters for an offering pursuant to this Section 3.
3.2.2 Marketing Limitation in Piggyback Registration. In
----------------------------------------------
the event the Underwriter's Representative advises the Holders seeking
registration of Registrable Securities pursuant to Section 3 in writing that
market factors (including, without limitation, the aggregate number of shares of
Common Stock requested to be Registered, the general condition of the market,
and the status of the persons proposing to sell securities pursuant to the
Registration) require a limitation of the number of shares to be underwritten,
the Underwriter's Representative (subject to the allocation priority set forth
in Section 3.2.3) may:
(a) in the case of the Company's initial Registered public
offering, exclude some or all Registrable Securities from such registration and
underwriting; and
(b) in the case of any subsequent Registered public
offering, limit the number of shares of Registrable Securities to be included in
such Registration and underwriting to not less than thirty-three and one-third
percent (33-1/3%) of the securities included in such Registration (based on
aggregate market values).
3.2.3 Allocation of Shares in Piggyback Registration. In
----------------------------------------------
the event that the Underwriter's Representative limits the number of shares to
be included in a Registration pursuant to Section 3.2.2, the number of shares to
be included in such Registration shall be allocated (subject to Section 3.2.2)
in the following manner: The shares (other than Registrable
6
<PAGE>
Securities) held by officers or directors of the Company shall be excluded from
such registration and underwriting to the extent required by such limitation. If
a limitation of the number of shares is still required after such exclusion, the
number of shares that may be included in the Registration and underwriting by
selling stockholders shall be allocated among all other Holders thereof and
other holders of securities other than Registrable Securities requesting and
legally entitled to include shares in such Registration, in proportion, as
nearly as practicable, to the respective amounts of securities (including
Registrable Securities) which such Holders and such other holders would
otherwise be entitled to include in such Registration. No Registrable Securities
or other securities excluded from the underwriting by reason of this Section
3.2.3 shall be included in the Registration Statement.
3.2.4 Withdrawal in Piggyback Registration. If any Holder
------------------------------------
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the underwriter delivered at
least seven (7) days prior to the effective date of the Registration Statement.
Any Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such Registration.
3.3 Blue Sky in Piggyback Registration. In the event of any
----------------------------------
Registration of Registrable Securities pursuant to Section 3, the Company will
exercise its best efforts to qualify the securities covered by the Registration
Statement under such other securities or Blue Sky laws of such states or other
jurisdictions (not exceeding twenty (20) unless otherwise agreed to by the
Company) as shall be reasonably appropriate for the distribution of such
securities; provided, however, that (i) the Company shall not be required to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions, and (ii) notwithstanding anything in this
Agreement to the contrary, in the event any jurisdiction in which the securities
shall be qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
stockholders, such expenses shall be payable pro rata by selling stockholders.
4. Expense of Registration. All Registration Expenses incurred in
-----------------------
connection with the Registrations pursuant to Sections 2 and 3 shall be borne
by the Company. All Registration Expenses incurred in connection with any other
registration, qualification or compliance, including any Registration on Form S-
3, shall be borne by the Company. Notwithstanding the above, the Company shall
not be required to pay for any expenses of any registration proceeding begun
pursuant to Section 2 if the registration request is subsequently withdrawn at
the request of the holders of a majority of the Registrable Securities to be
registered (which Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to a single
demand registration pursuant to Section 2;
7
<PAGE>
provided further, however, that if at the time of such withdrawal, the Holders
have learned of a Material Adverse Event with respect to the condition, business
or prospects of the Company not known to the Holders at the time of their
request, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to Section 2. All Selling Expenses shall be
borne by the holders of the securities registered pro rata on the basis of the
number of shares registered.
5. Registration Procedures. The Company will keep each Holder whose
-----------------------
Registrable Securities are included in any Registration pursuant to this
Agreement advised as to the initiation and completion of such Registration. At
its expense the Company will: (a) use its best efforts to keep such Registration
effective for a period of one hundred twenty (120) days or until the Holder or
Holders have completed the distribution described in the Registration Statement
relating thereto, whichever first occurs; and (b) furnish such number of
prospectuses (including preliminary prospectuses) and other documents as a
Holder from time to time may reasonably request.
6. Information Furnished by Holder. It shall be a condition
-------------------------------
precedent of the Company's obligations under this Agreement that each Holder of
Registrable Securities included in any Registration furnish to the Company
such information regarding such Holder and the distribution proposed by such
Holder or Holders as the Company may reasonably request.
7. Indemnification.
---------------
7.1 Company's Indemnification of Holders. To the extent
------------------------------------
permitted by law, the Company will indemnify each Holder, each of its officers,
directors and constituent partners, legal counsel for the Holders, and each
person controlling such Holder, with respect to which Registration,
qualification or compliance of Registrable Securities has been effected pursuant
to this Agreement, and each underwriter, if any, and each person who controls
any underwriter against all claims, losses, damages or liabilities (or actions
in respect thereof) to the extent such claims, losses, damages or liabilities
arise out of or are based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus or other document
(including any related Registration Statement) incident to any such
Registration, qualification or compliance, or are based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such Registration, qualification or compliance;
and the Company will reimburse each such Holder, each such underwriter and each
person who controls any such Holder or underwriter, for any legal and any other
expenses reasonably incurred in connection with
8
<PAGE>
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained in this Section 7.1 shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if settlement is effected without the consent of the Company (which
consent shall not unreasonably be withheld); and provided, further, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based upon any untrue
statement or omission based upon written information furnished to the Company by
such Holder, underwriter, or controlling person and stated to be for use in
connection with the offering of securities of the Company.
7.2 Holder's Indemnification of Company. To the extent
-----------------------------------
permitted by law, each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such Registration,
qualification or compliance is being effected pursuant to this Agreement,
indemnify the Company, each of its directors and officers, each legal counsel
and independent accountant of the Company, each underwriter, if any, of the
Company's securities covered by such a Registration Statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, and each other such Holder, each of its officers, directors and constituent
partners and each person controlling such other Holder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based upon any untrue statement (or alleged untrue statement) of a material
fact contained in any such Registration Statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by such Holder of any rule or
regulation promulgated under the Securities Act applicable to such Holder and
relating to action or inaction required of such Holder in connection with any
such Registration, qualification or compliance; and will reimburse the Company,
such Holders, such directors, officers, partners, persons, law and accounting
firms, underwriters or control persons for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such Registration Statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use in connection with the offering of securities
of the Company; provided, however, that each Holder's liability under this
Section 7.2 shall not exceed such Holder's proceeds from the offering of
securities made in connection with such Registration.
7.3 Indemnification Procedure. Promptly after receipt by an
-------------------------
indemnified party under this Section 7 of notice of
9
<PAGE>
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this Section
7, notify the indemnifying party in writing of the commencement thereof and
generally summarize such action. The indemnifying party shall have the right to
participate in and to assume the defense of such claim; provided, however, that
the indemnifying party shall be entitled to select counsel for the defense of
such claim with the approval of any parties entitled to indemnification, which
approval shall not be unreasonably withheld; provided further, however, that if
either party reasonably determines that there may be a conflict between the
position of the Company and the Investors in conducting the defense of such
action, suit or proceeding by reason of recognized claims for indemnity under
this Section 7, then counsel for such party shall be entitled to conduct the
defense to the extent reasonably determined by such counsel to be necessary to
protect the interest of such party. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to the ability
of the indemnifying party to defend such action, shall relieve such indemnifying
party, to the extent so prejudiced, of any liability to the indemnified party
under this Section 7, but the omission so to notify the indemnifying party will
not relieve such party of any liability that such party may have to any
indemnified party otherwise other than under this Section 7.
8. Market Stand-off. Each Holder hereby agrees that, if so
----------------
requested by the Company and the Underwriter's Representative (if any), such
Holder shall not sell or otherwise transfer any Registrable Securities or other
securities of the Company during the one hundred and eighty (180) day period
following the effective date of a Registration Statement of the Company filed
under the Securities Act; provided that such restriction shall only apply to the
first two (2) Registration Statements of the Company to become effective which
include securities to be sold on behalf of the Company to the public in an
underwritten offering.
9. Limitations on Registration Rights Granted to Other Securities.
--------------------------------------------------------------
From and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
providing for the granting to such holder of any information or Registration
rights, except that, with the consent of the Holders of eighty percent (80%) of
the aggregate Registrable Securities then outstanding, additional holders may be
added as parties to this Agreement with regard to any or all securities of the
Company held by them. Any such additional parties shall execute a counterpart of
this Agreement, and upon execution by such additional parties and by the
Company, shall be considered an Investor for all purposes of this Agreement. The
additional parties and the additional Registrable Securities shall be identified
in an amendment to Schedule A hereto.
10
<PAGE>
10. Transfer of Rights. The right to cause the Company to register
------------------
securities granted by the Company to the Investors under this Agreement may be
assigned by any Holder to a transferee or assignee of any Convertible Securities
or Registrable Securities not sold to the public acquiring at least twenty (20)
percent of such Holder's Registrable Securities (equitably adjusted for any
stock splits, subdivisions, stock dividends, changes, combinations or the like)
or in a transaction in which the cost of such shares to the transferee is at
least $150,000; provided, however, that (i) the Company must receive written
notice prior to the time of said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
information and Registration rights are being assigned, and (ii) the transferee
or assignee of such rights must not be a person deemed by the Board of Directors
of the Company, in its best judgment, to be a competitor or potential competitor
of the Company. Notwithstanding the limitation set forth in the foregoing
sentence respecting the minimum number of shares which must be transferred, any
Holder which is a partnership may transfer such Holder's Registration rights to
such Holder's constituent partners without restriction as to the number or
percentage of shares acquired by any such constituent partner.
11. No-Action Letter or Opinion of Counsel in Lieu of Registration:
---------------------------------------------------------------
Conversion of Preferred Stock. Notwithstanding anything else in this Agreement,
- -----------------------------
if the Company shall have obtained from the Commission a "no-action" letter in
which the Commission has indicated that it will take no action if, without
Registration under the Securities Act, any Holder disposes of Registrable
Securities covered by any request for Registration made under this Agreement in
the specific manner in which such Holder proposes to dispose of the Registrable
Securities included in such request or if in the opinion of counsel for the
Company concurred in by counsel for such Holder, which concurrence shall not be
unreasonably withheld, no Registration under the Securities Act is required in
connection with such disposition, the Shares included in such request shall not
be eligible for Registration under this Agreement; provided, however, that any
Registrable Securities not so disposed of shall be eligible for Registration in
accordance with the terms of this Agreement with respect to other proposed
dispositions to which this Section 13 does not apply. The Registration rights of
the Holders of the Shares set forth in this Agreement are conditioned upon the
conversion of the Shares with respect to which registration is sought into
Common Stock prior to the effective date of the Registration Statement.
12. Miscellaneous.
-------------
12.1 Entire Agreement: Successors and Assigns. This Agreement
----------------------------------------
constitutes the entire contract among the Company, the Investors, the Founders
and the Key Employees relative to the subject matters hereof. Any previous
agreement between or among the Company, the Investors, the Founders or the Key
Employees
11
<PAGE>
concerning Registration rights and rights of first offer is superseded by this
Agreement. Subject to the exceptions specifically set forth in this Agreement,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective executors, administrators, heirs, successors and
assigns of the parties. A transferee other than for value of any Founder or Key
Employee Shares shall take such shares subject to the restrictions on transfer
contained herein.
12.2 Governing Law. Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California applicable to contracts
entered into and wholly to be performed within the State of California by
California residents.
12.3 Counterparts. This Agreement may be executed in two (2) or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.4 Headings. The headings of the Sections of this Agreement are
--------
for convenience and shall not by themselves determine the interpretation of this
Agreement.
12.5 Notices. Any notice required or permitted hereunder shall be
-------
given in writing and shall be conclusively deemed effectively given upon
personal delivery, or five (5) days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed (i) if to the Company,
as set forth below the Company's name on the signature page of this Agreement,
and (ii) if to an Investor, at such Investor's address as set forth on Schedule
A, or at such other address as the Company or such Investor may designate by ten
(10) days' advance written notice to the Investors or the Company, respectively.
12.6 Amendment of Agreement. Any provision of this Agreement may
----------------------
be amended only by a written instrument signed by the Company and by persons
holding at least eighty percent (80%) of the Registrable Securities as defined
in Section 1.9 of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
The Company: THE SHOPPERS' SOURCE
a California corporation
By: _________________________
Name: Robert J. McNulty
Its: President/CEO
Address: THE SHOPPERS' SOURCE
2101 East Coast Highway
Garden Level
Corona Del Mar, CA 92625
12
<PAGE>
Attn: Chief Executive Officer
The Investors:
13
<PAGE>
INVESTORS SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
---------------------------------------------------------
14
<PAGE>
EXHIBIT 4.10
REGISTRATION RIGHTS AGREEMENT
-----------------------------
AGREEMENT made as of _______, 1997, by and among The Shoppers' Source,
a California corporation (the "Company"), and those persons set forth on the
signature pages attached hereto.
Some of the parties to this Agreement are parties to that certain
Subscription Agreement and that certain Shareholder Agreement, both dated as of
June 1, 1997 (the "Agreements"). In order to induce those parties (sometimes
collectively referred to herein as the "Investors" and individually as an
"Investor") to enter into the Agreements, the Company has agreed to provide the
registration rights set forth in this Agreement. The persons other than the
Investors who are parties to this Agreement have agreed to be bound by the terms
and conditions of this Agreement. The execution and delivery of this Agreement
is a condition to the Closing under the Agreements.
The parties hereto agree as follows:
1. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. At any time after the Company has
------------------
effected an initial public offering of its securities and thereafter the Company
proposes to register any of its securities under the Securities Act (other than
an S-8 registration statement to register shares to be issued pursuant to the
Company's Employee Stock Option Plan to employees, officers and directors if
such a plan is established) and the registration form to be used may be used for
the registration of Registrable Securities, as hereinafter defined, (a
"Piggyback Registration"), the Company will give prompt written notice to all
holders of Registrable Securities of its intention to effect such a registration
and will include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within 15
days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders
------------------
of Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback
---------------------------------
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering, the Company will include
in such registration (i) first, the securities the Company proposes to sell,
(ii) second, the Registrable Securities requested to be included in such
registration, pro rata among the holders of such Registrable Securities on the
basis of the number of shares owned
1
<PAGE>
by such holders, and (iii) third, other securities requested to be included in
such registration.
(d) Priority on Secondary Registrations. If a Piggyback
-----------------------------------
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering, the
Company will include in such registration (i) first, the securities requested to
be included therein by the holders requesting such registration of the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such securities on the basis of the number of securities
owned by each such holder, and (ii) second, other securities requested to be
included in such registration.
(e) Selection of Underwriters. If any Piggyback Registration is
-------------------------
an underwritten offering, the selection of investment banker(s) and manager(s)
for the offering shall be selected by the Company, but the Company will consult
with the holders of a majority of the Registrable Securities included in such
Piggyback Registration.
(f) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to Registrable Securities pursuant to
paragraph 1 and if such previous registration has not been withdrawn or
abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least six months has elapsed from the effective date of such previous
registration.
2. Holdback Agreements.
-------------------
(a) Each holder of Registrable Securities agrees not to effect
any public sale or distribution of equity securities of the company, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and the 90-day period beginning on the effective
date of any underwritten Piggyback Registration in which Registrable Securities
are included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for
2
<PAGE>
such securities, during the seven days prior to and during the 90-day period
beginning on the effective date of any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to cause each holder of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, purchased from the Company at any time after
the date of this Agreement (other than in a registered public offering) to agree
not to effect any public sale or distribution of any such securities during such
period (except as part of such underwritten registration, if otherwise
permitted), unless the underwriters managing the registered public offering
otherwise agree.
3. Registration Procedures. Whenever the holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof (including the registration of Common
Stock issuable upon conversion of Preferred Stock, held by a holder of
Registrable Securities requesting registration as to which the Company has
received reasonable assurances that only Registrable Securities will be
distributed to the public), and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission
a registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
will be subject to the prompt review of such counsel (with respect to any
registration statement, the Company shall have the right to require such counsel
to comment on the final draft of such statement within 24 hours of its delivery
to such counsel);
(b) prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
3
<PAGE>
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares); and
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any
4
<PAGE>
disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
4. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts, fees commissions and green shoe
or other allocations, all of which are to be allocated as provided in Section
4(c) below) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be borne as provided in this
Agreement, except that the Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each securities
exchange on which similar securities issued by the Company are then listed.
(b) The holders of Registrable Securities covered by such
registration shall pay the fees and disbursements of counsel chosen by the
holders of such Registrable Securities.
(c) To the extent Registration Expenses are not required to be
paid by the Company, each holder of securities included in any registration
hereunder will pay those Registration Expenses allocable to the registration of
such holder's securities so included, and any Registration Expenses not so
allocable will be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
5. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted by
law, each holder of Registrable Securities, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in
5
<PAGE>
any registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company will indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers, its attorneys and accountants and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
holder; provided that the obligation to indemnify will be several, not joint and
several, among such holders of Registrable Securities and the liability of each
such holder of Registrable Securities will be in proportion to and limited to
the net amount received by such holder from the sale of Registrable Securities
pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably
6
<PAGE>
withheld). An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
6. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
7. Definitions.
-----------
(a) The term "Registrable Securities" means (i) Common Stock
issued pursuant to the Agreements, (ii) any securities issued with respect to
the Common Stock referred to in clause (i) above by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when they
have ceased to be Restricted Securities, unless such securities are held at such
time by a holder of Registrable Securities; provided that any securities which
cease to be Restricted Securities solely because they have become eligible for
transfer pursuant to Rule 144 (or any similar rule then in force) will not cease
to be Registrable Securities until they have actually been sold to the public in
compliance with Rule 144 (or any similar rule then in force). For purposes of
this Agreement, a "Person" will be deemed to be a holder of Registrable
Securities whenever such Person has the right to acquire such Registrable
Securities (by conversion or otherwise, but disregarding any legal restrictions
upon the exercise of such right), whether or not such acquisition has actually
been effected.
7
<PAGE>
(b) Unless otherwise stated, other capitalized terms contained
herein have the meanings set forth in the Agreements.
8. Miscellaneous.
-------------
(a) Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(b) Incorporation of Agreements Provisions. The Agreements are
--------------------------------------
hereby incorporated in this Agreement by reference and made a part hereof.
* * * * *
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above .
THE UNDERSIGNED HEREBY ACCEPTS THE TERMS OF THIS AGREEMENT AS OF DATE
FIRST ABOVE WRITTEN.
THE SHOPPERS' SOURCE
By: /s/ Robert J. McNulty
--------------------------
Robert J. McNulty
Its: President
INVESTOR:
/s/ Mark Winkler
- ---------------------------
Mark Winkler
8
<PAGE>
EXHIBIT 4.11
IRREVOCABLE PROXY
-----------------
This Irrevocable Proxy is entered into as of June __, 1997 by the
undersigned stockholder ("Stockholder") of The Shoppers' Source, a California
corporation ("Company").
RECITALS
--------
A. Stockholder is the owner of or controls the number of shares of
Common Stock (the "Shares") of Company set forth opposite her or his name on the
signature page of this Agreement.
B. Stockholder desires to grant an irrevocable proxy to vote the
Shares.
NOW, THEREFORE, for good and valuable consideration, including, but
not limited to, the opportunity to purchase initial issuance of Company's
Shares, the receipt and sufficiency of which are hereby acknowledged,
Stockholder agrees as follows:
AGREEMENT
---------
1. Irrevocable Proxy. Stockholder hereby irrevocably appoints Robert J.
-----------------
McNulty, or his nominee, as her or his attorney and proxy to (a) attend any and
all meetings of the stockholders of Company to vote the Shares, to represent and
otherwise to act for Stockholder in the same manner and with the same effect as
if Stockholder were personally present, and (b) to take any action by written
stockholder consent with respect to the Shares.
This Irrevocable Proxy, with full power of substitution, is coupled with
an interest and is irrevocable for a period of ten (10) years from the date
hereof or until the effective date of an Initial Public Offering of the
Company's Common Stock, whichever is earlier. Any proxies heretofore given are
hereby revoked. Until May 31, 2007, Stockholder shall not execute or deliver to
others a proxy or proxies or any authorization with respect to the Shares and
will not vote the Shares or take any action by written stockholder consent with
respect to the Shares inconsistent with the terms hereof. This irrevocable proxy
shall apply to shares of any class of stock of the Company acquired by the
Stockholder after the date hereof.
2. Governing Law. This Irrevocable Proxy shall be governed by the
-------------
Corporations Code of the State of California.
1
<PAGE>
3. Successors and Assigns. This Irrevocable Proxy shall be binding upon
----------------------
the heirs, executors, successors and assigns of Stockholder.
4. Further Assurances. Company and Stockholder shall execute and deliver
------------------
any and all additional papers and documents and shall do any and all acts and
things reasonably necessary in connection with the performance of his or her
obligations hereunder and to carry out the intent of the parties hereto.
IN WITNESS WHEREOF, Stockholder has executed this Irrevocable Proxy as of
the date first above written.
Number of Shares
Owned or Controlled
-------------------
50,000 shares of
Common Stock
By: /s/ Mark Winkler
---------------------------------------
Mark Winkler
2
<PAGE>
EXHIBIT 4.12
IRREVOCABLE PROXY
-----------------
This Irrevocable Proxy is entered into as of________________, 1997 by
the undersigned stockholder ("Stockholder") of Shopping.com, a California
corporation ("Company").
RECITALS
--------
A. Stockholder is the owner of or controls the number of shares
of Common Stock (the "Shares") of Company set forth opposite her or his name on
the signature page of this Agreement.
B. Stockholder desires to grant an irrevocable proxy to vote the
Shares.
NOW, THEREFORE, for good and valuable consideration, including,
but not limited to, the opportunity to purchase initial issuance of Company's
Shares, the receipt and sufficiency of which are hereby acknowledged,
Stockholder agrees as follows:
AGREEMENT
---------
1. Irrevocable Proxy. Stockholder hereby irrevocably appoints Robert J.
-----------------
McNulty, or his nominee, as her or his attorney and proxy to (a) attend any and
all meetings of the stockholders of Company to vote the Shares, to represent and
otherwise to act for Stockholder in the same manner and with the same effect as
if Stockholder were personally present, and (b) to take any action by written
stockholder consent with respect to the Shares.
This Irrevocable Proxy, with full power of substitution, is coupled
with an interest and is irrevocable for a period of ten (10) years from the date
hereof. Any proxies heretofore given are hereby revoked. Until January 31,
2007, Stockholder shall not execute or deliver to others a proxy or proxies or
any authorization with respect to the Shares and will not vote the Shares or
take any action by written stockholder consent with respect to the Shares
inconsistent with the terms hereof. This irrevocable proxy shall apply to shares
of the Common Stock listed on the signature page hereof.
2. Governing Law. This Irrevocable Proxy shall be governed by the
-------------
Corporations Code of the State of California.
1
<PAGE>
3. Successors and Assigns. This Irrevocable Proxy shall be binding
----------------------
upon the heirs, executors, successors and assigns of Stockholder.
4. Further Assurances. Company and Stockholder shall execute and
------------------
deliver any and all additional papers and documents and shall do any and all
acts and things reasonably necessary in connection with the performance of his
or her obligations hereunder and to carry out the intent of the parties hereto.
IN WITNESS WHEREOF, Stockholder has executed this Irrevocable Proxy as
of the date first above written.
Number of Shares
Owned or Controlled
-------------------
40,000 shares of
Common Stock
By: _________________________________
Kristine E. Webster
2
<PAGE>
EXHIBIT 4.13
[LETTERHEAD OF IDEALAB!]
June 5, 1997
Magdalena Yesil
325 Kipling Street
Palo Alto, CA 94301
Re: Domain Name Transfer - "shopping.com"
Dear Ms. Yesil:
This will confirm our understanding that Bill Gross' idealab!, a
California corporation ("idealab!"), will pay to you the aggregate
consideration of (i) $30,000 split 50/50 signing and closing; (ii) 60,000
shares of Common Stock in The Shoppers' Source, a California corporation
(currently valued at $0.10 per share), and (iii) 30,000 shares of the
Common Stock of idealab! (currently valued at $0.20 per share), in exchange
for your transfer to us of the "shopping.com" domain name. We have
separately provided you with copies of the Articles of Incorporation for
idealab! and for The Shoppers' Source, as currently in effect. You
represent and warrant to us that (i) you are the Administrative Contact
listed in the domain name record on file with InterNIC Registration
Services, (ii) you are authorized to transfer the rights, registered in
your name to the "shopping.com" domain name, and (iii) to the best of your
knowledge, no third party has any right to prevent you from making this
transfer. With this transfer you assign, and agree never to use or enforce,
any and all rights, title and interest you might otherwise have in the name
"shopping.com", including any rights in any trademarks or trade names
related thereto.
You agree to take all steps necessary, and requested to effect the
transfer and registration through InterNIC, including without limitation,
providing us with the information necessary for us to complete items Ob.
and Oc. of the InterNIC "Delete" domain template, promptly forwarding the
e-mail message that I send you containing a subject line reading "TRANSFER
DOMAIN--shopping.com" to "[email protected]" (with copies to me at
"[email protected]" and to our attorneys at "[email protected]") from the
"[email protected]" e-mail address, and authorizing the transfer if contacted by
InterNIC
We recognize that you have no responsibility for or ability to control the
actions taken by InterNIC, and we acknowledge that you make no
representation or warranty regarding InterNIC's transfer of the
"shopping.com" domain name registration to us. We also acknowledge that
your interest in the "shopping.com" domain name is assigned to us on an "AS
IS" basis, and that you make no other
<PAGE>
warranties, express or implied, concerning our use of the "shopping.com" domain
name, including but not limited to warranties concerning whether the use of that
domain name will be free of claims of trademark infringement or of the
infringement of other proprietary rights by third parties or that we will be
allowed to retain the registration for and the uninterrupted use of the
"shopping.com" domain name.
From and after the time you take the specified steps for transfer set out in the
second paragraph of this letter, we agree that we will under no circumstances
seek damages from you as a result of the breach or alleged breach by you of this
agreement, and that in no event will your liability exceed the value of the
consideration we pay to you.
NEITHER PARTY WILL HAVE ANY LIABILITY FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT,
SPECIAL OR PUNITIVE DAMAGES OF ANY KIND ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT OR TORT
(INCLUDING NEGLIGENCE) EVEN IF ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH
DAMAGES.
Upon our receipt of your signature we will wire transfer to your account at
Hambrecht & Quist half the cash consideration ($15,000), and upon confirmation
from InterNIC of the transfer, we will pay you the balance of the consideration
discussed above.
Thank you.
Sincerely,
Bill Gross' idealab!
a California corporation
/s/ Marcia Goodstein
Marcia Goodstein
Accepted and agreed this 12th day of June, 1997:
Signed: /s/ Magdalena Yesil
-------------------------------
Magdalena Yesil
Attachment: Stock Purchase Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of the 12th
day of June, 1997 by and between Bill Gross' idealab!, a California corporation
(the "Company"), and Magdalena Yesil (the "Purchaser").
In consideration of the mutual covenants and representations herein set
forth, the Company and Purchaser agree as follows:
1. Purchase. Subject to the terms and conditions of this Agreement, the
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Company hereby agrees to issue or transfer to Purchaser and Purchaser agrees to
acquire from the Company on the Closing Date (as defined below), (i) 30,000
shares of the Company's Common Stock (currently valued at a price of $0.20 per
share) (the "idealab! Shares") and (ii) 60,000 shares of the Common Stock of The
Shoppers' Source, a California corporation ("Shoppers' Source"), currently held
by the Company (currently valued at a price of $0.10 per share) (the "Shoppers'
Source Shares" and together with the with idealab! Shares, the "Shares"), in
exchange for consideration consisting of the transfer of the domain name
"shopping.com" (the "Domain Name") to the Company pursuant to the terms of that
certain Letter Agreement by and between the Purchaser and the Company dated of
even date herewith.
2. Closing. The purchase and sale of the Shares shall occur at a Closing
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to be held within ten (10) business days from the receipt by the Company from
InterNIC of confirmation of the transfer of the Domain Name, at a time and place
(the "Closing Date"), as mutually agreed to by the Company and the Purchaser at
least two (2) days prior to the Closing Date. The Closing will take place at the
principal offices of the Company or at such other place as shall be designated
by the Company. If not already transmitted or delivered, the Purchaser shall
deliver to the Company any necessary consents and authorizations relating to the
transfer of the Domain Name, and the Company will issue the idealab! Shares in
the name of the Purchaser and will transfer the Shoppers' Source Shares, as the
case may be.
3. Stock Splits, etc. If, from time to time during the term of this
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Agreement:
(a) There is any stock dividend or liquidating dividend of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Company; or
(b) There is any consolidation, merger or sale of all, or
substantially all, of the assets of the Company; then, in such event, any and
all new, substituted or additional securities or other property to which the
Purchaser is entitled by reason of its ownership of the idealab! Shares shall be
immediately subject to this Agreement and be included in the phrase "idealab!
Shares" for all purposes with the same force and effect as the idealab! Shares
presently subject to the right of first refusal and other terms of this
Agreement.
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4. Restriction on Transfer; Right of First Refusal.
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(a) Purchaser shall not sell, transfer, pledge, hypothecate or
otherwise dispose of any idealab! Shares registered in the name of Purchaser
without first offering such idealab! Shares to the Company.
(i) The Purchaser shall deliver a notice ("Notice") to the
Company stating (A) Purchaser's bona fide intention to sell or transfer such
idealab! Shares, (B) the number of such idealab! Shares to be sold or
transferred, (C) the price for which the Purchaser proposes to sell or transfer
such idealab! Shares, and (D) the name of the proposed purchaser or transferee.
(ii) Within thirty (30) days after receipt of the Notice, the
Company or its assignee may elect to purchase all (but not less than all) of the
idealab! Shares to which the Notice refers, at the price per share specified in
the Notice. Full payment for all the idealab! Shares to which the Notice refers
shall be made by the Company or its assignee to the Purchaser by cash.
(iii) If the idealab! Shares to which the Notice refers are not
elected to be purchased, as provided in subparagraph 4(a)(ii), the Purchaser may
sell the idealab! Shares to any person named in the Notice at the price
specified in the Notice or at a higher price, provided that such sale or
transfer is consummated within sixty (60) days of the date of said Notice to the
Company, and provided, further that any such sale is in accordance with all the
terms and conditions hereof. Any sale or transfer after such sixty (60) day
period or on terms more favorable to the proposed purchaser or transferee then
described in the Notice shall be subject again to this subparagraph 4(a).
(iv) The provisions of this subparagraph 4(b) shall terminate on
the earlier of (A) the effective date of a registration statement filed by the
Company under the Securities Act of 1933, as amended (the "Act"), with respect
to an underwritten public offering of Common Stock of the Company or (B) the
closing date of a sale of assets or merger of the Company pursuant to which
shareholders of this Company receive securities of a buyer whose shares are
publicly traded. The provisions of this subparagraph 4(a) shall not apply to a
transfer of any idealab! Shares by the Purchaser, either during its lifetime or
on death by will or intestacy to its other ancestors, descendants or spouse, or
any custodian or trustee for the account of the Purchaser or the Purchaser's
ancestors, descendants or spouse; provided, in each such case a transferee shall
receive and hold such idealab! Shares subject to the provisions of this
paragraph 4 and there shall be no further transfer of such idealab! Shares
except in accordance herewith.
(b) Purchaser agrees in connection with the Company's initial public
offering of its equity securities pursuant to a registration statement filed
under the Act, not to sell, make any short sale of, loan, grant any option for
the purchase of or otherwise dispose of any idealab! Shares without the prior
written consent of Company or its underwriters, for such period of time (not to
exceed one hundred and eighty (180) days) from the effective date of such
registration as may be requested by the
2
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Company or such underwriters; provided, that the officers and directors of the
Company who own stock of the Company also agree to such restrictions.
(c) The Company shall not be required (i) to transfer on its books any
idealab! Shares which shall have been sold or transferred in violation of any of
the provisions set forth in this Agreement, or (ii) to treat as owner of such
idealab! Shares or to accord the right to vote as such owner or to pay dividends
to any transferee to whom such idealab! Shares shall have been so transferred.
5. Legends. All certificates representing any of the Shares subject to
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the provisions of this Agreement shall have endorsed thereon legends
substantially in the following term:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF FIRST REFUSAL AS SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
(b) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) Any legend required to be placed thereon by the California
Commissioner of Corporations, or required by applicable blue sky laws of any
state.
6. Purchaser's Representations. In connection with the purchase of the
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Shares, the Purchaser hereby represents and warrants to the Company, with the
understanding that Shoppers' Source may also rely on such representations and
warranties:
(a) Purchaser represents and warrants that Purchaser is acquiring or
will be acquiring the Shares for investment for Purchaser's own account, not as
a nominee or agent and not with the view to, or for resale in connection with,
any distribution thereof. Purchaser understands that the Shares have not been,
and will not be, registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act that depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of such Purchaser's representations as expressed herein. Purchaser has
not been formed for the specific purpose of acquiring the Shares. Purchaser
further understands that the Company and Shoppers' Source, as the case may be,
shall have no obligation to register the Shares under the Act on behalf of
Purchaser.
(b) Purchaser acknowledges that the Shares must be held indefinitely
unless subsequently registered under the Securities Act or an exemption from
such registration is available.
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Purchaser is aware of the provisions of Rule 144 promulgated under the
Securities Act, which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including (except
as limited by Rule 144(k)), among other things, the existence of a public market
for the shares, the availability of certain current public information about the
Company or Shoppers' Source, as the case may be, the resale occurring not less
than one or two years, as applicable, after a party has purchased and paid for
the security to be sold, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" (as provided by
Rule 144(f)) and the number of shares being sold during any three-month period
not exceeding specified limitations.
(c) Purchaser has reviewed with its own tax advisors the federal,
state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents and understands that Purchaser (and not the Company or Shoppers'
Source) shall be responsible for Purchaser's own tax liability that may arise as
a result of this investment or the transactions contemplated by this Agreement.
Purchaser understands that the law firm of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, is acting as counsel to the Company in connection with
the transactions contemplated by this Agreement, and is not acting as counsel
for the Purchaser.
7. Miscellaneous.
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(a) Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by regular or certified mail with
postage and fees prepaid, addressed to Purchaser at its address shown on the
signature page hereto and to the Company at the address of its principal
corporate offices (attention: President) or at such other address as such party
may designate by ten (10) days' advance written notice to the other party
hereto.
(b) The Company may assign its rights and delegate its duties under
this Agreement, including paragraph 4 hereof. If any such assignment or
delegation requires consent of the California Commissioner of Corporations, the
parties agree to cooperate in requesting such consent. This Agreement shall
inure to the benefit of the successors and assigns of the Company and, subject
to the restrictions on transfer herein set forth, be binding upon the Purchaser,
its heirs, executors, administrators, successors and assigns.
(c) This Agreement shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of California.
8. Arbitration. At the option of either party, any and all disputes or
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controversies whether of law or fact and of any nature whatsoever arising from
or respecting this Agreement shall be decided by arbitration by the American
Arbitration Association in accordance with the commercial rules and regulations
of that Association.
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The arbitrators shall be selected as follows: In the event the
Company and the Purchaser agree on one arbitrator, the arbitration shall be
conducted by such arbitrator. In the event the Company and the Purchaser do not
so agree, the Company and the Purchaser shall each select one independent,
qualified arbitrator and the two arbitrators so selected shall select the third
arbitrator. The Company reserves the right to object to any individual
arbitrator who shall be employed by or affiliated with a competing organization.
Arbitration shall take place in Palo Alto, California, or any other
location mutually agreeable to the parties. At the request of either party,
arbitration proceedings will be conducted in the utmost secrecy; in such case
all documents, testimony and records shall be received, heard and maintained by
the arbitrators in secrecy under seal, available for the inspection only of the
Company or Purchaser and their respective attorneys and their respective experts
who shall agree in advance and in writing to receive all such information
confidentially and to maintain such information in secrecy until such
information shall become generally known. The arbitrator, who shall act by
majority vote, shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a temporary and/or a permanent injunction, and shall also be able to
award damages, with or without an accounting and costs. The decree or judgment
of an award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
Reasonable notice of the time and place of arbitration shall be given
to all persons, other than the parties, as shall be required by law, in which
case such persons or those authorized representatives shall have the right to
attend and/or participate in all the arbitration hearings in such manner as the
law shall require.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
PURCHASER COMPANY
Magalena Yesil Bill Gross' idealab!
a California corporation
By: /s/ Magalena Yesil By: /s/ ^^??
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Address: 325 Kipling St. Title: Vice President
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Palo Alto, CA 94301
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EXHIBIT 4.14
[EN POINTE TECHNOLOGIES LETTERHEAD]
Writer's Direct Dial: (310) 725-9773
Writer's Direct Fax: (310) 725-5296
September 15, 1997
Mr. Robert J. McNulty, CEO
SHOPPING.COM
2101 East Coast Hwy.
Garden Level
Corona del Mar, California 92625
Re: SHOPPING.COM
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Dear Mr. McNulty:
This letter when executed in duplicate expresses the agreement of
Shopping.Com ("Shopping") and En Pointe Technologies, Inc. ("En Pointe") in
concluding a series of transactions, as follows:
1. En Pointe will make an investment in Shopping in the form of a loan.
The loan is a loan of six hundred thousand dollars ($600,000.00) due the earlier
of nine (9) months from the date of issuance or on the closing of the initial
public offering, and bearing interest at the rate of 10% per annum,
subordinated, linked to five (5) year warrants for the purchase of 399,600
shares of common stock at an exercise price of two dollars and twenty-five cents
($2.25) per share. The other terms of the loan and the warrants will be the same
as those for all other loan investors in Shopping.
2. En Pointe will grant Shopping a license to En Pointe's proprietary EPIC
software in the form in which the EPIC software exists as of the October 1, 1997
production date. This license will be an unlimited user, worldwide license for a
term of five (5) years. In exchange for this five (5) year license, Shopping
will pay En Pointe two hundred and fifty
<PAGE>
Mr. Robert J. McNulty, CEO
SHOPPING.COM
September 15, 1997
Page 2
thousand (250,000) shares valued at three dollars ($3.00) per share; half of
these shares would be subject to a twelve (12) month standstill, the other half
of the shares would be subject to a twenty-four (24) month standstill.
Additionally, at the end of the initial five (5) year license term, Shopping
will have a option to a renewed license for an additional five (5) year period
at fair market value for such license. In the event that the parties were not
able to agree on fair market value at the time of exercise of option, the fair
market value would be determined by binding arbitration to be completed within
thirty (30) days of either party's request for same. During the term of the
license, Shopping will pay En Pointe an annual maintenance and upgrades fee of
one hundred thousand dollars ($100,000.00). The initial annual fee is to be
paid concurrent with the funding of the initial loan by En Pointe, in the
form of certified funds.
<PAGE>
Mr. Robert J. McNulty, CEO
SHOPPING.COM
September 15, 1997
Page 3
[*]
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[*] Confidential Treatment Requested.
<PAGE>
Mr. Robert J. McNulty, CEO
SHOPPING.COM
September 15, 1997
Page 4
11. This agreement is subject to approval by En Pointe's Board of
Directors.
If you agree with the foregoing, please sign where indicated on each copy
of this letter and return one copy to us. Thank you. If you have any questions,
please contact me at (310) 725-9773 to discuss the matter further.
Sincerely,
/s/ JACOB J. STETTIN
Jacob J. Stettin
General Counsel
JJS/kmd
AGREED AGREED
SHOPPING.COM EN POINTE TECHNOLOGIES, INC.
BY /s/ ROBERT J. MCNULTY BY /s/ BOB DIN
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9/15/97 9/15/97
<PAGE>
EXHIBIT 4.15
LOCK-UP AGREEMENT
This Lock-Up Agreement (the "Agreement") is effective as of
___________, 1997 by, between and among Shopping.com, a California corporation
(the "Company"), ____________, a shareholder of the Company (the "Shareholder")
and Waldron & Co., Inc., a California Corporation (the "Underwriter").
R E C I T A L S
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WHEREAS, the Company recently completed placements of its securities
to "accredited investors", as such term is defined in Rule 501 of Regulation D
as promulgated under the Securities Act of 1933, as amended (the "Act");
WHEREAS, the Shareholders in the Company's private placements agreed
to certain lock-up provisions;
WHEREAS, the Company is contemplating filing a Registration Statement
(the "Registration Statement") with the Securities and Exchange Commission (the
"Commission"), whereby the Company will register the offer and sale of shares of
its common stock in an initial public offering ("IPO").
WHEREAS, the Underwriter has informed the Company that it will not
underwrite the Company's IPO unless the Shareholder executes this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the Shareholder, the
Company, and the Underwriter, the parties hereto hereby agree as follows:
1. Lock-Up. The Shareholder agrees that he, she or it, as the case
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may be, will not, without the Underwriter's prior written consent, offer, sell,
transfer, pledge, hypothecate, contract to sell, grant any option for the sale
of, or otherwise dispose of (collectively, a "Transfer"), directly or
indirectly, any shares of the Company's common stock or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of the Company's common stock beginning on the date
hereof and ending one (1) year after the date of any initial public offering by
the Company of its securities pursuant to a Registration Statement filed with,
and declared effective by, the Commission. The Shareholder further agrees to be
bound by such additional restrictions of Transfer as may be required in order to
comply with the requirements of the NASDAQ Stock Market, the National
Association of Securities Dealers, Inc. or the Commission in connection with the
IPO and the inclusion for quotation of the Company's common stock in the
<PAGE>
NASDAQ Stock Market, which agreement shall be self-executing without the need
for execution of any additional instruments. The Shareholder also agrees to the
placement of a legend on any certificate or other document evidencing shares of
the Company's common stock or any security or other instrument which by its
terms is convertible into, exercisable for, or exchangeable for, shares of the
Company's common stock, which legend states the operative provisions of this
Agreement.
2. Successors. The provisions of this Agreement shall be deemed to
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obligate, extend to and inure to the benefit of the successors, assigns,
transferees, grantees, and indemnities of each of the parties to this Agreement.
3. Attorneys Fees. In the event of a dispute between the parties
--------------
concerning the enforcement or interpretation of this Agreement, the prevailing
party in such dispute, whether by legal proceedings or otherwise, shall be
reimbursed immediately for the reasonably incurred attorney's fees and other
costs and expenses by the other parties to the dispute.
4. Choice of Law. This Agreement shall be governed by and
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construed in accordance with the laws of the State of California without
reference to its choice of law rules.
5. Arbitration. Any dispute or claim arising out of or in any way
-----------
related to this Agreement shall be settled by arbitration in Irvine, California.
All arbitration shall be conducted in accordance with the rules and regulations
of the American Arbitration Association ("AAA"). AAA shall designate an
arbitrator from an approved list of arbitrators following both parties' review
an deletion of those arbitrators on the approved list having a conflict of
interest with either party. Each party shall pay its own expenses associated
with such arbitration (except as set forth in Section 3 above). A demand for
arbitration shall be made within a reasonable time after the claim, dispute or
other matter has arisen and in no event shall such demand be made after the date
when institution of legal or equitable proceedings based on such claim, dispute
or other matter in question would be barred by the applicable statutes of
limitations. The decision of the arbitrators shall be rendered within 60 days
of submission of any claim or dispute, shall be in writing and mailed to all the
parties included in the arbitration. The decision of the arbitrator shall be
binding upon the parties and judgment in accordance with that decision may be
entered in any court having jurisdiction thereof.
6. Counterparts. This Agreement may be executed in one or more
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counterparts, each of which shall be deemed an original, but all of which, taken
together, shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
SHOPPING.COM
BY: __________________________
Its: _________________________
SHAREHOLDER
______________________________
WALDRON & CO., INC.
By: __________________________
Its: _________________________
<PAGE>
EXHIBIT 5.01
FORM OF OPINION RE LEGALITY
---------------------------
Effective as of the effective date of the Registration Statement,
Lewis, D'Amato, Brisbois & Bisgaard LLP, Los Angeles, California counsel for the
Company, will deliver to the Company an opinion substantially to the effect
that:
(a) the Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of California, and
duly qualified to transact business as a foreign corporation and is in good
standing under the laws of all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company; and
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(b) the Company has an authorized capital stock as set forth
under the heading "CAPITALIZATION" in the Prospectus; other than as
disclosed in the Registration Statement and the Prospectus: (i) there are no
outstanding options, warrants, or other rights calling for the issuance of, and
no commitment, plan or arrangement to issue or register, any share of capital
stock of the Company; (ii) all of the shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable; (iii) the Shares have been duly authorized by all necessary
corporate action of the Company, and, when issued and delivered to and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable; the shares of capital stock of the Company have been duly
authorized for quotation on the Nasdaq SmallCap Market; (iv) no holders of
outstanding shares of capital stock of the Company are entitled as such to any
preemptive or other rights to subscribe for any of the Shares; and (v) no
holders of securities of the Company are entitled to have such securities
registered under the Registration Statement.
In rendering such opinion counsel may rely as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible officers
of the Company and public officials. Such opinion may be limited to the laws of
the United States, the laws of the State of California and the General
Corporation Law of the State of California. In addition, such opinion may be
limited by such other disclaimers and qualifications as are customary and
appropriate for such opinions.
<PAGE>
EXHIBIT 10.01
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of May, 1997, by and between The
Shoppers' Source, Inc. (the "Company"), a California corporation having its
principal place of business at 2101 E. Coast Highway, Corona del Mar, California
92625, and Robert J. McNulty ("Executive""), an individual residing at 2401
Bayshore Drive, Newport Beach, CA 92663.
W I T N E S S E T H:
WHEREAS, Executive is experienced in the retail merchandising industry, and
has developed expertise as to Internet applications; and
WHEREAS, the Company desires to avail itself of Executive's experience and
expertise in retail and Internet business by which Company will be able to
engage in the business of wide scale retail sales to the public via the
Internet, and Executive desires to be so employed; and
WHEREAS, the Company and Executive desire to enter into an Employment
Agreement which shall supersede and replace any and all contracts, agreements
and understandings between the parties on the subject;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and conditions contained herein, and for other good and valuable
consideration, the Company and Executive agree as follows:
Section 1. Employment Duties and Exclusive Employment.
------------------------------------------
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1.1 Duties and Responsibilities. During the term of this Agreement,
---------------------------
Executive shall be employed as the Chief Executive Officer and President of the
Company (the "Employment"). In that capacity, Executive shall do and perform all
duties, services, acts or things necessary or advisable to provide executive
duties through which the intended business of the Company may be conducted,
subject at all times to the Company's By-Laws and to the directions and policies
established by the Company's Board of Directors. Throughout his term of
Employment, Executive's place of employment shall at all times be located within
the County of Orange and Executive shall not be required to relocate outside the
County of Orange in order to continue his Employment under this Agreement.
1.2 Supervision of Other Employees. In addition to Section 1.1 above,
------------------------------
Executive shall supervise the activities of the Company's employees, and shall
perform such other services as the Company may from time to time reasonably
request in the furtherance of the business of the Company.
1.3 Devoting of Entire Time to Company's Business. Executive shall devote
---------------------------------------------
such time, energy and attention to the business of the Company during the term
hereof as reasonably required to perform the described services. The Company
acknowledges that Executive maintains a consulting business which will continue
during the term hereof. Executive agrees, however, that he will not render
services in such consulting business, or any other services of a business,
commercial or professional nature to any other person or organization whether
for compensation or otherwise, which would be in conflict with the interests of
the Company, without the consent of the Board of Directors of the Company.
Notwithstanding the foregoing, this Section shall not preclude Executive from
devoting his time and energies in connection with
-2-
<PAGE>
the management of his personal investments and his participation in not-for-
profit activities. Further, Executive shall be permitted to serve on the board
of directors of non-competing companies, subject to the consent of the Board of
Directors, such consent not to be unreasonably withheld.
1.4 Adherence to Applicable Laws. Executive at all times during the
----------------------------
performance of this Agreement shall strictly adhere to and obey all applicable
laws, regulations and rules now in effect or as subsequently modified. The
Company shall not request or require Executive to violate any such laws,
regulations or rules in the performance of Executive's duties.
Section 2. Term of Agreement.
-----------------
This Agreement shall commence on the date first above written and end five
years later, on April 30, 2002, provided that the term of this Agreement shall
automatically be extended on May 1, 2002 (the "Extension Date") unless written
notice that this Agreement is not being extended is given by the Company before
the Extension Date, such that it thereafter shall always have a remaining term
of five years, unless and until written notice that this Agreement is not being
extended (or that the Agreement is being terminated under the provisions of
Section 5) is given by either Party to the other. The term "Term of this
Agreement" shall mean the initial term and the extension of this Agreement plus
any extensions thereto.
Section 3. Compensation.
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3.1 Base Salary. For Executive's services during the first year of his
-----------
Employment hereunder, the Company agrees to pay to Executive a salary of
Seventy-Five Thousand ($75,000) per year, paid bi-weekly during the course of
such year. Thereafter, Executive's annual salary ("Annual Base Salary") shall
be reviewed and adjusted upward by the Company
-3-
<PAGE>
each year pursuant to the policies and procedures of the Company governing the
annual review of base salaries for its executive officers; provided, however,
that there shall be no downward adjustments in Executive's Annual Base Salary.
The Company shall withhold and deduct from periodic salary installments all
amounts required by law, including, but not limited to, federal and state income
taxes, social security, and state disability taxes and any other amounts
authorized by Executive in writing.
3.2 Annual Bonus. In addition to the Annual Base Salary, Executive shall
------------
be entitled to consideration for a bonus at the end of each calendar year, which
shall be determined in the discretion of the President and Board of Directors.
3.3 Stock Options. Effective on or before the date that shares of common
-------------
stock of the Company are first sold to the public in connection with an Initial
Public Offering, and thereafter upon resolution of the Board of Directors,
Executive will be granted options to purchase shares of the Company's common
stock (the "Option"). The option shall remain in full force and effect and
shall be subject to the following terms and conditions:
(a) The purchase price to be paid for such common shares upon exercise
of the foregoing stock option shall be the per share fair market value of such
common shares as of the date of the grant date (the "Grant Date").
(b) Exercises under such options will be made only during the five-
year period commencing on the Grant Date and ending on the date which is
(c)60 months thereafter (the "Option Period").
(c) The Options shall be fully vested.
(d) Each portion of the option may be exercised during the Option
Period, in
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<PAGE>
whole at any time or in part from time to time, by giving the Company notice in
writing to that effect, specifying the number of whole shares as to which such
stock option is exercised. Payment of the purchase price for the shares with
respect to which such stock option is exercised shall be made to the Company
upon delivery of such notice, in the form of cash or by a certified check,
cashier's check, postal or express money order payable to the order of the
Company, or in such other manner as shall be mutually acceptable to the Company
and Executive in order to facilitate the exercise of such stock option.
(e) As soon as practicable after receipt of the notice of exercise,
payment of the purchase price and payment or provision for any required tax
withholdings, the Company shall cause certificates for the number of shares with
respect to which such stock option is exercised to be issued in the name of
Executive or his executors, administrators, or other legal representatives,
heirs, legatees, next of kin or distributees.
(f) Such stock options shall not be transferable by Executive other
than by will or the laws of descent and distribution, and shall be exercisable,
during his lifetime, only by Executive.
(g) Upon the death of Executive, his legal representatives shall have
the right within one year thereafter to exercise, in whole or in part, each such
stock option to the extent exercisable by Executive at the time of his death.
(h) The price and the number of shares covered by each such stock
option shall be subject to equitable adjustment by the Company, if while such
stock option is outstanding there is a change in the shares of common stock of
the Company through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, reverse stock split,
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<PAGE>
stock dividend or other change in the corporate structure of the Company.
(i) Neither Executive nor any person entitled to exercise Executive's
rights in the event of his death shall have any of the rights of a shareholder
with respect to the shares covered by such stock options except to the extent
that certificates have been issued upon the exercise of such stock options.
(j) The shares of common stock of the Company which Executive receives
upon his exercise of the option will be subject to a demand Registration Rights
Agreement, in the form entered into with the shareholders of the Company's
Series B Preferred Stock, unless and until an S-8 Registration Statement to
register shares under a Company Employee Stock Option Plan has been effected, in
which case shares subject to option under this Agreement shall be included
thereunder.
Section 4. Vacation, Expenses and Benefits. During the term of the
-------------------------------
Employment, the Company agrees:
4.1 Vacation. Executive will be entitled to vacation benefits in
--------
accordance with uniform Company policies as they may be in effect from time to
time for Executive Officers of the Company and will, in any event, be for a
minimum period of four weeks per year. Vacation is to be taken at such time or
times as may be mutually agreeable to Executive and the Board of Directors. All
such vacations shall be with pay. Upon termination of the Employment for any
reason, the Company shall pay Executive for all accrued, unused vacation,
including such vacation periods for those years when the Executive is unable to
take the full four weeks.
4.2 Expenses. Executive will be reimbursed for all necessary and
--------
reasonable traveling and other reimbursable expenses on behalf of the Company in
pursuing Executive's
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<PAGE>
duties for the Company under this Agreement. All required Company business
travel by Executive shall be at economy or business travel fare rates.
Reimbursement by the Company to Executive for such expenses shall be subject to
Executive furnishing appropriate documentation to substantiate such expenses
pursuant to the policies and procedures of the Company governing reimbursement
of business expenses to its executives.
4.3 Office Facilities. Executive will be provided with such office
-----------------
facilities and clerical assistance as Executive may reasonably require for the
performance of his duties hereunder.
4.4 Employee Benefits. Company agrees to provide Executive with group
-----------------
medical, dental and vision insurance coverages and other employee welfare and
fringe benefits at all times comparable to those provided to other Company
executives holding comparable level positions, all in accordance with such
benefit programs as may be established by the Company from time to time. The
Company specifically reserves the right to change the administrators and/or
carriers of any of its group insurance and/or other employee benefit plans.
Company will provide the Executive with life insurance in the amount of
$1,000,000.
Section 5. Term and Termination of Employment. The Employment shall
----------------------------------
continue for the term as specified in Section 2, above, unless and until it is
earlier terminated as provided in this Section 5:
5.1 Termination of Agreement.
------------------------
(a) For Cause. The employment of Executive under this Agreement may
---------
be terminated by Company for "cause" at any time by action of the Board. For
the purposes hereof, the term "cause" is limited to (i) Executive's fraud, gross
incompetency, personal dishonesty
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<PAGE>
involving the Company's assets, willful misconduct or gross negligence in the
performance of his duties hereunder, (ii) a willful breach by Executive of any
of the material terms of this Agreement, or (iii) Executive's death or
disability. For purposes of this Agreement, "disability" shall mean any physical
or mental impairment as determined by a licensed physician in the state of
California and agreed to by the Board in good faith, which shall have rendered
Executive unable to perform the duties required under this Agreement for a
continuous period of six months or a cumulative period of nine months during any
twelve consecutive month period. If Executive's employment hereunder is
terminated for cause, Company shall have no further obligations or liabilities
to Executive, save and except for obligations due to Executive for the period
through to and including the date of termination for cause.
(b) Right to Cure. In the event the Company contends that it may
-------------
terminate Executive for cause due to Executive's incompetence or negligence as
described in a(i), (ii) or (iii) (as to disability) above (but only for these
particular grounds for cause), Company shall provide Executive with specific
written notice specifying in reasonable detail the services or matters which it
contends Executive has not been adequately performing and what Executive should
do to adequately perform his obligations hereunder. If Executive performs the
required services within thirty (30) days of actual receipt of the notice by the
Executive or modifies his performance to correct the matters complained of, in
either case, to the reasonable satisfaction of the Company, Executive's breach
will be deemed cured and such breach shall no longer constitute cause; provided,
however, if the nature of the services not performed by the Executive or the
matters complained of are such that more than thirty days are reasonably
required to perform the required services or to correct the matters complained
of, then the Executive's
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<PAGE>
breach will be deemed cured if the Executive commences to perform such services
or to correct such matters within the thirty (30) day period and thereafter
diligently prosecutes such performance or correction to completion within such
period of time after the end of such thirty (30) day period (the "extension
period") as the Company has notified the Executive is reasonably required to
perform the required services or to correct the matters complained of. If
Executive does not perform the required services or modify his performance to
correct the matters complained of within the thirty (30) day period or the
extension period, as the case may be, Company shall have the right to terminate
this Agreement at the end of the thirty (30) day period or extension period, as
the case may be.
(c) Termination by the Company Without Cause or Company's Material
------------------------------------------- ------------------
Breach.
- ------
(i) If Executive's employment with Company is terminated by
Company other than (i) for cause (as provided in Section 5.1.(a), or if (ii) the
Company otherwise materially breaches this Agreement and fails to cure this
breach within thirty (30) days after notice from Executive, then at any time
within three (3) months thereafter Executive may elect by notice in writing to
the Secretary of Company to treat the situation as a "Termination without Cause"
of Executive by the Company and to discontinue his obligations to Company to
perform services hereunder. In such event, an amount equal to the present
value/1/ of the sum of all compensation (which shall be calculated at the
highest annual compensation payable to Executive plus the highest bonus in any
year of Executive's employment) due for the balance of the entire Term of this
Agreement which shall consist of the initial term and the extension term it
- ---------------------
/1/ Calculated with the then established prime rate as the applicable interest
factor.
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<PAGE>
being conclusively determined for this purpose that no notice of "no extension"
shall be applicable shall become due and payable to Executive in full within
five (5) days following the date the notice of such election is given in no
event in excess of 2 years 11 months and 28 days. Also, any amounts payable
under other provisions of this Agreement or other obligations of Company to
Executive which have accrued but have not yet been paid, including compensation
earned prior to the date the notice by Executive is given and accrued and unused
vacation time shall also then become due and payable within five (5) days of
receipt of notice by Company.
(ii) If Executive believes Company has materially breached this
Agreement, Company or Executive may request an arbitration to determine whether
Company has, in fact, materially breached this Agreement. The arbitration shall
be conducted pursuant to the provisions of Section 10, below.
(d) Material Breach by Company. The Company shall have materially
--------------------------
breached this Agreement if, without the Executive's prior written consent, one
or more of the following events occur:
(i) the Executive is otherwise removed from the office(s)
provided for in this Agreement, for any reason other than the legal termination
of his employment;
(ii) the Executive is assigned any duties or responsibilities
that are inconsistent, in any significant respect, with the scope of duties and
responsibilities associated with the Executive's position;
(iii) the Executive suffers a reduction in the authorities,
duties or responsibilities associated with his position, on the basis of which
he makes a determination in good faith that he can no longer carry out such
position in the manner contemplated at the time
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<PAGE>
this Agreement was entered into;
(iv) the Executive's Base Salary is decreased by the Company, or
his benefits or opportunities under any employee benefit or incentive plan or
program of the Company or any other material benefit specifically promised to
Executive herein is or are materially reduced unless such benefit, plan, or
program is reduced or eliminated for all eligible employees of the Company on an
equal basis;
(v) the Company fails to pay the Executive any payments under any
bonus or incentive plans when due;
(vi) the Company fails to reimburse the Executive for business
expenses in accordance with this Agreement and the Company's policies,
procedures or practices;
(vii) the Company fails to agree to or actually indemnify the
Executive for his actions and/or inactions, as either a director or officer of
the Company, to the fullest extent permitted pursuant to this Agreement, the
Company's articles and by-laws and by applicable law;
(viii) the Company fails to obtain a written agreement
satisfactory to the Executive from any successor or assign of the Company to
assume and perform this Agreement; or
(ix) the Company purports to terminate the Executive's employment
for cause and such purported termination of employment is not effected in
accordance with the procedures required by this Agreement, and for purposes of
this Agreement, such purported termination of employment shall be invalid and of
no force and effect.
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<PAGE>
5.2 Return of Company Property. Upon termination of this Agreement for
--------------------------
any reason, Executive shall immediately cease use of any and all Company
property in his possession and shall immediately return any and all Company
property in his possession custody or control to the Company, including without
limitation, any and all Confidential Information as that term is defined in
Section 6.1.
Section 6. Confidentiality.
---------------
6.1 Confidentiality Obligation. The Company and Executive acknowledge and
--------------------------
agree that Executive possesses information of substantial value to the Company
and which requires substantial expenditure of time, skills, energy and funds to
develop and/or acquire, which is not generally known in the trade and, which
gives the Company an advantage over its competitors who do not know or use it or
disclosure of which would or may be detrimental to the Company, including but
not limited to, inventions, proprietary information and trade secrets
techniques, designs, drawings, processes, formulas, inventions, developments,
equipment, prototypes, sales, marketing and customer information, and business,
financial, administrative or managerial information, relating to the business,
products, practices, administration, management or techniques of the Company
(the "Confidential Information"). Executive at all times shall regard and
preserve as confidential such Confidential Information regardless of its source
and shall not, during the term of the Employment or thereafter, publish or
disclose any part of such Confidential Information in any manner, or use the
same except on behalf of the Company without the prior written consent of the
Board of Directors.
6.2 Proprietary Information. Executive agrees that all notes, data,
-----------------------
sketches, drawings and other documents and records, and all material and
physical items of any kind, including all
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<PAGE>
reproductions and copies thereof, which relate in any way to the business,
products, practices or techniques of the Company or contain Confidential
Information, or that come into the possession of Executive by reason of this
Agreement, are the property of the Company at the termination of Executive's
Employment hereunder.
6.3 Release of Obligations of Confidentiality and Non-Use. The parties
-----------------------------------------------------
hereto expressly agree that the public disclosure by the Company of any part of
the Confidential Information will release Executive from the obligations of
confidentiality and non-use provided for in Sections 6.1 and 6.2 only with
respect to that portion of the Confidential Information actually disclosed by
the Company. Further, the term "Confidential Information" shall not include
information relating to the business, products, practices, administration,
management or techniques of the Company to the extent that it becomes generally
available and known to the public other than as the result of a breach by
Executive of the confidentiality and non-use obligation provisions contained in
this Agreement and/or the prior Consulting Agreement.
6.4 No Predatory Solicitation. Executive agrees that he will not, either
-------------------------
directly or through instructions to a third party, on his own behalf or in the
service of others, disrupt, damage, impair or interfere with the business of the
Company whether by way of interfering with or raiding its officers, employees,
agents, distributors and/or independent contractors or in any manner attempting
to persuade any such persons to discontinue any relationship with the Company
without having received the Board of Director's prior written permission to do
so.
6.5 Injunctive Relief. Executive acknowledges that the loss to the
-----------------
Company which would arise from a breach of the confidentiality obligation or
predatory solicitation provision contained in this Agreement cannot be
reasonably or adequately compensated in damages in an
-13-
<PAGE>
action at law. Executive therefore expressly agrees that the Company in addition
to any other rights or remedies which it may possess, shall be entitled to
injunctive relief to prevent a breach of the confidentiality obligation or
predatory solicitation provision contained in this Agreement.
Section 7. Indemnity.
---------
(a) In addition to any rights of Executive under the Company's
articles, by-laws, or any applicable State law, Company hereby agrees to hold
harmless and indemnify Executive:
(i) Against any and all expenses (including attorneys' fees and
costs), judgments, fines and amounts paid in settlement actually and reasonable
incurred by Executive in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the name of the Company) to which
Executive is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Executive is, was or at any time becomes a
director, officer, employee, consultant, or agent of the Company, or is or was
serving or at any time serves at the request of the Company as a director,
officer, employee, consultant, partner, trustee or agent regardless of his
subsequent title or position at another corporation, partnership, joint venture,
trust or other enterprise;
(ii) Otherwise to the fullest extent as may be provided to
Executive by the Company under the by-laws of the Company and California
Corporations Code; and
(b) No indemnity pursuant to this Paragraph 7 shall be paid by
Company:
(i) Except to the extent the aggregate of amounts to be
indemnified thereunder exceed the sum of Five Hundred Dollars ($500) plus the
amount of such losses for
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<PAGE>
which the Executive is indemnified either pursuant to the articles or by-laws of
the Company or any subsidiary thereof, or pursuant to any Directors and Officers
insurance purchased and maintained by Company;
(ii) In respect to remuneration paid to Executive if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iii) On account of any suit in which judgment is rendered
against Executive for an accounting of profits made from the purchase or sale by
Executive of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(iv) On account of conduct which is finally adjudged to have been
willful misconduct by Executive; and
(v) If a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification to Executive is not lawful.
(c) All agreements and obligations of the Company contained herein
shall continue during the period Executive is a director, officer, employee,
consultant or agent of Company (or is or was serving at the request of the
Company as a director, officer, employee, partner, consultant or agent of
another corporation, partnership, joint venture, trust or other enterprise) and
shall continue thereafter so long as Executive shall be subject to any possible
claim or threatened, pending or completed action, suit or proceeding, whether
civil, criminal or investigative, by reason of the fact that Executive was an
officer or director of Company or serving in any other capacity referred to
herein.
-15-
<PAGE>
(d) Company shall not be liable to indemnify Executive under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. Company shall not settle any action or claim in any
manner which would impose any penalty or limitation on Executive without
Executive's written consent. Neither the Company nor Executive will
unreasonably withhold their consent to any proposed settlement.
(e) The Company will pay all expenses immediately upon the presentment
of bills for such expenses. Executive agrees that Executive will reimburse
Company for all reasonable expenses paid by Company in defending any civil or
criminal action, suit or proceeding against Executive in the event and only to
the extent that it shall be ultimately determined that Executive is not entitled
to be indemnified by Company for such expenses under the provisions of the
applicable State statute, the by-laws, this Agreement or otherwise. This
Agreement shall not affect any rights of Executive against Company, any insurer,
or any other person to seek indemnification or contribution.
(f) If Company fails to pay any expenses (including without limiting
the generality of the foregoing, legal fees and expenses incurred in defending
any action, suit or proceeding), Executive shall be entitled to institute suit
against Company to compel such payment and Company shall pay Executive all costs
and legal fees incurred in enforcing such right to prompt payment.
(g) To the extent allowable under California law, the burden of proof
with respect to any proceeding or determination with respect to Executive's
entitlement to indemnification under this Agreement shall be on Company.
(h) If any provision of this Paragraph 7 shall be determined as
conflicting
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<PAGE>
with any provision of (i) Company's by-laws or Articles of Incorporation, (ii)
California law, or (iii) the provisions of any other agreement between the
parties as to indemnification, and such other document or law would provide the
Executive with greater rights of benefits of indemnification, then such other
document or law shall prevail; it being the intention of the parties hereto to
provide maximum indemnification to the Executive. Otherwise, unless prohibited
by law, any document or law which affords Executive with greater rights of
indemnification by Company than do the provisions of this Agreement shall have
superiority over the provisions of this Agreement.
(i) In support of its obligations hereunder, the Company agrees to use
its best efforts to maintain a directors' and officers' liability and other
insurance policies covering the Executive and further agrees that these policies
shall be maintained so as to provide as broad and as complete coverage as is
reasonably available in relation both to the Executive's position during the
Term of Employment and to any claims arising thereafter but relating to said
Term of Employment. Notwithstanding the foregoing, the failure or inability of
the Company to maintain such insurance policy or policies shall not be a breach
of this Agreement by the Company if the Company's Board of Directors determine,
in good faith, that such insurance coverage is not available to the Company at a
reasonable cost.
Section 8. Assignment. Except as otherwise expressly provided herein,
----------
the rights and obligations of Executive hereunder shall not be assignable and
any attempted assignment shall be void. The rights and obligations of the
Company hereunder may be assigned as a part of any transaction which includes
the transfer of all or substantially all of the assets of the Company, whether
such transfer is made pursuant to a sale of assets or stock or merger,
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<PAGE>
reorganization or otherwise.
Section 9. Successors, Assigns, etc. This Agreement shall inure to the
-------------------
benefit of and be binding upon the Company, its successors and assigns,
including, without limitation, any entity which may acquire all or substantially
all of the Company's assets and business and any corporation with which the
Company may be merged and, Executive, his heirs, executors, administrators and
legal representatives.
Section 10. Arbitration. Any dispute with respect to this Agreement,
-----------
with the exception of disputes arising under Section 5 entitling the Company to
seek injunctive relief, shall be decided by arbitration in the City of Los
Angeles, California in accordance with the rules of the American Arbitration
Association as then in force by a panel of three arbitrators. Executive and the
Company shall each select one member of the panel and the third remaining member
shall be selected through mutual agreement of the first two panel members. The
panel shall decide all matters in accordance with applicable law and this
Agreement. All costs in connection with any proceedings hereunder, other than
the attorneys' fees and disbursements of each party, shall be borne equally by
the parties, unless otherwise determined by the panel. The panel's award shall
be final, conclusive and binding on the parties, and shall be the exclusive
remedy regarding any claims, counterclaims, issues or accounting presented or
pled to the panel. Judgment on the award may be entered in any court or other
tribunal of competent jurisdiction. All costs and fees incidental to the
enforcement of any award shall be charged, to the maximum permitted extent,
against the party resisting enforcement. Notwithstanding the foregoing, this
Section shall not limit the right of any party to seek to obtain in any court or
other tribunal any interim relief or provisional remedy, including, without
limitation, injunctive relief or
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<PAGE>
attachment. Seeking or obtaining such interim relief or provisional remedy shall
not constitute waiver of the right to arbitration hereunder.
Section 11. Attorneys' Fees and Costs. In any action at law or in
-------------------------
equity or in any arbitration necessary to enforce or interpret the terms of this
Agreement, the prevailing party (either plaintiff or defendant) shall be
entitled to recover from the other party reasonable attorneys' fees, costs, and
necessary disbursements in addition to any other relief to which such prevailing
party may be entitled.
Section 12. No Waiver of Rights. All waivers hereunder must be made in
-------------------
writing and failure by either party hereto at any time to require the other
party's performance of any obligation under this Agreement shall not affect the
right subsequently to require performance of that obligation. Any waiver of any
breach of any provision of this Agreement shall not be construed as a waiver of
any continuing or succeeding breach of such provision or a waiver or
modification of the provision.
Section 13. Severability. The parties hereto expressly agree and
------------
contract that it is not the intention of any of them to violate any public
policy, statutory or common laws, rules, regulations, treaties or decisions of
any government or agency thereof. If any Section, sentence, clause, word or
combination thereof in this Agreement is judicially or administratively
interpreted or construed as being in violation of any such provisions of any
jurisdiction, such Sections, sentences, words, clauses or combinations thereof
shall be inoperative in each such jurisdiction and the remainder of this
Agreement shall remain binding upon the parties hereto in each such jurisdiction
and the Agreement as a whole shall be unaffected elsewhere.
Section 14. Law to Govern. The validity, construction and
-------------
enforceability of this
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<PAGE>
Agreement shall be governed in all respects by the law of California applicable
to agreements negotiated, executed and performed in California regardless of
whether either of the parties shall not be or hereafter become a resident of
another state or country, except as to any matters which are required to be
governed by the laws of any other jurisdiction.
Section 15. Notices. Any notice required or permitted to be given under
-------
this Agreement shall be in writing and shall be deemed to have been given upon
delivery if delivered personally, one full business day after proper telex or
facsimile transmittal if transmitted by telex or facsimile, or five full
business days after mailing if mailed by certified or registered airmail, return
receipt requested, postage prepaid, addressed as follows:
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<PAGE>
Robert J. McNulty The Shoppers' Source, Inc.
2401 Bayshore Dr. 2101 East Coast Highway
Newport Beach, CA 92663 Garden Level
Corona Del Mar, CA 92625
Section 16. Written Agreement to Govern. This Agreement sets forth the
---------------------------
entire understanding and supersedes all prior and contemporaneous agreements
between the parties relating to the subject matter contained herein and
incorporates all prior and contemporaneous discussions between them, and no
party shall be bound by any definition, condition, representation, warranty,
covenant or provision other than as expressly stated in or contemplated by this
Agreement or as subsequently shall be set forth in writing and executed by a
duly authorized representative of the party to be bound thereby.
Section 17. Subject Headings. The subject headings of the Sections of
----------------
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EXECUTIVE COMPANY
/s/ Robert J. McNulty /s/ Kristine E. Webster
- --------------------- ------------------------
Robert J. McNulty Kristine E. Webster
Chief Financial Officer
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<PAGE>
Exhibit 10.02
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 21st day of May, 1997, by and between The
Shoppers' Source, Inc. (the "Company"), a California corporation having its
principal place of business at 2101 E. Coast Highway, Corona del Mar, California
92625, and Mark Winkler ("Executive""), an individual residing at 27863 Longhill
Drive, Rancho Palos Verdes, CA 90275.
W I T N E S S E T H:
WHEREAS, Executive is experienced in the computer science and programming
industry, with particular expertise as to internet applications; and
WHEREAS, the Company desires to avail itself of Executive's experience and
expertise in designing and implementing the technology by which Company will be
able to engage in the business of wide scale retail sales to the public via the
internet, and Executive desires to be so employed; and
WHEREAS, the Company and Executive desire to enter into an Employment
Agreement which shall supersede and replace any and all contracts, agreements
and understandings between the parties on the subject;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and conditions contained herein, and for other good and valuable
consideration, the Company and Executive agree as follows:
<PAGE>
Section 1. Employment Duties and Exclusive Employment.
------------------------------------------
1.1. Duties and Responsibilities. During the term of this Agreement,
---------------------------
Executive shall be employed as the Chief Information and Technology Officer of
the Company (the "Employment"). In that capacity, Executive shall do and perform
all duties, services, acts or things necessary or advisable to design and
implement the system through which the intended business of the Company may be
conducted, subject at all times to the Company's By-Laws and to the directions
and policies established by the Company's President and Chief Executive Officer
and Board of Directors. Throughout his term of Employment, Executive's place of
employment shall at all times be located within the Counties of Orange and Los
Angeles and Executive shall not be required to relocate outside the County of
Los Angeles or Orange in order to continue his Employment under this Agreement.
1.2. Supervision of Other Employees. In addition to Section 1.1 above,
------------------------------
Executive shall supervise the activities of such of the Company's other
information systems employees who have a direct reporting relationship to him,
and shall perform such other services as the Company may from time to time
reasonably request in the furtherance of the business of the Company.
1.3. Devoting of Entire Time to Company's Business. Executive shall devote
---------------------------------------------
such time, energy and attention to the business of the Company during the term
hereof as reasonably required to perform the described services. The Company
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<PAGE>
acknowledges that executive maintains an internet and information systems
consulting business which will continue during the term hereof. Executive
agrees, however, that he will not render services in such consulting business,
or any other services of a business, commercial or professional nature to any
other person or organization whether for compensation or otherwise, which would
be in conflict with the interests of the Company, without the prior written
consent of the Chief Executive Officer or Board of Directors of the Company.
Notwithstanding the foregoing, this Section shall not preclude Executive from
devoting his time and energies in connection with the management of his personal
investments and his participation in not-for-profit activities. Further,
Executive shall be permitted to serve on the board of directors of non-competing
companies, subject to the prior written consent of the Chief Executive Officer
or Board of Directors, such consent not to be unreasonably withheld.
1.4. Adherence to Applicable Laws. Executive at all times during the
----------------------------
performance of this Agreement shall strictly adhere to and obey all applicable
laws, regulations and rules now in effect or as subsequently modified. The
Company shall not request or require Executive to violate any such laws,
regulations or rules in the performance of Executive's duties.
-3-
<PAGE>
Section 2. Term of Agreement.
-----------------
This Agreement shall commence on the date first above written and continue
for one year until May 20, 1998, and thereafter shall continue without a
specified term, at all times being subject to the termination provisions of
Section 5 hereinbelow.
Section 3. Compensation.
------------
3.1. Base Salary. For Executive's services during the first year of his
-----------
Employment hereunder, the Company agrees to pay to Executive a salary of Two
Hundred Thousand ($200,000) per year, paid bi-weekly during the course of such
year. Thereafter, Executive's annual salary ("Annual Base Salary") shall be
reviewed and adjusted by the Company each year pursuant to the policies and
procedures of the Company governing the annual review of base salaries for its
executive officers; provided, however, that there shall be no downward
adjustments in Executive's Annual Base Salary. The Company shall withhold and
deduct from periodic salary installments all amounts required by law, including,
but not limited to, federal and state income taxes, social security, and state
disability taxes and any other amounts authorized by Executive in writing.
3.2. Annual Bonus. In addition to the Annual Base Salary, Executive shall
------------
be entitled to consideration for a bonus at the end of each calendar year, which
shall be determined in the discretion of the President and Board of Directors.
3.3. Stock Options. Upon the Company's adoption of a stock option plan for
-------------
employees or executives, Executive will be
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<PAGE>
considered for the award of an option in an amount and on a basis otherwise
consistent with awards to similarly situated senior Company employees.
Section 4. Vacation, Expenses and Benefits. During the term of the
-------------------------------
Employment, the Company agrees:
4.1. Vacation. Executive will be entitled to vacation benefits in
--------
accordance with uniform Company policies as they may be in effect from time to
time for Executive Officers of the Company and will, in any event, be for a
minimum period of four weeks per year. Vacation is to be taken at such time or
times as may be mutually agreeable to Executive and the Board of Directors, it
being understood by Executive that in the initial years of his employment
hereunder no more lengthy vacation than two weeks at one time is likely to be
approved. All such vacations shall be with pay. Upon termination of the
Employment for any reason, the Company shall pay Executive for all accrued,
unused vacation pursuant to applicable law.
4.2. Expenses. Executive will be reimbursed for all necessary and
--------
reasonable traveling and other reimbursable expenses on behalf of the Company in
pursuing Executive's duties for the Company under this Agreement. All required
Company business travel by Executive shall be at coach travel fare rates.
Subject to a cap of $9,500.00, Executive will be reimbursed for the reasonable
fees of his legal and financial advisors in connection with the analysis and
preparation of this Agreement, the Assignment of Property Rights, the
Shareholder's Agreement and the collateral agreements, proxies and
-5-
<PAGE>
questionnaire presented to and prepared for him in connection with establishing
the terms of his initial employment with and share ownership in the Company,
but he will not be reimbursed for any subsequent professional advice or counsel.
Reimbursement by the Company to Executive for such expenses shall be subject to
Executive furnishing appropriate documentation to substantiate such expenses
pursuant to the policies and procedures of the Company governing reimbursement
of business expenses to its executives.
4.3. Office Facilities. Executive will be provided with such office
-----------------
facilities and clerical assistance as Executive may reasonably require for the
performance of his duties hereunder.
4.4. Employee Benefits. Company agrees to provide Executive with group
-----------------
medical, dental and vision insurance coverages and other employee welfare and
fringe benefits at all times comparable to those provided to other Company
executives holding comparable level positions, all in accordance with such
benefit programs as may be established by the Company from time to time. The
Company specifically reserves the right to change the administrators and/or
carriers of any of its group insurance and/or other employee benefit plans.
-6-
<PAGE>
Section 5. Term and Termination of Employment. The Employment shall
----------------------------------
continue for the term as specified in Section 2, above, unless and until it is
earlier terminated as provided in this Section 5:
5.1 Termination of Agreement.
------------------------
(a) For Cause. The employment of Executive under this Agreement may
---------
be terminated by Company for "cause" at any time by action of the Board. For
the purposes hereof, the term "cause" is limited to (i) Executive's fraud, gross
incompetency, personal dishonesty involving the Company's assets, willful
misconduct or gross negligence in the performance of his duties hereunder, (ii)
a willful breach by Executive of any of the material terms of this Agreement, or
(iii) Executive's death or disability. For purposes of this Agreement,
"disability" shall mean any physical or mental impairment as determined by a
licensed physician in the state of California and agreed to by the Board in good
faith, which shall have rendered Executive unable to perform the duties required
under this Agreement for a continuous period of four months or a cumulative
period of six months during any twelve consecutive month period. If Executive's
employment hereunder is terminated for cause, Company shall have no further
obligations or liabilities to Executive, save and except for obligations due to
Executive for the period through to and including the date of termination for
cause.
(b) Right to Cure. In the event the Company contends that it may
-------------
terminate Executive for cause due to
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<PAGE>
Executive's incompetence or negligence as described in a(i) above (but only for
these particular grounds for cause), Company shall provide Executive with
specific written notice specifying in reasonable detail the services or matters
which it contends Executive has not been adequately performing and what
Executive should do to adequately perform his obligations hereunder. If
Executive performs the required services within thirty (30) days of actual
receipt of the notice by the Executive or modifies his performance to correct
the matters complained of, in either case, to the reasonable satisfaction of the
Company, Executive's breach will be deemed cured and such breach shall no longer
constitute cause; provided, however, if the nature of the services not performed
by the Executive or the matters complained of are such that more than thirty
days are reasonably required to perform the required services or to correct the
matters complained of, then the Executive's breach will be deemed cured if the
Executive commences to perform such services or to correct such matters within
the thirty (30) day period and thereafter diligently prosecutes such performance
or correction to completion within such period of time after the end of such
thirty (30) day period (the "extension period") as the Company has notified the
Executive is reasonably required to perform the required services or to correct
the matters complained of. If Executive does not perform the required services
or modify his performance to correct the matters complained of within the thirty
(30) day period or the extension period, as the case may be, Company shall have
the right to terminate this Agreement at
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<PAGE>
the end of the thirty (30) day period or extension period, as the case may be.
(c) Termination by the Company Without Cause or Company's Material
------------------------------------------- ------------------
Breach.
- ------
(i) If Executive's employment with Company is terminated by Company
(i) other than for cause (as provided in Section 5.1.a, or if (ii) the Company
otherwise materially breaches this Agreement and fails to cure this breach
within thirty (30) days after notice from Executive, then at any time within
three (3) months thereafter Executive may elect by notice in writing to the
Secretary of Company to treat the situation as a "Termination without Cause" of
Executive by the Company and to discontinue his obligations to Company to
perform services hereunder. In such event, all compensation due to Executive
which has accrued but has not yet been paid, including compensation earned
through the date of termination of Executive's employment and unused vacation
time, plus severance pay equal to 18 months' Base Salary at its then
established level, shall become due and payable within five (5) days of receipt
of notice by Company.
(ii) If Executive believes Company has materially breached this
Agreement, Company or Executive may request an arbitration to determine whether
Company has, in fact, materially breached this Agreement. The arbitration shall
be conducted pursuant to the provisions of Section 10, below.
(d) Material Breach by Company. The Company shall have materially
--------------------------
breached this Agreement if, without the
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<PAGE>
Executive's prior written consent, one or more of the following events occur:
(i) the Executive is otherwise removed from the office(s) provided for
in this Agreement, for any reason other than the legal termination of his
employment;
(ii) the Executive is assigned any duties or responsibilities
that are inconsistent, in any significant respect, with the scope of duties and
responsibilities associated with the Executive's position;
(ii) the Executive suffers a reduction in the authorities, duties
or responsibilities associated with his position, on the basis of which he makes
a determination in good faith that he can no longer carry out such position in
the manner contemplated at the time this Agreement was entered into;
(iv) the Executive's Base Salary is decreased by the Company, or
his benefits or opportunities under any employee benefit or incentive plan or
program of the Company or any other material benefit specifically promised to
Executive herein is or are materially reduced unless such benefit, plan, or
program is reduced or eliminated for all eligible employees of the Company on an
equal basis;
(v) the Company fails to pay the Executive any payments under any
bonus or incentive plans when due;
(vi) the Company fails to reimburse the Executive for business
expenses in accordance with the Company's policies, procedures or practices;
-10-
<PAGE>
(vii) the Company fails to agree to or actually indemnify the
Executive for his actions and/or inactions, as either a director or officer of
the Company, to the fullest extent permitted by applicable law;
(viii) the Company fails to obtain a written agreement satisfactory
to the Executive from any successor or assign of the Company to assume and
perform this Agreement; or
(ix) the Company purports to terminate the Executive's employment
for cause and such purported termination of employment is not effected in
accordance with the procedures required by this Agreement, and for purposes of
this Agreement, such purported termination of employment shall be invalid and of
no force and effect.
5.2. Return of Company Property. Upon termination of this Agreement for
--------------------------
any reason, Executive shall immediately cease use of any and all Company
property in his possession and shall immediately return any and all Company
property in his possession custody or control to the Company, including without
limitation, any and all Confidential Information as that term is defined in
Section 6.1.
Section 6. Confidentiality.
---------------
6.1. Confidentiality Obligation. The Company and Executive acknowledge and
--------------------------
agree that Executive possesses information of substantial value to the Company
and which requires substantial expenditure of time, skills, energy and funds to
develop and/or acquire, which is not generally known in the trade and, which
gives the Company an advantage over its
-11-
<PAGE>
competitors who do not know or use it or disclosure of which would or may be
detrimental to the Company, including but not limited to, inventions,
proprietary information and trade secrets techniques, designs, drawings,
processes, formulas, inventions, developments, equipment, prototypes, sales,
marketing and customer information, and business, financial, administrative or
managerial information, relating to the business, products, practices,
administration, management or techniques of the Company (the "Confidential
Information"). Executive at all times shall regard and preserve as confidential
such Confidential Information regardless of its source and shall not, during the
term of the Employment or thereafter, publish or disclose any part of such
Confidential Information in any manner, or use the same except on behalf of the
Company without the prior written consent of the Board of Directors.
6.2. Proprietary Information. Executive agrees that all notes, data,
-----------------------
sketches, drawings and other documents and records, and all material and
physical items of any kind, including all reproductions and copies thereof,
which relate in any way to the business, products, practices or techniques of
the Company or contain Confidential Information, or that come into the
possession of Executive by reason of this Agreement, are the property of the
Company at the termination of Executive's Employment hereunder.
6.3. Release of Obligations of Confidentiality and Non-Use. The parties
--------------------------------------------- -------
hereto expressly agree that the public disclosure by the Company of any part of
the Confidential
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<PAGE>
Information will release Executive from the obligations of confidentiality and
non-use provided for in Sections 6.1 and 6.2 only with respect to that portion
of the Confidential Information actually disclosed by the Company. Further, the
term "Confidential Information" shall not include information relating to the
business, products, practices, administration, management or techniques of the
Company to the extent that it becomes generally available and known to the
public other than as the result of a breach by Executive of the confidentiality
and non-use obligation provisions contained in this Agreement and/or the prior
Consulting Agreement.
6.4. No Predatory Solicitation. Executive agrees that he will not, either
-------------------------
directly or through instructions to a third party, on his own behalf or in the
service of others, disrupt, damage, impair or interfere with the business of the
Company whether by way of interfering with or raiding its officers, employees,
agents, distributors and/or independent contractors or in any manner attempting
to persuade any such persons to discontinue any relationship with the Company
without having received the Board of Director's prior written permission to do
so.
6.5. Injunctive Relief. Executive acknowledges that the loss to the
-----------------
Company which would arise from a breach of the confidentiality obligation or
predatory solicitation provision contained in this Agreement cannot be
reasonably or adequately compensated in damages in an action at law. Executive
therefore expressly agrees that the Company in addition to any other
-13-
<PAGE>
rights or remedies which it may possess, shall be entitled to injunctive relief
to prevent a breach of the confidentiality obligation or predatory solicitation
provision contained in this Agreement.
Section 7. Indemnity.
---------
(a) In addition to any rights of Executive under the Company's
by-laws, or any applicable State law, Company hereby agrees to hold harmless and
indemnify Executive:
(i) Against any and all expenses (including attorneys' fees and
costs), judgments, fines and amounts paid in settlement actually and reasonable
incurred by Executive in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the name of the Company) to which
Executive is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Executive is, was or at any time becomes a
director, officer, employee, consultant, or agent of the Company, or is or was
serving or at any time serves at the request of the Company as a director,
officer, employee, consultant, partner, trustee or agent regardless of his
subsequent title or position at another corporation, partnership, joint venture,
trust or other enterprise;
(ii) Otherwise to the fullest extent as may be provided to
Executive by the Company under the by-laws of the Company and California
Corporations Code; and
-14-
<PAGE>
(b) No indemnity pursuant to this Paragraph 7 shall be paid by
Company:
(i) Except to the extent the aggregate of amounts to be indemnified
thereunder exceed the sum of Five Hundred Dollars ($500) plus the amount of such
losses for which the Executive is indemnified either pursuant to the by-laws of
the Company or any subsidiary thereof, or pursuant to any Directors and Officers
insurance purchased and maintained by Company;
(ii) In respect to remuneration paid to Executive if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iii) On account of any suit in which judgment is rendered against
Executive for an accounting of profits made from the purchase or sale by
Executive of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(iv) On account of conduct which is finally adjudged to have been
willful misconduct by Executive; and
(v) If a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification to Executive is not lawful.
(c) All agreements and obligations of the Company contained herein shall
continue during the period Executive is a
-15-
<PAGE>
director, officer, employee, consultant or agent of Company (or is or was
serving at the request of the Company as a director, officer, employee, partner,
consultant or agent of another corporation, partnership, joint venture, trust or
other enterprise) and shall continue thereafter so long as Executive shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, by reason of the fact
that Executive was an officer or director of Company or serving in any other
capacity referred to herein.
(d) Company shall not be liable to indemnify Executive under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. Company shall not settle any action or claim in
any manner which would impose any penalty or limitation on Executive without
Executive's written consent. Neither the Company nor Executive will
unreasonably withhold their consent to any proposed settlement.
(e) The Company will pay all expenses immediately upon the presentment
of bills for such expenses. Executive agrees that Executive will reimburse
Company for all reasonable expenses paid by Company in defending any civil or
criminal action, suit or proceeding against Executive in the event and only to
the extent that it shall be ultimately determined that Executive is not entitled
to be indemnified by Company for such expenses under the provisions of the
applicable State statute, the by-laws, this Agreement or otherwise. This
Agreement shall
-16-
<PAGE>
not affect any rights of Executive against Company, any insurer, or any other
person to seek indemnification or contribution.
(f) If Company fails to pay any expenses (including without limiting
the generality of the foregoing, legal fees and expenses incurred in defending
any action, suit or proceeding), Executive shall be entitled to institute suit
against Company to compel such payment and Company shall pay Executive all costs
and legal fees incurred in enforcing such right to prompt payment.
(g) To the extent allowable under California law, the burden of proof
with respect to any proceeding or determination with respect to Executive's
entitlement to indemnification under this Agreement shall be on Company.
(h) If any provision of this Paragraph 7 shall be determined as
conflicting with any provision of (i) Company's by-laws or Articles of
Incorporation, (ii) California law, or (iii) the provisions of any other
agreement between the parties as to indemnification, and such other document or
law would provide the Executive with greater rights of benefits of
indemnification, then such other document or law shall prevail; it being the
intention of the parties hereto to provide maximum indemnification to the
Executive. Otherwise, unless prohibited by law, any document or law which
affords Executive with greater rights of indemnification by Company than do the
provisions of this Agreement shall have superiority over the provisions of this
Agreement.
-17-
<PAGE>
(i) In support of its obligations hereunder, the Company agrees to use
its best efforts to maintain a directors' and officers' liability and other
insurance policies covering the Executive and further agrees that these policies
shall be maintained so as to provide as broad and as complete coverage as is
reasonably available in relation both to the Executive's position during the
Term of Employment and to any claims arising thereafter but relating to said
Term of Employment. Notwithstanding the foregoing, the failure or inability of
the Company to maintain such insurance policy or policies shall not be a breach
of this Agreement by the Company if the Company's Board of Directors determine,
in good faith, that such insurance coverage is not available to the Company at a
reasonable cost.
Section 8. Assignment. Except as otherwise expressly provided herein,
----------
the rights and obligations of Executive hereunder shall not be assignable and
any attempted assignment shall be void. The rights and obligations of the
Company hereunder may be assigned as a part of any transaction which includes
the transfer of all or substantially all of the assets of the Company, whether
such transfer is made pursuant to a sale of assets or stock or merger,
reorganization or otherwise.
Section 9. Successors, Assigns, etc. This Agreement shall inure to the
------------------------
benefit of and be binding upon the Company, its successors and assigns,
including, without limitation, any entity which may acquire all or substantially
all of the Company's assets and business and any corporation with which the
-18-
<PAGE>
Company may be merged and, Executive, his heirs, executors, administrators and
legal representatives.
Section 10. Arbitration. Any dispute with respect to this Agreement,
-----------
with the exception of disputes arising under Section 5 entitling the Company to
seek injunctive relief, shall be decided by arbitration in the City of Los
Angeles, California in accordance with the rules of the American Arbitration
Association as then in force by a panel of three arbitrators. Executive and the
Company shall each select one member of the panel and the third remaining member
shall be selected through mutual agreement of the first two panel members. The
panel shall decide all matters in accordance with applicable law and this
Agreement. All costs in connection with any proceedings hereunder, other than
the attorneys' fees and disbursements of each party, shall be borne equally by
the parties, unless otherwise determined by the panel. The panel's award shall
be final, conclusive and binding on the parties, and shall be the exclusive
remedy regarding any claims, counterclaims, issues or accounting presented or
pled to the panel. Judgment on the award may be entered in any court or other
tribunal of competent jurisdiction. All costs and fees incidental to the
enforcement of any award shall be charged, to the maximum permitted extent,
against the party resisting enforcement. Notwithstanding the foregoing, this
Section shall not limit the right of any party to seek to obtain in any court or
other tribunal any interim relief or provisional remedy, including, without
limitation, injunctive relief or attachment. Seeking or obtaining such
-19-
<PAGE>
interim relief or provisional remedy shall not constitute waiver of the right to
arbitration hereunder.
Section 11. Attorneys' Fees and Costs. In any action at law or in
-------------------------
equity or in any arbitration necessary to enforce or interpret the terms of this
Agreement, the prevailing party (either plaintiff or defendant) shall be
entitled to recover from the other party reasonable attorneys' fees, costs, and
necessary disbursements in addition to any other relief to which such prevailing
party may be entitled.
Section 12. No Waiver of Rights. All waivers hereunder must be made in
-------------------
writing and failure by either party hereto at any time to require the other
party's performance of any obligation under this Agreement shall not affect the
right subsequently to require performance of that obligation. Any waiver of any
breach of any provision of this Agreement shall not be construed as a waiver of
any continuing or succeeding breach of such provision or a waiver or
modification of the provision.
Section 13. Severability. The parties hereto expressly agree and
------------
contract that it is not the intention of any of them to violate any public
policy, statutory or common laws, rules, regulations, treaties or decisions of
any government or agency thereof. If any Section, sentence, clause, word or
combination thereof in this Agreement is judicially or administratively
interpreted or construed as being in violation of any such provisions of any
jurisdiction, such Sections, sentences, words, clauses or combinations thereof
shall be inoperative in each
-20-
<PAGE>
such jurisdiction and the remainder of this Agreement shall remain binding upon
the parties hereto in each such jurisdiction and the Agreement as a whole shall
be unaffected elsewhere.
Section 14. Law to Govern. The validity, construction and
-------------
enforceability of this Agreement shall be governed in all respects by the law of
California applicable to agreements negotiated, executed and performed in
California regardless of whether either of the parties shall not be or hereafter
become a resident of another state or country, except as to any matters which
are required to be governed by the laws of any other jurisdiction.
Section 15. Notices. Any notice required or permitted to be given under
-------
this Agreement shall be in writing and shall be deemed to have been given upon
delivery if delivered personally, one full business day after proper telex or
facsimile transmittal if transmitted by telex or facsimile, or five full
business days after mailing if mailed by certified or registered airmail, return
receipt requested, postage prepaid, addressed as follows:
Mark Winkler The Shoppers' Source, Inc.
27863 Longhill Drive c/o CEO, Robert McNulty
Rancho Palos Verdes, CA 90275 2101 E. Coast Highway
Corona Del Mar, CA 92625
Section 16. Written Agreement to Govern. This Agreement sets forth the
---------------------------
entire understanding and supersedes all prior and contemporaneous agreements
between the parties relating to the subject matter contained herein and
incorporates all prior and contemporaneous discussions between them, and no
party shall be bound by any definition, condition, representation, warranty,
-21-
<PAGE>
covenant or provision other than as expressly stated in or contemplated by this
Agreement or as subsequently shall be set forth in writing and executed by a
duly authorized representative of the party to be bound thereby.
Section 17. Subject Headings. The subject headings of the Sections of
----------------
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EXECUTIVE COMPANY
/s/ Mark Winkler By /s/ Robert J. McNulty
- -------------------------- ----------------------------
Mark Winkler Robert J. McNulty
CEO
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<PAGE>
EXHIBIT 10.03
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of the ___ day of _________, 1997, by and between
Shopping.com (the "Company"), a California corporation, having its principal
place of business at 2101 E. Coast Highway, Corona Del Mar, California 92625,
and _______________________ ("Executive" or "Director"), an individual residing
at ___________________________________________________________________________
__________________________.
Section 1. Indemnity.
---------
(a) In addition to any rights of Executive (Director) under the
Company's articles of incorporation or by-laws or any applicable State law,
Company hereby agrees to hold harmless and indemnify Executive (Director):
(i) Against any and all expenses (including attorneys' fees and
costs), judgments, fines and amounts paid in settlement actually and reasonable
incurred by Executive (Director) in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the name of the Company) to which
Executive (Director) is, was or at any time becomes a party, or is threatened to
be made a party, by reason of the fact that Executive (Director) is, was or at
any time becomes a director, officer, employee, consultant, or agent of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee, consultant, partner, trustee or agent
regardless of his subsequent title or position at another corporation,
partnership, joint venture, trust or other enterprise;
-1-
<PAGE>
(ii) Otherwise to the fullest extent as may be provided to
Executive (Director) by the Company under the articles of incorporation, by-laws
of the Company and California Corporations Code; and
(b) No indemnity pursuant to this Paragraph 7 shall be paid by
Company:
(i) Except to the extent the aggregate of amounts to be
indemnified thereunder exceed the sum of Five Hundred Dollars ($500) plus the
amount of such losses for which the Executive (Director) is indemnified either
pursuant to the by-laws of the Company or any subsidiary thereof, or pursuant to
any Directors and Officers insurance purchased and maintained by Company;
(ii) In respect to remuneration paid to Executive (Director) if
it shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iii) On account of any suit in which judgment is rendered
against Executive (Director) for an accounting of profits made from the purchase
or sale by Executive (Director) of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(iv) On account of conduct which is finally adjudged to have been
willful misconduct by Executive (Director); and
(v) If a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification to Executive (Director) is not
lawful.
(c) All agreements and obligations of the Company contained herein
shall
-2-
<PAGE>
continue during the period Executive (Director) is a director, officer,
employee, consultant or agent of Company (or is or was serving at the request of
the Company as a director, officer, employee, partner, consultant or agent of
another corporation, partnership, joint venture, trust or other enterprise) and
shall continue thereafter so long as Executive (Director) shall be subject to
any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Executive (Director) was an officer or director of Company or serving in any
other capacity referred to herein.
(d) Company shall not be liable to indemnify Executive (Director)
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on Executive
(Director) without Executive's (Director's) written consent. Neither the
Company nor Executive (Director) will unreasonably withhold its, his or her
consent to any proposed settlement.
(e) The Company will pay all expenses immediately upon the presentment
of bills for such expenses. Executive (Director) agrees that Executive
(Director) will reimburse Company for all reasonable expenses paid by Company in
defending any civil or criminal action, suit or proceeding against Executive
(Director) in the event and only to the extent that it shall be ultimately
determined that Executive (Director) is not entitled to be indemnified by
Company for such expenses under the provisions of the applicable State statute,
the by-laws, this Agreement or otherwise. This Agreement shall not affect any
rights of Executive (Director) against Company, any insurer, or any other person
to seek indemnification or contribution.
-3-
<PAGE>
(f) If Company fails to pay any expenses (including without limiting
the generality of the foregoing, legal fees and expenses incurred in defending
any action, suit or proceeding), Executive (Director) shall be entitled to
institute suit against Company to compel such payment and Company shall pay
Executive (Director) all costs and legal fees incurred in enforcing such right
to prompt payment.
(g) To the extent allowable under California law, the burden of proof
with respect to any proceeding or determination with respect to Executive's
(Director's) entitlement to indemnification under this Agreement shall be on
Company.
(h) If any provision of this Paragraph 7 shall be determined as
conflicting with any provision of (i) Company's by-laws or Articles of
Incorporation, (ii) California law, or (iii) the provisions of any other
agreement between the parties as to indemnification, and such other document or
law would provide the Executive (Director) with greater rights of benefits of
indemnification, then such other document or law shall prevail; it being the
intention of the parties hereto to provide maximum indemnification to the
Executive (Director). Otherwise, unless prohibited by law, any document or law
which affords Executive (Director) with greater rights of indemnification by
Company than do the provisions of this Agreement shall have superiority over the
provisions of this Agreement.
(i) In support of its obligations hereunder, the Company agrees to
use its best efforts to maintain a directors' and officers' liability and other
insurance policies covering the Executive (Director) and further agrees that
these policies shall be maintained so as to provide as broad and as complete
coverage as is reasonably available in relation both to the Executive
(Director)'s position during the term of employment or consultancy or
-4-
<PAGE>
directorship and to any claims arising thereafter but relating to said term of
employment or consultancy or directorship. Notwithstanding the foregoing, the
failure or inability of the Company to maintain such insurance policy or
policies shall not be a breach of this Agreement by the Company if the Company's
Board of Directors determine, in good faith, that such insurance coverage is not
available to the Company at a reasonable cost.
Section 2. Successors, Assigns, etc. This Agreement shall inure to the
------------------------
benefit of and be binding upon the parties hereto, their successors and assigns,
including, without limitation, any entity which may acquire all or substantially
all of the Company's assets and business and any corporation with which the
Company may be merged and, Executive (Director) , his or her heirs, executors,
administrators and legal representatives.
Section 3. Arbitration. Any dispute with respect to this Agreement
-----------
shall be decided by arbitration in the City of Los Angeles, California in
accordance with the rules of the American Arbitration Association as then in
force by a panel of three arbitrators. Executive (Director) and the Company
shall each select one member of the panel and the third remaining member shall
be selected through mutual agreement of the first two panel members. The panel
shall decide all matters in accordance with applicable law and this Agreement.
All costs in connection with any proceedings hereunder, other than the
attorneys' fees and disbursements of each party, shall be borne equally by the
parties, unless otherwise determined by the panel. The panel's award shall be
final, conclusive and binding on the parties, and shall be the exclusive remedy
regarding any claims, counterclaims, issues or accounting presented or pled to
the panel. Judgment on the award may be entered in any court or other tribunal
of competent jurisdiction. All costs and fees incidental to the
-5-
<PAGE>
enforcement of any award shall be charged, to the maximum permitted extent,
against the party resisting enforcement. Notwithstanding the foregoing, this
Section shall not limit the right of any party to seek to obtain in any court or
other tribunal any interim relief or provisional remedy, including, without
limitation, injunctive relief or attachment. Seeking or obtaining such interim
relief or provisional remedy shall not constitute waiver of the right to
arbitration hereunder.
Section 4. Attorneys' Fees and Costs. In any action at law or in
-------------------------
equity or in any arbitration necessary to enforce or interpret the terms of this
Agreement, the prevailing party (either plaintiff or defendant) shall be
entitled to recover from the other party reasonable attorneys' fees, costs, and
necessary disbursements in addition to any other relief to which such prevailing
party may be entitled.
Section 5. No Waiver of Rights. All waivers hereunder must be made in
-------------------
writing and failure by either party hereto at any time to require the other
party's performance of any obligation under this Agreement shall not affect the
right subsequently to require performance of that obligation. Any waiver of any
breach of any provision of this Agreement shall not be construed as a waiver of
any continuing or succeeding breach of such provision or a waiver or
modification of the provision.
Section 6. Severability. The parties hereto expressly agree and
------------
contract that it is not the intention of any of them to violate any public
policy, statutory or common laws, rules, regulations, treaties or decisions of
any government or agency thereof. If any Section, sentence, clause, word or
combination thereof in this Agreement is judicially or administratively
interpreted or construed as being in violation of any such provisions of any
-6-
<PAGE>
jurisdiction, such Sections, sentences, words, clauses or combinations thereof
shall be inoperative in each such jurisdiction and the remainder of this
Agreement shall remain binding upon the parties hereto in each such jurisdiction
and the Agreement as a whole shall be unaffected elsewhere.
Section 7. Law to Govern. The validity, construction and
-------------
enforceability of this Agreement shall be governed in all respects by the law of
California applicable to agreements negotiated, executed and performed in
California regardless of whether either of the parties shall not be or hereafter
become a resident of another state or country, except as to any matters which
are required to be governed by the laws of any other jurisdiction.
Section 8. Notices. Any notice required or permitted to be given under
-------
this Agreement shall be in writing and shall be deemed to have been given upon
delivery if delivered personally, one full business day after proper telex or
facsimile transmittal if transmitted by telex or facsimile, or five full
business days after mailing if mailed by certified or registered airmail, return
receipt requested, postage prepaid, addressed as follows:
Robert J. McNulty Shopping.com
2101 East Coast Highway
Garden Level
Corona Del Mar, CA 92625
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EXECUTIVE (DIRECTOR) COMPANY
__________________________ _______________________________
-7-
<PAGE>
EXHIBIT 10.04
CONFIDENTIALITY AND NONSOLICITATION AGREEMENT
[Independent Contractor/Outside Vendor]
This Confidentiality and Nonsolicitation Agreement ("Agreement") is
made and entered into as of the date set forth at the end of this Agreement by
and between SHOPPING.com, Inc. a California corporation, and the undersigned
[independent contractor/outside vendor] of The Shopping.com [("Contractor" or
"Vendor")].
RECITALS
A. The Shopping.com has developed and uses commercially valuable
technical and nontechnical information including, without limitation, customer
lists, prospect lists, employee and agent identities, manuals, business plans,
financial reports and projections, computer software programs, source codes,
formulas, patterns, compilations, specifications, devices, methods, techniques,
ideas, plans, drawings, data, materials, blue-prints, models, methods of
operation, know-how and other materials and information which derive economic
value by not being generally available to the public (the "Proprietary
Information"). The Shopping.com regards the Proprietary Information as valuable
trade secrets of The Shopping.com, the use and disclosure of which must be
carefully and continuously controlled.
B. [Contractor/Vendor], in the course of its engagement by The
Shopping.com will have access to certain Proprietary Information of The
Shopping.com and may contribute to such Proprietary Information through
invention, discovery, ideas, information, improvement or otherwise, regardless
of whether they may be patented or copyrighted, which relate to or are useful
in the business or activities in which The Shopping.com is or may become
engaged.
C. The Shopping.com wishes to protect the Proprietary Information
upon the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of [Contractor's/Vendor's] engagement
or continued engagement by The Shopping.com, and in consideration of the mutual
covenants and conditions contained herein, the parties agree as follows:
-1-
<PAGE>
1. Except as may be required in order for [Contractor/Vendor] to
perform his or her duties for The Shopping.com, [Contractor/Vendor] shall not
disclose, disseminate, divulge or publish any Proprietary Information to anyone
outside of The Shopping.com or to any employee or contractor of The Shopping.com
who does not require access to such information, nor use for the benefit of any
person or entity other than The Shopping.com, either during or subsequent to
[Contractor's/Vendor's] engagement by The Shopping.com, any Proprietary
Information regardless of whether or not [Contractor/Vendor] developed or
contributed to the development of such Proprietary Information.
2. All records and other materials pertaining to the Proprietary
Information, whether developed by [Contractor/Vendor] or others, shall be and
remain the property of The Shopping.com. Upon termination of
[Contractor's/Vendor's] engagement by The Shopping.com for any reason,
[Contractor/Vendor] shall promptly deliver to The Shopping.com all
correspondence, computer discs, computer tapes, models, drawings, blue-prints,
manuals, letters, notes, notebooks, reports, flow-charts, programs, proposals or
any other documents, along with all copies thereof, relating to any of the
Proprietary Information.
3. The obligations of confidentiality and nondisclosure imposed upon
[Contractor/Vendor] by Section 1 of this Agreement shall not apply when: (a)
tile Proprietary Information disclosed to [Contractor/Vendor] was in tile
aggregate in the public domain at tile time of disclosure, or at any time after
disclosure has become (except by breach of this Agreement or through other
improper means) a part of the public domain by publication or otherwise; (b)
disclosure is required by law or court order, provided [Contractor/Vendor] gives
The Shopping.com prior written notice of any such disclosure; or (c) disclosure
is made pursuant to tile prior written consent of The Shopping.com.
4. [Contractor/Vendor] shall not solicit direct sales to, nor
employment of; any customer, employee or agent of The Shopping.com nor interfere
with any contract or potential business opportunity of The Shopping.com either
during or subsequent to its engagement by The Shopping.com.
5. [Contractor/Vendor] acknowledges that any failure by
[Contractor/Vendor] to fulfil any obligation under this Agreement, or a breach
by [Contractor/Vendor] of any provision herein, will constitute immediate and
irreparable harm to The Shopping.com, which harm cannot be fully and adequately
compensated in money damages and which will warrant injunctive relief; an order
for specific performance or other equitable relief as well as monetary relief.
6. [Contractor/Vendor] understands that this Agreement shall be
effective when signed by both The Shopping.com and [Contractor/Vendor] and that
the terms of this Agreement shall remain in full force and effect both during
the continuation of [Contractor's/Vendor's] engagement by The Shopping.com and
after the termination of such engagement for any reason. Subsequent changes in
[Contractor's/Vendor's] engagement shall in no way affect this Agreement which
shall remain in full force and effect except as it may be modified by a
subsequent agreement in writing. Nothing contained in this Agreement shall be
construed as creating a continuing right to engagement by The Shopping.com.
-2-
<PAGE>
7. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and assigns. This Agreement contains the
entire Agreement between the parties hereto relating to the subject matter
hereof. Any provision contained herein prohibited by law or unenforceable under
any applicable law of any jurisdiction shall as to such jurisdiction be
ineffective without affecting any other provisions of this Agreement or the
enforceability of such provision in any other jurisdiction.
8. From time to time each party shall execute and deliver such
further instruments and will take such other action as the other party may
reasonably request in order to discharge and perform its obligations and
agreements hereunder and to give effect to the intentions expressed in this
Agreement.
9. The failure of either party to this Agreement to object to, or to
take affirmative action with respect to, any conduct of the other which is in
violation of the terms of this Agreement shall not be construed as a waiver of
the violation or breach or of any future violation, breach or wrongful conduct.
All waivers must be in writing, and no single waiver will constitute any further
waiver with respect to any term of this Agreement.
10. This Agreement may be executed in counterparts and may be
delivered by facsimile.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
___________________________.
The Shopping.com, _______________________________,
a California corporation a ______________________________
By: ___________________________ By: _______________________________
___________________________ _______________________________
Printed Name and Title Printed Name and Title
-3-
<PAGE>
EXHIBIT 10.05
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS:
That effective as of the close of business on March 31, 1997, Cyber
Depot, Inc., a California corporation ("GRANTOR"), for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
hereby grants, sells, transfers and assigns to The Shoppers' Source. A
California corporation ("GRANTEE"), Newport Beach, California, certain assets of
Grantor, tangible and intangible as hereinafter described:
All of Grantor's right, title and interest in and to the hardware,
software, customers lists, vendors lists and all other property in connection
with a retail sales operation through the Internet.
To Have and To Hold the same unto GRANTEE, its successors and assigns,
forever.
This instrument shall be binding upon GRANTOR, its successors and
assigns for the uses and purposes above set forth and referred to, effective
immediately upon its delivery to GRANTEE.
IN WITNESS WHEREOF, GRANTOR has caused this instrument to be executed
by its officer thereunto duly authorized and to be delivered at Newport Beach,
California on March 31, 1997.
Cyber Depot, Inc.
By /s/ Robert J. McNulty
-------------------------
<PAGE>
EXHIBIT 10.06
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT is entered into this _____ day of
____________, 1997, by and among SHOPPERS SOURCE, a California corporation
("Buyer"), CYBER DEPOT, INC., a California corporation, ("Company"), and ROBERT
J. McNULTY, ("Shareholder"), with respect to the following facts:
A. Shareholder owns all the issued and outstanding stock of Company;
B. Company owns and operates a consulting business ("Business") in
the County of Los Angeles, State of California;
C. Buyer desires to purchase from Company and Company desires to
sell to Buyer, certain of the assets of Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. ASSETS PURCHASED AND LIABILITIES ASSUMED.
----------------------------------------
1.1 Assets Purchase. Upon the terms and conditions set forth
---------------
herein, Company agrees to sell to Buyer and Buyer agrees to purchase from
Company, on the Closing Date (as defined below) all of the following assets
("Assets"):
1.1.1 All hardware and software for creating a Web site to
conduct commerce on the Internet (the "Web site");
1.1.2 All equipment and furnishings owned or leased by
Company in connection with the Web site;
1.1.3 All contract rights in connection with the Web site;
<PAGE>
1.1.4 All other assets, properties and business of Company
in connection with the Web site only as of the Closing Date, both tangible and
intangible, real, personal and mixed, wherever located, whether or not reflected
on the financial statements of Company and whether acquired prior to, on or
subsequent to the date hereof.
1.2 Title to Assets. Company shall convey to Buyer good and
---------------
marketable title of Company's assets, purchased hereunder, free and clear of any
debts, liabilities, obligations, liens, claims or restrictions or encumbrances
of any kind. Company and Shareholder shall, at or subsequent to the Closing
Date, perform all acts and execute all assignments, documents of title and
similar papers as may be reasonably required by Buyer to accomplish the transfer
of Assets as described above, including but not limited to, a Bill of Sale in
the form of Exhibit 1.2 attached hereto.
1.3 Liabilities Assumed. Buyer will not assume any debts,
-------------------
liabilities or obligations of Company and shall not be responsible for any
debts, liabilities or obligations of Company whether accrued now or hereafter
and whether known, unknown, contingent or otherwise. Except $20,000 owed to
Lewis, D'Amato, Brisbois & Bisgaard, LLP.
2
<PAGE>
2. PURCHASE PRICE.
--------------
As consideration for the purchase of all of the Assets, Buyer shall
pay to Company Five Hundred Thousand shares of the Series A Preferred stock of
the Buyer.
2.1 The purchase price is based on the parties' agreement that
the assets of the Company have the values set forth above.
3. REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE SHAREHOLDERS.
--------------------------------------------------------------
Company and the Shareholders jointly and severally represent and
warrant to Buyer that:
3.1 Corporate Status. The Company is a corporation duly
----------------
organized, validly existing and in good standing under the laws of the State of
California, has all requisite power and authority to own, hold, lease or operate
its properties and assets and to carry on its business as it is now being
conducted and to enter into this Agreement, and is duly qualified and in good
standing in each jurisdiction in which the nature of its properties, assets or
business requires such qualification. The Company has no subsidiaries or direct
or indirect interest (by way of stock ownership or otherwise) in any firm,
corporation, partnership, association or other business.
3.2 Stock of Company. The authorized capital stock of the
----------------
Company consists of 1,000,000 shares of common capital no par stock. The
Company has outstanding 498,000 shares
3
<PAGE>
which are duly authorized, validly issued, fully paid and nonassessable.
Shareholder is the legal and beneficial owner of all the issued and outstanding
stock of the Company and no other party has any right to assert an interest,
inchoate or otherwise, in any shares of capital stock of the Company or in the
ownership of the Company and there are no outstanding preemptive rights, rights
of first refusal or similar rights relating to the capital stock of the Company.
3.3 Authorization. Upon execution, this Agreement shall
-------------
constitute a legal and valid obligation of Company and Shareholders enforceable
against them in accordance with its terms except insofar as enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
the rights of creditors generally. No authorization or approval of or exemption
of or filing or registration with any court, governmental agency, commission,
board, bureau, instrumentality of government, or any party to any contract,
agreement, lease, or other agreement or instrument to which Company or
Shareholders are bound or by which any of their properties, assets or rights are
bound or affected or any private regulatory body is necessary to authorize the
execution or consummation of this Agreement by Company or Shareholders. All
corporate or other acts and proceedings required for the authorization,
execution and delivery of this Agreement have been lawfully and validly taken or
will have been so taken prior to the Closing.
4
<PAGE>
3.4 Marketable Title. The Company has good and marketable title
----------------
to Assets, free and clear of any imperfection of title, security interest, lien,
claim or encumbrance of any kind. All tangible personal property included in the
Assets owned, leased or used by the Company is in good working condition, normal
wear and tear excepted.
3.5 Insolvency. Neither the Company nor Shareholder is
----------
insolvent or bankrupt and there is no pending or threatened insolvency or
bankruptcy proceeding of any kind affecting the Company or Shareholder or any of
their assets, properties or business.
3.6 Trademarks and other Intangibles. Neither Shareholders nor
--------------------------------
the Company is aware of any impediment to the Company's rights to use such
patents, trademarks, service marks, copyrights, licenses and other intangible
rights or properties used in connection with the Assets. Company has not
infringed, is not infringing, and has not received any notice of infringement of
patents, trademarks or other intangible properties of others except as to the
Domain name, which claim has been abandoned. To the best of Company's
knowledge, no person or entity is infringing any trademarks or other intangible
properties of Company.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
Buyer represents and warrants that:
4.1 Corporate Status. Buyer is a corporation duly organized,
----------------
validly existing and in good standing under the
5
<PAGE>
laws of the State of California, and has full corporate powers and authority to
own its assets and to carry on its business as heretofore conducted.
4.2 Authorization. The execution and delivery of this Agreement
-------------
on behalf of Buyer have been fully authorized and approved by all requisite
corporate action and the Agreement shall constitute a legal and valid obligation
of Buyer enforceable against it in accordance with its terms except insofar as
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally. No approval of any
court or governmental agency is necessary to authorize the execution or
consummation of this Agreement by Buyer.
4.3 Other Instruments. Neither the execution nor the
-----------------
consummation of this Agreement constitutes a breach (with or without notice or
lapse of time) of any term or provision of the Articles of Incorporation or By-
Laws of Buyer or of any contract or commitment to which Buyer is a party or by
which Buyer or its properties or assets are bound or does or will result in the
creation or imposition of any lien, encumbrance, charge, equity or restriction
of any nature whatsoever in favor of any third party upon any assets of Buyer.
4.4 Full Disclosure. No representation or warranty made by
---------------
Buyer and no certificate or document furnished or to be furnished to Sellers
pursuant to this Agreement contains or will contain any untrue statement of a
material fact, or omits
6
<PAGE>
or will omit to state a material fact necessary to make the statements contained
herein or therein in light of the circumstances under which they are made, not
misleading.
4.5 Insolvency. Buyer is not insolvent or bankrupt and there is
----------
no pending or threatened insolvency or bankruptcy proceeding of any kind
affecting Buyer or any of its assets, properties, or business.
4.6 Survival. Each representation and warranty of Buyer shall
--------
be true as of the date of this Agreement and at Closing and shall survive the
Closing.
5. CLOSING.
-------
"Closing" shall mean the consummation of the transactions contemplated
by this Agreement and shall occur on the Closing Date.
5.1 Time and Place. The Closing hereunder shall take place at
--------------
the offices of Company on or before ____________, 1997, at __ .m. or at such
other time and place as may be mutually agreed upon in writing between the
parties ("Closing Date").
5.2 Postponement. Either Buyer or Company may postpone the
------------
Closing Date for a reasonable period if necessary to enable the performance of
any obligations hereunder.
6. MISCELLANEOUS.
-------------
6.1 Notices. Any and all notices, demands or other
-------
communications required or desired to be given hereunder by any party shall be
in writing and shall be validly given or made
7
<PAGE>
to another party if given by personal delivery, telex, facsimile, telegram or if
deposited in the United States mail, certified or registered, postage prepaid,
return receipt requested. If such notice, demand or other communication be given
by personal delivery, telex, facsimile, telegram, service shall be conclusively
deemed made at the time of receipt. If such notice, demand or other
communication be given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
If to Company: __________________________
__________________________
__________________________
_________
If to Shareholder: __________________________
__________________________
__________________________
If to Buyer: __________________________
__________________________
__________________________
_________
Any party hereto may change its address for the purpose of receiving notices,
demands and other communications as herein provided by a written notice given in
the manner aforesaid to the other party or parties hereto.
6.2 Modifications or Amendments. No amendment, change or
---------------------------
modification of this document shall be valid unless in writing and signed by all
of the parties hereto.
8
<PAGE>
6.3 Waiver. No reliance upon or waiver of one or more
------
provisions of this Agreement shall constitute a waiver of any other provisions
hereof.
6.4 Successors and Assigns. All of the terms and provisions
----------------------
contained herein shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, personal representatives, successors
and assigns.
6.5 Separate Counterparts. This document may be executed in one
---------------------
or more separate counterparts, each of which, when so executed, shall be deemed
to be an original. Such counterparts shall, together, constitute and shall be
one and the same instrument.
6.6 Captions. The captions appearing at the commencement of the
--------
paragraphs hereof are descriptive only and are for convenience in reference.
Should there be any conflict between any such caption and the paragraph at the
head of which it appears, the paragraph and not such caption shall control and
govern in the construction of this document.
6.7 Further Assurances. Each of the parties hereto shall
------------------
execute and deliver any and all additional papers, documents, and other
assurances, and shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and to carry out
the intent of the parties hereto.
6.8 Applicable Law and Severability. This document shall, in
-------------------------------
all respects, be governed by the laws of the
9
<PAGE>
State of California applicable to agreements executed and to be wholly performed
within the State of California. Nothing contained herein shall be construed so
as to require the commission of any act contrary to law, and wherever there is
any conflict between any provision contained herein and any present or future
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail but the provision of this
document which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law.
6.9 Enforceability. It is agreed that the rights granted to the
--------------
parties hereunder are of a special and unique kind and character and that, if
there is a breach by any party of any material provision of this document, the
other party or parties would not have any adequate remedy at law. It is
expressly agreed, therefore, that the rights of the parties hereunder may be
enforced by an action for specific performance and such other equitable relief
as is provided under the laws of the State of California.
6.10 Resolution of Disputes. Any and all disputes hereunder
----------------------
shall be resolved by reference or arbitration. Any party hereto electing to
commence an action shall give written notice to the other parties hereto of such
election. Thereupon, if reference is elected by the party commencing the
action, the claim ("Reference Matter") shall be settled by reference in
accordance with the provisions of California Code of Civil
10
<PAGE>
Procedure Sections 638 et seq. The parties shall agree on the referee within the
ten (10) day interval following the service of such written notice. In the
absence of such agreement, either party may apply to the Presiding Judge of the
Los Angeles County Superior Court for the appointment of the referee who shall
be a retired judge of the California Superior Court. If arbitration is selected
by the party commencing the action, the claim ("Arbitration Matter") shall be
settled by arbitration in accordance with the then rules of the American
Arbitration Association ("AAA"), provided, however, that the AAA shall be
directed by the parties to appoint or designate a single arbitrator who is a
retired judge of the Superior Court of the State of California. The referee or
arbitrator shall diligently pursue determination of any Reference or Arbitration
Matter under consideration and shall render his decision within one hundred
twenty (120) days after the referee or arbitrator is selected. The award of such
arbitrator may be confirmed or enforced in any court of competent jurisdiction.
The costs and expenses of the referee or arbitrator, including the attorneys'
fees and costs of each of the parties, [shall be apportioned between the parties
by such referee or arbitrator's, as the case may be, based upon such referee's
or arbitrator's determination of the merits of their respective positions.] With
respect to such reference, the parties shall have all rights of discovery
available pursuant to the California Code of Civil Procedure, and they hereby
11
<PAGE>
incorporate the provisions of California Code of Civil Procedure Section 1283.05
into this Agreement.
6.11 Attorney's Fees and Costs. In the event any action or
-------------------------
arbitration is instituted by a party hereto to enforce any of the terms or
provisions hereof, the prevailing party in such action or arbitration shall be
entitled to such reasonable attorneys' fees, costs and expenses (including the
costs of the arbitrator) as may be fixed by the Court or arbitrator.
6.12 Entire Agreement. This document, together with any related
----------------
documents referred to in this Agreement, constitutes the entire understanding
and agreement of the parties with respect to the subject matter of this
Agreement, and any and all prior agreements, understandings or representations
are hereby terminated and canceled in their entirety.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
CYBER DEPOT, Inc., a SHOPPERS SOURCE, a
California corporation California corporation
By /s/ ROBERT J. McNULTY By /s/ ROBERT J. McNULTY
-------------------------- ------------------------------
"Company" "Buyer"
ROBERT J. McNULTY
By /s/ ROBERT J. McNULTY
------------------------------
"Shareholder"
12
<PAGE>
EXHIBIT 10.07
OFFICE LEASE
LANDLORD: ARAI CORPORATION OF AMERICA,
A DELAWARE CORPORATION
TENANT: THE SHOPPERS' SOURCE,
A CALIFORNIA CORPORATION
DATE: FEBRUARY 6, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - PREMISES......................................................... 1
1.1 Lease of Premises...................................................... 1
1.2 Rentable Area.......................................................... 1
ARTICLE II - TERM............................................................ 1
2.1 Effective Date......................................................... 1
2.2 Term of Lease.......................................................... 1
2.3 Commencement Date...................................................... 2
2.4 Delivery of Premises................................................... 2
2.5 Early Entry Into Premises.............................................. 2
2.6 Notice of Commencement Date............................................ 2
ARTICLE III - RENT AND ADJUSTMENTS TO RENT................................... 2
3.1 Payment of Rent........................................................ 2
3.2 Abatement of Basic Rent................................................ 3
3.3 Definition of Rent..................................................... 3
3.4 Late Charge............................................................ 3
3.5 Acceleration of Rent Payments.......................................... 3
3.6 Disputes as to Payments of Rent........................................ 3
3.7 Operating Expense Adjustments.......................................... 4
3.8 Procedure for Payment of Operating Expense Adjustments................. 4
3.9 Certain Defined Terms.................................................. 5
3.10 Exclusion From Operating Expenses...................................... 7
3.11 Review of Operating Expenses........................................... 8
3.12 Rent Control........................................................... 8
3.13 Governmental Assessments............................................... 9
ARTICLE IV - USE............................................................. 9
4.1 Permitted Use.......................................................... 9
4.2 Restriction on Use..................................................... 9
4.3 Compliance by Other Tenants............................................ 9
ARTICLE V - IMPROVEMENTS/ALTERATIONS......................................... 10
5.1 Tenant's Rights to Make Alterations.................................... 10
5.2 Installation of Alterations............................................ 10
ARTICLE VI - INDEMNIFICATION AND INSURANCE................................... 11
6.1 Indemnification and Waiver............................................. 11
6.2 Tenant's Insurance..................................................... 12
6.3 Waiver of Subrogation.................................................. 13
ARTICLE VII - ASSIGNMENT AND SUBLETTING...................................... 13
7.1 Right to Assign, and Sublease and Encumber............................. 13
7.2 Procedure for Assignment and Sublease/Landlord's Recapture Rights...... 14
7.3 Conditions Regarding Consent to Sublease and Assignment................ 14
7.4 Intentionally Omitted.................................................. 14
7.5 Affiliated Companies/Restructuring of Business Organization............ 15
7.6 Landlord's Right to Assign............................................. 15
ARTICLE VIII- DAMAGE OR DESTRUCTION.......................................... 15
8.1 Loss Covered By Insurance.............................................. 15
8.2 Loss Not Covered By Insurance.......................................... 15
8.3 Destruction During Final Year.......................................... 16
8.4 Destruction of Tenant's Personal Property, Tenant Improvements or
Property of Tenant's Employees......................................... 16
8.5 Exclusive Remedy....................................................... 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX - CONDEMNATION.................................................... 16
9.1 Permanent Taking - When Lease Can Be Terminated........................ 16
9.2 Permanent Taking - When Lease Cannot Be Terminated..................... 17
9.3 Temporary Taking....................................................... 17
9.4 Exclusive Remedy....................................................... 17
9.5 Release Upon Termination............................................... 17
ARTICLE X - DEFAULTS/REMEDIES................................................ 17
10.1 Events of Default...................................................... 17
10.2 Remedies Upon Default.................................................. 17
10.3 Assignment of Rents.................................................... 18
10.4 Waiver of Default...................................................... 19
10.5 Bankruptcy............................................................. 19
ARTICLE XI - DEFAULT BY LANDLORD............................................. 19
ARTICLE XII - SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE.................. 19
12.1 Subordination Attornment and Non-Disturbance........................... 19
12.2 Landlord's Right to Assign............................................. 20
12.3 Non-Disturbance........................................................ 20
12.4 Attorney-In-Fact....................................................... 20
ARTICLE XIII - ESTOPPEL CERTIFICATES......................................... 20
ARTICLE XIV - ENTRY BY LANDLORD.............................................. 21
ARTICLE XV - TENANT'S AND LANDLORD'S REPAIR OBLIGATIONS...................... 21
15.1 Tenant's Repair........................................................ 21
15.2 Landlord's Repair...................................................... 21
ARTICLE XVI - SURRENDER OF PREMISES.......................................... 22
16.1 Surrender of Premises.................................................. 22
16.2 Removal of Tenant Property by Tenant................................... 22
16.3 Property Rights........................................................ 22
ARTICLE XVII - ARBITRATION................................................... 22
17.1 Arbitration............................................................ 22
17.2 Payment of Expenses.................................................... 23
ARTICLE XVIII - SECURITY DEPOSIT............................................. 23
ARTICLE XIX - NO LIENS BY TENANT............................................. 24
ARTICLE XX - SERVICES........................................................ 24
20.1 Heating, Ventilating or Air-Conditioning............................... 24
20.2 Cleaning............................................................... 24
20.3 Additional Services.................................................... 25
20.4 Landlord's Right to Cease Providing Services........................... 25
ARTICLE XXI - SECURITY SERVICES.............................................. 25
21.1 Landlord's Obligation to Furnish Security Services..................... 25
21.2 Tenant's Right to Install Security System.............................. 25
ARTICLE XXII - SUBSTITUTED PREMISES.......................................... 26
ARTICLE XXIII - RULES AND REGULATIONS........................................ 26
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE XXIV - HOLDING OVER.................................................. 26
24.1 Surrender of Possession............................................... 26
24.2 Payment of Money After Termination.................................... 27
ARTICLE XXV - WAIVER......................................................... 27
ARTICLE XXVI - RIGHT TO PERFORMANCE.......................................... 27
ARTICLE XXVII - PARKING...................................................... 28
ARTICLE XXVIII - MUST TAKE SPACE............................................. 29
28.1 Must-Take Commencement Date........................................... 29
28.2 Base Rent and Additional Rent......................................... 29
ARTICLE XXIX - QUIET ENJOYMENT............................................... 29
ARTICLE XXX - NOTICES........................................................ 29
ARTICLE XXXI - BROKER........................................................ 30
ARTICLE XXXII - INTENTIONALLY OMITTED........................................ 30
ARTICLE XXXIII - MISCELLANEOUS............................................... 30
33.1 Severability.......................................................... 30
33.2 Entire Agreement...................................................... 30
33.3 Cumulative Rights..................................................... 30
33.4 Relationship of Parties............................................... 30
33.5 Successors............................................................ 30
33.6 Captions.............................................................. 30
33.7 Authority............................................................. 31
33.8 Industry Class........................................................ 31
33.9 Attorneys' Fees....................................................... 31
33.10 Governing Law......................................................... 31
33.11 Modification for Lender............................................... 31
33.12 No Recordation........................................................ 31
33.13 Confidentiality....................................................... 31
33.14 Hazardous Materials................................................... 31
EXHIBITS
EXHIBIT "A" - PREMISES....................................................... 34
EXHIBIT "B" - CONSTRUCTION AGREEMENT......................................... 35
EXHIBIT "C" - NOTICE OF LEASE TERM DATES..................................... 36
EXHIBIT "D" - RULES AND REGULATIONS.......................................... 38
EXHIBIT "E" - INSURANCE REQUIREMENTS......................................... 41
EXHIBIT "F" - CONFIRMATION REAL ESTATE AGENCY................................ 42
EXHIBIT "G" - TENANT EMERGENCY DIRECTIVE..................................... 43
EXHIBIT "H" - OPTION TO EXTEND TERM.......................................... 44
</TABLE>
<PAGE>
FUNDAMENTAL LEASE PROVISIONS
The following fundamental lease provisions are incorporated into the
Lease attached hereto and said provisions shall have the following meanings
throughout the Lease.
<TABLE>
<C> <S>
a. LANDLORD: Arai Corporation of America, Inc.,
a Delaware Corporation
b. LANDLORD'S PROPERTY Investment Development Services, Inc.,
MANAGEMENT AGENT: a California Corporation
c. TENANT: The Shoppers' Source,
a California Corporation
d. BUILDING: 2101 East Coast Highway
Newport Beach, California 92625
e. PREMISES: Approximately 8,881 rentable square feet
("RSF") located on the second floor(s),
as shown cross-hatched on Exhibit "A"
attached hereto and to be commonly known
as the Garden Level.
f. USABLE AREA OF PREMISES: 8,599 usable square feet ("USF")
g. RENTABLE AREA OF THE BUILDING: Approximately 46,939 RSF
h. SCHEDULED ANTICIPATED
COMMENCEMENT DATE: March 1, 1997
i. TERM: Five (5) years and zero (0) months
j. COMMENCEMENT DATE: See Section 2.3
k. EXPIRATION DATE: February 28, 2002
l. BASIC RENT: Free Rent Month 1
$8,881.00 Months 2 through 12
$10,140.90 Months 13 through 24
$10,623.80 Months 25 through 36
$11,106.70 Months 37 through 48
$11,589.60 Months 49 through 60
m. ABATEMENT OF BASIC RENT: One (1) month
n. BASE YEAR: 1997
o. TENANT'S PRO RATA SHARE: 18.92%
Effective March 1, 1998 - 20.58%
p. SECURITY DEPOSIT: $8,881.00
q. TENANT IMPROVEMENTS: See Exhibit "B"
r. USE: General business office use only, subject
to the restrictions set forth in
Article IV.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
s. TENANT'S ADDRESS FOR NOTICES: Until Tenant commences business operations
from the Premises:
The Shoppers' Source
3300 Irvine Avenue, Suite 374
Newport Beach, CA 92660
Attn: Bob McNulty
THEREAFTER: The Shoppers' Source.
2101 East Coast Highway, Garden Level
Corona del Mar, CA 92625
Attn: Bob McNulty
t. LANDLORD'S ADDRESS FOR NOTICES: Arai Corporation of America, Inc.
c/o Investment Development Services, Inc.
2915 Redhill Avenue, Suite A21OB
Costa Mesa, CA 92626
Attn: Real Estate Manager
COPY TO: Pillsbury, Madison & Sutro
725 S. Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attn: Jackie Parks
u. BROKER(S): Landlord's Broker:
Investment Development Services, Inc.
Tenant's Broker:
Hughes Realty
v. PARKING PRIVILEGES: Forty (40) unreserved spaces
w. DATE OF LEASE: February 6, 1997 (for reference purposes only).
</TABLE>
<PAGE>
LEASE AGREEMENT
This LEASE AGREEMENT ("Lease"), dated for reference purposes only as
of the date set forth in provision (w) of the Fundamental Lease Provisions, is
made and entered into by and between Arai Corporation of America, Inc., a
---------------------------------
Delaware Corporation ("Landlord"), and The Shoppers' Source, a California
- -------------------- -------------------- ----------
Corporation ("Tenant"), who agree generally as follows:
- -----------
ARTICLE I
---------
PREMISES
--------
1.1 LEASE OF PREMISES. Landlord leases to Tenant, and Tenant leases from
-----------------
Landlord, the Premises described in provision (e) of the Fundamental Lease
Provisions. The Building, the Parking Facility (as hereinafter defined in
Article XXVII) and the land upon which the Building is located are herein
sometimes collectively referred to as the "Real Property." Tenant is hereby
granted the right to the non-exclusive use of the common corridors and hallways,
stairwells, elevators, restrooms and other public or common areas located on the
Real Property; provided, however, that the manner in which such public and
common areas are maintained and operated shall be at the sole discretion of
Landlord and the use thereof shall be subject to the restrictions of Article IV
and to the Rules and Regulations attached hereto as Exhibit "D." Landlord
reserves the right to make alterations or additions to or to change the location
of elements of the Real Property and the common areas thereof and the right to
use any portion of the common areas for filming purposes. In addition to the
foregoing, Landlord shall have the right to add additional eating or conference
facilities in the Building and/or to eliminate any eating or conference
facilities in the Building in Landlord's sole and absolute discretion.
1.2 RENTABLE AREA. Landlord and Tenant hereby agree that (a) the Premises
-------------
and the Building consist of the rentable area set forth in provisions (e) and
(g), respectively, of the Fundamental Lease Provisions, and (b) the Premises
consists of the usable area set forth in provision (f) of the Fundamental Lease
Provisions. The parties hereto acknowledge that prior to the execution of this
Lease, Landlord and Tenant have measured the Premises and hereby stipulate that
the Premises contains approximately 8,599 USF and 8,881 RSF.
----- -----
ARTICLE II
----------
TERM
----
2.1 EFFECTIVE DATE. The Lease will become effective when signed and
--------------
delivered by Landlord and Tenant.
2.2 TERM OF LEASE. The term of the Lease ("Term") shall be for the term
-------------
set forth in provision (i) of the Fundamental Lease Provisions beginning on the
Commencement Date, as such term is defined below, and, unless sooner terminated
as hereinafter provided, ending on the Expiration Date specified in provision
(k) of the Fundamental Lease Provisions.
<PAGE>
2.3 COMMENCEMENT DATE. The Term of this Lease and Tenant's obligation to
-----------------
pay Rent, as such term is defined below, shall commence on the earliest of: (a)
the date that the Tenant Improvements are substantially completed and the
Premises are Ready For Occupancy; or (b) the date the Tenant Improvements would
have been substantially completed and the Premises would have been Ready For
Occupancy except for Tenant Delays; or (c) the date that Tenant, or any person
occupying any of the Premises with Tenant's permission, commences business
operations from the Premises ("Commencement Date"). The terms "Tenant
Improvements," "Ready for Occupancy" and "Tenant Delays" are defined in the
Construction Agreement attached hereto as Exhibit "B" and made a part hereof.
2.4 DELIVERY OF PREMISES. The Premises will be delivered to Tenant when
--------------------
the Tenant Improvements have been constructed and the Premises are Ready For
Occupancy. Delay of the Commencement Date to the extent not attributable to
Tenant Delays shall be Tenant's sole remedy for any delay in constructing the
Tenant Improvements or making the Premises Ready For Occupancy. Tenant
understands that it is in Landlord's best economic interests to have the Tenant
Improvements completed as soon as reasonably possible in order to have the
Commencement Date occur as early as possible, and Tenant understands that to the
extent that the Tenant Improvements are not completed because of Tenant Delays,
the Commencement Date will nevertheless occur on the date the Tenant
Improvements would have been completed except for Tenant Delays.
2.5 EARLY ENTRY INTO PREMISES. Tenant may enter into the Premises upon
-------------------------
receipt of Landlord's consent, for the purpose of installing furniture, special
flooring or carpeting, trade fixtures, telephones, computers, photocopy
equipment, and other business equipment. Such early entry will not advance the
Commencement Date, provided (a) Tenant does not commence business operations
from any part of the Premises, and (b) Tenant's early entry does not interfere
with, or delay, the completion of the Tenant Improvements. If Tenant is allowed
early entry, Landlord shall not be responsible for, and Tenant is required to
obtain insurance covering, any loss, including theft, damage or destruction to
any work or material installed or stored by Tenant or Landlord, or any
contractor or individual involved in the completion of the Tenant Improvements,
or for any injury to Tenant or Tenant's employees, agents, contractors,
licensees, directors, officer, partners, trustees, visitors or invitees
(collectively, "Tenant's Employees") or to any other person. Landlord shall have
the right to post the appropriate notices of non-responsibility and to require
Tenant to provide Landlord with evidence that Tenant has fulfilled its
obligation to provide insurance pursuant to this Lease. To the extent any such
early entry actually delays the making of the Premises Ready For Occupancy, such
delay, but only to the extent that such early entry actually delays the
completion of the Tenant Improvements, shall constitute a Tenant Delay.
2.6 NOTICE OF COMMENCEMENT DATE. Landlord may send Tenant notice of the
---------------------------
occurrence of the Commencement Date in the form of the attached Exhibit "C",
which notice Tenant shall acknowledge by executing a copy of the notice and
returning it to Landlord. If Tenant fails to sign and return the notice to
Landlord within ten (10) days of receipt of the notice from Landlord, the notice
as sent by Landlord shall be deemed to have correctly set forth the Commencement
Date. Failure of Landlord to send such notice shall have no effect on the
Commencement Date.
ARTICLE III
-----------
RENT AND ADJUSTMENTS TO RENT
----------------------------
3.1 PAYMENT OF RENT. Tenant agrees to pay Landlord, as rent ("Basic Rent")
---------------
for the Premises, the Basic Rent specified in provision (1) of the Fundamental
Lease Provisions. Such Basic Rent shall be paid monthly in advance beginning on
the Commencement Date and on or before the first day of each calendar month
thereafter during the entire Term in the amount specified in provision (i) of
the Fundamental Lease Provisions. In addition to the payment of Basic Rent,
Tenant shall also pay all Operating Expense Adjustments computed pursuant to
Section 3.7 of the Lease. Concurrently with the execution of this Lease, Tenant
shall pay to Landlord the Basic Rent payable hereunder for the first full
calendar month of the Term after the Commencement Date.
2
<PAGE>
3.2 ABATEMENT OF BASIC RENT. Provided Tenant shall faithfully perform all
-----------------------
of the terms and conditions of this Lease, Landlord shall abate Tenant's
obligation to pay Basic Rent for the number of months set forth in provision (m)
of the Fundamental Lease Provisions following the Commencement Date. In the
event of a default by Tenant under the terms of this Lease which results in
either the early termination of this Lease and/or Tenant vacating and/or being
evicted from the Premises, then as part of the recovery permitted Landlord
under this Lease, Landlord shall be entitled to a recovery of the Basic Rent
which was abated under the provisions of this Section 3.2; i.e., such Basic Rent
shall not be deemed to have been forgiven or abated, but shall become
immediately due and payable as unpaid Rent which had been earned at the date of
default.
3.3 DEFINITION OF RENT. Any and all payments of Basic Rent and any and all
------------------
taxes, fees, charges, costs, expenses, insurance obligations, late charges,
assessments, Operating Expense Adjustments, and all other payments,
disbursements or reimbursements (collectively, "Rent") which are attributable
to, payable by or the responsibility of Tenant under this Lease, constitute
"rent" within the meaning of California Civil Code Section 1951(a). Any Rent
payable to Landlord by Tenant for any fractional month shall be prorated based
on the actual number of days in the applicable month. All payments owed by
Tenant under this Lease shall be paid to Landlord in lawful money of the United
States of America at the location specified by Landlord pursuant to Article XXX
of the Lease. All payments of Rent shall be paid by Tenant by check drawn on a
bank that is a member of a National Association Bank. All payments shall be made
without deduction, offset or counterclaim.
3.4 LATE CHARGE. Tenant acknowledges that the late payment of Rent will
-----------
cause Landlord to incur damages, including administrative costs, loss of use of
the overdue finds and other costs, the exact amount of which would be
impractical and extremely difficult to fix. Landlord and Tenant agree that if
Landlord does not receive a payment of Rent on or before the date that such
payment is due, Tenant shall pay to Landlord a hate charge equal to five percent
(5%) of the overdue amount and the overdue amount shall bear interest at the
Interest Rate (as such term is defined below), from the date payment of such
amount was due until Landlord receives the overdue payment. Acceptance of the
late charge by Landlord shall not cure or waive Tenant's default, nor prevent
Landlord from exercising, before or after such acceptance, any of the rights and
remedies for a default provided by this Lease or at law. Payment of the late
charge is not an alternative means of performance of Tenant's obligation to pay
Rent at the times specified in this Lease. Tenant will be liable for the late
charge regardless of whether Tenant's failure to pay the Rent when due
constitutes a default under the Lease and regardless of whether Landlord sent
Tenant an invoice for such Rent and/or late charge. The term "Interest Rate"
shall mean the lower of (a) the maximum interest rate permitted by law or (b)
two percent (2%) above the rate publicly announced from time to time by Bank of
America N.T. & S.A. (or if Bank of America N.T. & S.A. ceases to exist, then the
largest bank headquartered in the State of California) ("Bank") as its Reference
Rate. If the use of the announced Reference Rate is discontinued by the Bank,
then the reference to Reference Rate shall mean the announced rate charged by
the Bank which is from time to time substituted for such Reference Rate.
Whenever interest is required to be paid under this Lease, the interest shall be
calculated from the date the payment was due or should have been due if
correctly assessed or estimated (or any overcharge paid), until the date payment
is made or the refund is paid or is credited against rent next due.
3.5 ACCELERATION OF RENT PAYMENTS. In the event a late charge becomes
-----------------------------
payable pursuant to Section 3.4 of the Lease for three (3) installments of
Rent within a twelve (12) month period, the all subsequent Rent payments
shall immediately and automatically become payable by Tenant quarterly in
advance instead of monthly.
3.6 DISPUTES AS TO PAYMENTS OF RENT. Tenant agrees to pay the Rent
--------------------------------
required under this Lease within the time limits set forth in this Lease. If
Tenant receives from Landlord an invoice or statement, which invoice is sent by
Landlord in good faith, and Tenant in good faith disputes whether all or any
part of such Rent is due and owing, Tenant shall nevertheless pay to Landlord
the amount of the Rent indicated on the invoice or statement until Tenant
receives a final judgement from a court of competent jurisdiction (or when
arbitration is permitted or required, receives a final award from an
arbitrator) relieving or mitigating Tenant's obligation to
3
<PAGE>
pay such Rent. In such instance where Tenant disputes its obligations to pay all
or part of the Rent indicated on such invoice or statement, Tenant shall,
concurrently with the payment of such Rent, provide Landlord with a letter or
notice entitled "Payment Under Protest," specifying in detail why Tenant is not
required to pay all or part of such Rent. Tenant will be deemed to have waived
its right to contest any past payment of Rent unless it has filed a lawsuit
against Landlord (or when arbitration is permitted or required, filed for
arbitration and has served Landlord with notice of such filing), and has served
a summons on Landlord, within one (1) year of such payment. Until an event of
default by Tenant occurs, Landlord shall continue to provide the services and
utilities required by this Lease.
3.7 OPERATING EXPENSE ADJUSTMENTS. Beginning with the expiration of the
-----------------------------
Base Year set forth in provision (n) of the Fundamental Lease Provisions and
thereafter during the Term of this Lease, Tenant shall pay, in addition to the
Basic Rent computed and due pursuant to Section 3.1, an additional sum as an
operating expense adjustment ("Operating Expense Adjustment") equal to Tenant's
Pro Rata Share, as set forth in provision (o) of the Fundamental Lease
Provisions, of the excess of Operating Expenses (as hereinafter defined) for the
Master Premises over the total Operating Expenses for the Master Premises
incurred by Landlord during the Base Year ("Allowance") pursuant to the terms
and conditions of the Master Lease.
3.8 PROCEDURE FOR PAYMENT OF 0PERATING EXPENSE ADJUSTMENTS. Tenant shall
------------------------------------------------------
pay Tenant's Pro Rata Share of any excess Operating Expenses over the Allowance
as follows:
a. Landlord may, from time to time but not more than twice during
each calendar year by ten (10) days' notice to Tenant, reasonably estimate in
advance the amounts Tenant shall owe on a monthly basis for excess Operating
Expenses over the Allowance for any full or partial calendar year of the Term.
In such event, Tenant shall pay such estimated amounts, on a monthly basis, on
or before the first day of each calendar month, together with Tenant's payment
of Basic Rent. Such estimate may be reasonably adjusted from time to time by
Landlord by written notice to Tenant.
b. Within one hundred twenty (120) days after the end of each
calendar year after the Base Year, or as soon thereafter as reasonably
practicable, Landlord shall provide a statement (the "Statement") to Tenant
showing: (i) the amount of actual Operating Expenses for such calendar year,
(ii) any amount paid by Tenant toward excess Operating Expenses over the
Allowance during such calendar year on an estimated basis, and (iii) any revised
estimate of Tenant's obligations for excess Operating Expenses over the
Allowance for the current calendar year.
c. If the Statement shows that Tenant's estimated payments were
less than Tenant's actual obligations for excess Operating Expenses over the
Allowance for such year, Tenant shall pay the difference. If the Statement
shows an increase in Tenant's estimated payments for the current calendar year,
Tenant shall pay the difference between the new and former estimates, for the
period from January 1 of the current calendar year through the month in which
the Statement is sent. Tenant shall make such payments within thirty (30) days
after Landlord sends the Statement.
d. If the Statement shows that Tenant's estimated payments exceeded
Tenant's actual obligations for excess Operating Expenses over the Allowance,
Tenant shall receive a credit of such difference against payment(s) of Rent
next due. If the Term shall have expired and no further Rent shall be due,
Tenant shall receive a refund of such difference within thirty (30) days after
Landlord sends the Statement.
e. So long as Tenant's obligations hereunder are not materially
adversely affected, Landlord reserves the right to change, from time to time,
the manner or timing of the foregoing payments. No delay by Landlord in
providing the Statement (or separate statements) shall be deemed a default by
Landlord or a waiver of Landlord's right to require payment of Tenant's
obligations for actual or estimated excess Operating Expenses over the
Allowance.
4
<PAGE>
f. If Tenant's obligation to pay Operating Expense Adjustments
commences other than on January 1, or ends other than on December 31, Tenant's
obligation to pay estimated and actual amounts toward excess Operating Expenses
over the Allowance for such first or final calendar years shall be prorated to
reflect the portion of such years included within the period for which Tenant is
obligated to pay Operating Expense Adjustments. Such proration shall be made by
multiplying the total estimated or actual (as the case may be) excess Operating
Expenses over the Allowance for such calendar years by a fraction, the numerator
which shall be the number of days within the period for which Tenant is
obligated to pay Operating Expenses Adjustments during such calendar year, and
the denominator of which shall be the total number of days in such year.
3.9 CERTAIN DEFINED TERMS. "Tenant's Pro Rata Share" means the ratio, as
---------------------
determined from time to time, of the RSF of the Premises to the RSF of the
Building. Tenant's Pro Rata Share as of the Commencement Date is stipulated to
be the percentage set forth in provision (o) of the Fundamental Lease
Provisions. "Operating Expenses" are defined to be the sum of all costs,
expenses, and disbursements, of every kind and nature whatsoever, and the Taxes,
which shall become the obligation of Landlord in connection with the operation,
servicing, maintenance and repair of the Real Property including, but not
limited to, the following:
a. All costs for materials, utilities, goods and services (but
excluding all costs for materials, utilities, goods and services furnished by
Landlord which are not required to be furnished by Landlord, and which have
been directly paid for by Tenant or other tenants to Landlord);
b. All wages and benefits and costs of employees or independent
contractors or employees of independent contractors engaged in the operation,
maintenance and security of the Building;
e. All expenses for janitorial, maintenance, security and safety
services;
d. All repairs to, replacement of, and physical maintenance of the
Building, including the cost of all supplies, uniforms, equipment, tools and
materials;
e. Any license, permit and inspection fees required in connection
with the operation of the Building;
f. Any auditor's fees for accounting provided for the operation and
maintenance of the Building;
g. Any legal fees, costs and disbursements as would normally be
incurred in connection with the operation, maintenance and repair of the
Building;
h. All reasonable fees for management services provided by a
management company or by Landlord or an agent of Landlord;
i. The annual amortization of costs, including financing costs, if
any, incurred by Landlord after the issuance of the temporary certificate of
occupancy for the Building for any capital improvements installed or paid for by
Landlord and required by any new (or change in) laws, rules or regulations of
any governmental or quasi-governmental authority (collectively "Laws");
j. The annual amortization of costs, including financing costs, if
any, of any equipment, device or capital improvement purchased or incurred as a
labor-saving measure or to affect other economies in the operation or
maintenance of the Building (provided the annual amortized cost does not
exceed the higher of the actual cost savings realized or the cost savings
reasonably anticipated to be available, and such savings do not redound
primarily to the benefit of any particular tenant);
5
<PAGE>
k. The annual amortization of costs, if any, incurred after
completion of the Building for the replacement of (i) exterior perimeter window
draperies or blinds provided by Landlord and (ii) carpeting and wall coverings
in the public areas of the Buildings comprising the Building;
l. All insurance premiums and other charges (including the amount
of any deductible payable by Landlord with respect to damage or destruction to
all or any portion of the Building) incurred by Landlord with respect to
insuring the Real Property including, without limitation, the following to the
extent carried by Landlord: (i) fire and extended coverage insurance,
windstorm, hail and explosion; (ii) riot attending a strike, civil commotion,
aircraft, vehicle and smoke insurance; (iii) public liability, bodily injury and
property damage insurance; (iv) elevator insurance; (v) workers' compensation
insurance for the employees specified in Section 3.9(b) above; (vi) boiler and
machinery insurance, sprinkler leakage, water damage, property, burglary,
fidelity and pilferage insurance on equipment and materials; (vii) loss of rent,
rent abatement, rent continuation, business interruption insurance, and similar
types of insurance; and (viii) such other insurance as is customarily carried by
operators of other comparable first-class office buildings in Southern
California; provided, however, that in the event Landlord shall not carry a type
or amount of insurance during the Base Year but shall subsequently either obtain
an additional type of insurance or increase the amount of coverage of an
existing type of insurance, the Operating Expenses for the Base Year shall be
increased by an amount equal to the cost of (1) such additional insurance, or
(2) the increase in the amount of such existing type of insurance would have
been if Landlord had obtained such additional insurance or increase in the
amount of an existing type of insurance during the Base Year.
m. All actual taxes, assessments, levies, charges, water and sewer
charges, rapid transit and other similar or comparable governmental charges
(collectively "Taxes") levied or assessed on, imposed upon or attributable to
the calendar year in question (i) to the Building, and/or (ii) to the operation
of the Building, including but not limited to Taxes against the Building,
personal property taxes or assessments levied or assessed against the Building,
plus any tax measured by gross rentals received from the Building, together with
any costs incurred by Landlord, including attorneys' fees, in contesting any
such Taxes but excluding any net income, franchise, capital stock, estate or
inheritance taxes imposed by the State of California or the United States or by
their respective agencies, branches or departments; provided that, if at any
time during the Term there shall be levied, assessed or imposed on Landlord or
the Building by any governmental entity, any general or special, ad valorem or
specific excised capital levy or other Taxes on the payments received by
Landlord under this Lease or other leases affecting the Building and/or any
license fee, excise or franchise Taxes measured by or based, in whole or in
part, upon such payments, and/or transfer, transaction, or Taxes based directly
or indirectly upon the transaction represented by this Lease or other leases
affecting the Building, and/or any occupancy, use, per capita or other Taxes,
based directly or indirectly upon the use or occupancy of the Premises or the
Building, then all such Taxes shall be deemed to be included within the
definition of the term Taxes;
n. Minor capital improvements or expenditures where each such
improvement or acquisition costs less than Three Thousand Dollars ($3,000.00)
and the costs of capital tools not in excess of Ten Thousand Dollars ($10,000)
in any twelve (12) month period; and
o. Such other usual costs and expenses which are paid by other
landlords for the purpose of providing for the on-site operation, servicing,
maintenance and repair of first-class office buildings in Southern California.
If the Building does not have at least ninety-five percent (95%) of the
rentable area of the Building occupied during any calendar year period, then
the Operating Expenses for such period shall be deemed to be equal to the total
of (x) the Operating Expenses, other than Taxes, which would have become the
obligation of Landlord pursuant to the terms and conditions of the Master Lease
if ninety-five percent (95%) of the rentable area of the Building had been
occupied for the entirety of such Calendar year and (y) the actual Taxes as
defined above.
6
<PAGE>
3.10 EXCLUSION FROM OPERATING EXPENSES. Notwithstanding anything in the
---------------------------------
definition of Operating Expenses in the Lease to the contrary, Operating
Expenses shall not include the following, except to the extent specifically
permitted by a specific exception to the following:
(i) Any ground lease rental;
(ii) Costs of capital improvements, replacements or equipment
except as specifically set forth in the definition of Operating Expenses in
Section 3.9;
(iii) Rentals for items (except when needed in connection with
normal repairs and maintenance of permanent systems) which if purchased, rather
than rented, would constitute a capital improvement which is specifically
excluded in Subsection (ii) above (excluding, however, equipment not affixed to
the Building which is used in providing janitorial or similar services);
(iv) Costs incurred by Landlord for the repair of damage to the
Building, to the extent that Landlord is reimbursed by insurance proceeds;
(v) Costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant or other occupants
improvements made for tenants in the Building or incurred in renovating or
otherwise improving, decorating, painting or redecorating vacant space for
tenants of the Building;
(vi) Marketing costs including leasing commissions, attorneys'
fees in connection with the negotiation and preparation of letters, deal memos,
letters of intent, leases, subleases and/or assignments, space planning costs,
and other costs and expenses incurred in connection with lease, sublease and/or
assignment negotiations and transactions with present or prospective tenants or
other occupants of the Building;
(vii) Expenses in connection with services or other benefits which
are not offered to Tenant or for which Tenant is charged for directly but which
are provided to another tenant or occupant of the Building the cost of which is
included as Operating Expenses;
(viii) Costs incurred by Landlord due to the violation by Landlord
of the terms and conditions of any lease of space in the Building;
(ix) Interest, principal, points and fees on debts or
amortization on any mortgage or mortgages or any other debt instrument
encumbering the Building or the land on which the Building is situated;
(x) Except for making repairs or keeping permanent systems in
operation while repairs are being made, rentals and other related expenses
incurred in leasing air conditioning systems, elevators or other equipment
ordinarily considered to be of a capital nature, except equipment not affixed
to the Building which is used in providing janitorial or similar services;
(xi) Advertising and promotional expenditures;
(xii) Costs incurred in connection with upgrading the Building to
comply with disability, life, fire and safety codes in effect prior to the
issuance of the temporary certificate of occupancy for the Building;
(xiii) Tax penalties incurred as a result of Landlord's negligence,
inability or unwillingness to make payments when due;
(xiv) Costs arising from Landlord's charitable or political
contributions; and
(xv) Costs for acquisition of sculpture, paintings or other
objects of art.
7
<PAGE>
3.11 REVIEW OF OPERATING EXPENSES. Tenant shall have a period of three (3)
----------------------------
months following receipt of the Statement, within which to inspect through an
authorized employee, agent, or contractor of Tenant, at Landlord's office during
normal business hours, Landlord's books and records concerning Operating
Expenses for the preceding calendar year period in question. Such inspection
may only be done by an accounting firm which is generally considered to be one
of the ten largest accounting firms headquartered in the United States. If
Tenant shall not have availed itself of such inspection, Tenant shall be deemed
to have accepted as final and determinative the amounts shown on the Statement.
If Tenant shall have availed itself of its right to inspect the books and
records, and then disputes the accuracy of the information set forth in
Landlord's books and records with respect to the Statement, Tenant shall
nevertheless continue to pay the amounts as required by the provisions of this
Article III; provided however, that no later than six (6) months after receipt
of the Statement, Tenant must (or its right to contest such charges shall be
deemed waived) institute arbitration proceedings against Landlord in an
arbitration proceeding governed by the rules of the American Arbitration
Association to collect and recover any overpayments made by Tenant resulting
from errors in the books and records of Landlord; and provided further, that
Tenant shall, within ten (10) days of filing of the complaint, serve Landlord
with a copy of the complaint filed in any such proceeding. Tenant shall be
precluded from contesting Operating Expenses and Landlord's computations of the
amounts payable by Landlord or Tenant pursuant to this Article III, unless an
arbitration complaint is filed and served within such six (6) month period.
Should the arbitrator(s) in any such arbitration proceeding find errors in
excess of ten percent (10%) of the Statement, then Landlord shall be responsible
for all reasonable fees incurred by Tenant with respect to the arbitration
proceeding including reasonable legal or accounting fees. Should the
arbitrator(s) find errors of less than ten percent (10%) of the Statement, then
Tenant shall be responsible for all the reasonable fees incurred by Landlord
with respect to the arbitration proceeding. Should the arbitrator(s) find errors
of between four percent (4%) and ten percent (10%) of the Statement, then each
party shall be responsible for all fees incurred by it with respect to the
arbitration proceeding.
If Tenant institutes such arbitration procedures, then the arbitrator(s)
shall have the power to, and shall inquire into and determine, not only whether
or not Tenant was overcharged for any Operating Expenses, but whether or not
Tenant was undercharged for any excess Operating Expenses over the Allowance. At
the conclusion of the arbitration, the arbitrator(s) shall issue a ruling as to
what the excess Operating Expenses over the Allowance should have been had
Landlord strictly complied with the provisions of this Lease. If Landlord
overcharged Tenant for the excess Operating Expenses over the Allowance, the
amount of the overcharge shall be returned to Tenant within thirty (30) days
following the issuance of the arbitration ruling. If the arbitrator(s)
determine(s) that Tenant was undercharged for the excess Operating Expenses over
the Allowance, Tenant shall pay the amount of such undercharge to Landlord
within thirty (30) days following the issuance of the arbitration ruling.
3.12 RENT CONTROL. To the fullest extent permitted by law, Tenant waives
------------
the benefit of all existing and future rent control laws and similar
governmental rules and regulations, whether in time of war or not. If the Basic
Rent or any additional rent or any portion thereof shall be or become
uncollectable by virtue of any law, Tenant shall enter into such agreement or
agreements and take such other action (without additional expense to Tenant) as
Landlord may request, as may be legally permissible, to permit Landlord to
collect the maximum Basic Rent and additional rent which may, from time to time
during the continuance of such legal rent restrictions, be legally permissible,
but not in excess of the amounts of Basic Rent or additional rent which are
stipulated as payable under this Lease. Upon the termination of such legal rent
restriction, (a) the Basic Rent and additional rent, after such termination,
shall become payable under this Lease in the amount of the Basic Rent and
additional rent set forth in this Lease for the period following such
termination and (b) Tenant shall pay to Landlord, if legally permissible, an
amount equal to (i) the Basic Rent and additional rent which would have been
paid pursuant to this Lease but for such rent restriction, minus (ii) the Basic
Rent and additional rent paid by Tenant during the period that such rent
restriction was in effect.
8
<PAGE>
3.13 GOVERNMENTAL ASSESSMENTS. IN addition to the Basic Rent and Operating
------------------------
Expenses as set forth above, Tenant shall pay, prior to delinquency, (a) all
real property taxes, if any, and personal property taxes, charges, rates, duties
and license fees assessed against or levied upon (i) Tenant's occupancy of the
Premises, (ii) upon any Tenant Improvements (in excess of the valuation at which
tenant improvements conforming to Landlord's "Building standard" in other space
in the Building are assessed, which for purposes of this Section 3.13 shall be
deemed to equal Thirty and 00/100 Dollars ($30.00) per USF of the premises),
and (iii) trade fixtures, furnishings, equipment or other personal property
contained in the Premises (collectively, "Personal Property"), and (b) Tenant's
Pro Rata Share of any governmental fees or charges, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind
whatsoever attributable to the Building (collectively, "Assessments"). Landlord
shall apply the same "Building standard" to all tenants of the Building. Tenant
shall cause such Assessments upon the Personal Property to be billed separately
from the property of Landlord. Tenant hereby indemnifies and holds Landlord
harmless from and against the payment of all such Assessments.
ARTICLE IV
----------
USE
---
4.1 PERMITTED USE. The Premises shall be used only for the use specified
-------------
in provision (r) of the Fundamental Lease Provisions and for no other purpose.
4.2 RESTRICTION USE. Tenant shall not do or permit to be done in or about
---------------
the Building nor bring, keep or permit to be brought or kept therein, anything
which is prohibited by the Rules and Regulations attached to this Lease as
Exhibit "D" and made a part hereof or by any standard form fire insurance policy
or which will in any way increase the existing rate of, or affect, any fire or
other insurance upon the Building or its contents, or which will cause a weight
load or stress on the floor or any other portion of the Premises in excess of
the weight load or stress which the floor or other portion of the Premises is
designed to bear. Tenant shall not allow occupancy density of use of the
Premises which is greater than the average density of other tenants of the
Building. Tenant, at Tenant's sole cost, shall comply with all Laws affecting
the Premises, and the requirements of any Board of Fire Underwriters or other
similar body now or hereafter instituted, and shall also comply with any order,
directive or certificate of occupancy issued pursuant to any Laws, which affect
the condition, use or occupancy of the Premises, including, but not limited to,
any requirements of structural changes related to or affected by Tenant's acts,
occupancy or use of the Premises. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether or
not Landlord is a party to such action, shall be conclusive as between Landlord
and Tenant in establishing such violation. Tenant shall not use the Premises for
school or any educational purposes, medical or dental offices or the office of
other health care providers, restaurant or food service operations, radio,
television and/or other communication operations, for retail offices, for the
sale and/or storage of goods for sale, for manufacturing or assembly purposes,
for the performance of governmental or quasi-governmental services, or for any
other office purpose which is different from the office operations permitted by
Landlord of its other tenants in the Building. Tenant shall comply with all
recorded covenants, conditions and restrictions now or hereafter effecting the
Building. Tenant shall not use or allow another person or entity to use any part
of the Premises for the storage, use, treatment, manufacture or sale of
hazardous materials or substances as defined pursuant to any applicable federal,
state or local governmental or quasi-governmental law, ordinance, rule or
regulation.
4.3 COMPLIANCE BY OTHER TENANTS. Landlord shall not be liable to Tenant
---------------------------
for any other occupant's or tenant's failure to conduct itself in accordance
with the provisions of this Article IV, and Tenant shall not be released or
excused from the performance of any of its obligations under the Lease in the
event of any such failure.
9
<PAGE>
ARTICLE V
---------
IMPROVEMENTS/ALTERATIONS
------------------------
5.1 TENANT'S RIGHTS TO MAKE ALTERATIONS. Following the Commencement Date,
-----------------------------------
Tenant, at its sole cost and expense, shall have the right upon receipt of
Landlord's consent, to make alterations, additions, or improvements to the
Premises if such alterations, additions or improvements are made in accordance
with this Article V, are commercially reasonable, normal for general office use,
do not adversely affect the utility or value of the Premises or the Building for
future tenants, will not cause the Premises (or any other portion of the
Building) to not be in a rentable configuration, do not alter the exterior
appearance of the Building, are not of a structural nature, do not require
excessive removal expenses and are not otherwise prohibited under the Lease.
Such alterations, additions, and improvements to the Premises made by or for
Tenant following the Commencement Date are collectively called "Alterations."
All such Alterations shall be made in conformity with the requirements of
Section 5.2 below. Once the Alterations have been completed, such Alterations
shall thereafter be included in the designation of Tenant Improvements and shall
be treated as Tenant Improvements and shall remain part of the Building in
accordance with the provisions of Article XVI.
5.2 INSTALLATION OF ALTERATIONS. Any alterations installed by Tenant
---------------------------
during the Term shall be done in strict compliance with all of the following:
a. No such work shall proceed without Landlord's reasonable prior
approval of (i) Tenant's contractor(s); (ii) certificates of insurance from a
company or companies approved by Landlord, furnished to Landlord by Tenant's
contractor(s) and/or vendor(s), with the types and amounts of insurance more
particularly set forth on Exhibit "E", attached hereto and made a part hereof
(provided, however, nothing in this Section 5.2(a) shall release Tenant of its
other insurance obligations hereunder); and (iii) detailed plans and
specifications for such work;
b. All such work shall be done in a first-class workmanlike manner
and in conformity with a valid building permit and/or all other permits or
licenses when and where required, copies of which shall be furnished to Landlord
before the work is commenced, and any work not acceptable to any governmental
authority or agency having or exercising jurisdiction over such work, or not
reasonably satisfactory to Landlord, shall be promptly replaced and corrected at
Tenant's expense. Landlord's approval or consent to any such work shall not
impose any liability upon Landlord. No work shall proceed until and unless
Landlord has received at least ten (10) days notice that such work is to
commence;
c. Tenant shall immediately reimburse Landlord for any reasonable
expense incurred by Landlord in reviewing and approving the plans and
specifications for such work (which shall not exceed $1,000.00) or by reason of
any faulty work done by Tenant or Tenant's contractors, or by reason of delays
caused by such work, or by reason of inadequate cleanup, or which is otherwise
incurred by Landlord to review the plans and specifications, and monitor and
inspect the progress of such work;
d. Tenant or its contractors will in no event be allowed to make
(i) any improvements to the Premises which could possibly affect any of the
Building systems or (ii) any structural modification to the Building without
first obtaining Landlord's consent, which Landlord can withhold in its sole and
absolute discretion;
e. All work by Tenant shall be scheduled through Landlord and shall
be diligently and continuously pursued from the date of its commencement
through its completion; and
f. Tenant shall obtain any bonds required by Landlord pursuant to
Article XIX of the Lease.
10
<PAGE>
ARTICLE VI
----------
INDEMNIFICATION AND INSURANCE
-----------------------------
6.1 INDEMNIFICATION AND WAIVER. Landlord shall not be liable for and
--------------------------
Tenant hereby waives all claims against Landlord for damage to any property or
injury, illness or death of any person in, upon, or about the Premises arising
at any time and from any cause whatsoever other than damages proximately caused
by reason of the gross negligence or willful misconduct of Landlord or its
agents and employees. Tenant shall indemnify, defend, and protect Master
Landlord and Landlord, their successors and assigns, and their respective
officers, directors, shareholders, partners and employees (collectively the
"Indemnified Parties") and hold the Indemnified Parties harmless from any and
all losses, costs, damages, expenses and liabilities (including without
limitation court costs and reasonable attorneys' fees) incurred in connection
with or arising from any cause in the use or occupancy of the Premises during
the Term of this Lease, including, without limiting the generality of the
foregoing: (a) any default by Tenant in the observance or performance of any of
the terms, covenants or conditions of this Lease on Tenant's part to be observed
or performed; (b) the use or occupancy of the Premises by Tenant or any person
claiming by, through or under Tenant; (c) the condition of the Premises or any
occurrence or happening on the Premises from any cause whatsoever; or (d) any
acts, omissions or negligence of Tenant or any person claiming by, through or
under Tenant or Tenant's Employees or any such person, in, on or about the
Premises either prior to, during, or after the expiration of the Lease Term,
including, without limitation, any acts, omissions or negligence in the making
or performance of any alterations, provided, however, that the foregoing
indemnification shall not apply to damages proximately caused by reason of the
negligence or willful misconduct of any of the Indemnified Parties. The
provisions of this Section 6.1 shall survive the expiration or sooner
termination of this Lease, subject to applicable statutes of limitation.
6.2 TENANT'S INSURANCE. Tenant shall have the following insurance
------------------
obligations:
a. LIABILITY INSURANCE. Tenant shall obtain and keep in full force a
-------------------
policy of commercial general liability covering bodily injury and property
damage liability. Such commercial general liability shall include personal
injury liability, broad form contractual liability, broad form property damage
and fire legal liability. In addition to the foregoing, Tenant shall carry
automobile liability insurance including hired/non-owned automobile liability.
All policies shall show Tenant as a named insured and shall show Landlord,
Landlord's agent, Master Landlord and any lessors, mortgagees and assignees
(whose names shall have been furnished to Tenant) named as additional insureds
and under which the insurer agrees to indemnify and hold Landlord, its managing
agent, Master Landlord and all applicable lessors, mortgagees and assignees
harmless from and against all cost, expense and/or liability arising out of or
based upon the indemnification obligations of this Lease. The minimum limits of
liability shall be a combined single limit with respect to each occurrence of
not less than Two Million Dollars ($2,000,000.00). The policy shall contain a
cross liability endorsement and shall be primary coverage for Tenant and
Landlord for any liability arising out of Tenant's and Tenant's Employees' use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall provide that it is primary insurance and not "excess over" or
contributory to any insurance maintained by Landlord. The policy shall contain a
severability of interest clause. Not more frequently than once each year, if, in
the opinion of Master Landlord, Landlord's lender or of the insurance consultant
retained by Landlord, the amount of public liability and property damage
insurance coverage at that time is not adequate, Tenant shall increase the
insurance coverage as required by Master Landlord, Landlord's lender or
Landlord's insurance consultant; provided however, that in no event shall any
such insurance coverage be increased in excess of that which is from time to
time being required by comparable landlords of comparable tenants leasing
comparable amounts of space in other first-class buildings in the vicinity of
the Building.
b. TENANT'S PROPERTY INSURANCE. Tenant at its cost shall maintain on
---------------------------
all of its personal property (including, without limitation, the Tenant
Improvements and any leasehold improvements) in, on, or about the Premises, an
"all risk" property policy including coverage for earthquake sprinkler leakage
and containing an agreed amount endorsement in an amount not
11
<PAGE>
less than one hundred percent (100%) of the full replacement cost valuation
under which Tenant is named as the insured and Landlord, Landlord's agents,
Master Landlord and any lessors and mortgagees (whose names shall have been
furnished to Tenant) are named as additional insureds and loss payees. The
proceeds from any such policy shall be used by Tenant for the replacement OF
such personal property and Tenant Improvements. The "full replacement cost
valuation" of the personal property and the Tenant Improvements to be insured
under this Article VI shall be furnished to the company issuing the insurance
policy by Tenant at least once every year. Landlord shall not be responsible for
any deductibles under Tenant's policies, nor any personal property or Tenant
Improvements of Tenant that is underinsured or valued at less than one hundred
percent (100%) of the replacement cost.
c. WORKERS' COMPENSATION INSURANCE. Tenant shall maintain Workers'
-------------------------------
Compensation insurance as required by law and Employer's Liability insurance in
an amount not less than One Million Dollars ($1,000,000).
d. BUSINESS INTERRUPTION/EXTRA EXPENSE INSURANCE. Tenant shall
---------------------------------------------
maintain loss of income, business interruption and extra expense insurance in
such amounts as will reimburse Tenant for direct or indirect loss of earnings
and incurred costs attributable to the perils commonly covered by Tenant's
property insurance described above but in no event less than One Million Dollars
($1,000,000.00). Such insurance will be carried with the same insurer that
issues the insurance for the personal property. Landlord shall not be
responsible for any deductibles under Tenant's policies, nor any personal
property of Tenant that is underinsured or valued at less than one hundred
percent cent (100%) of the replacement cost.
Tenant shall maintain rental loss insurance for the benefit of
Landlord equal to twelve (12) months of Basic Rent payable by Tenant to
Landlord.
e. OTHER COVERAGE. Tenant, at its cost, shall maintain such other
--------------
insurance as Landlord or Master Landlord may reasonably require from time to
time.
f. INSURANCE CRITERIA. All the insurance required to be maintained by
------------------
Tenant under this Lease shall:
(i) Be issued by insurance companies authorized to do business
in the state of California, with a financial rating of at least an A:VIII status
for any property insurance and A:VIII for any liability insurance as rated in
the most recent edition of the Best's Guide Insurance Reports;
(ii) Be issued as a primary policy;
(iii) Contain an endorsement requiring thirty (30) days' written
notice from the insurance company to both parties and to Landlord's lender
before cancellation or any material change in the coverage, scope, or amount of
any policy; and
(iv) With respect to property loss or damage, a waiver of
subrogation must be obtained, as hereinafter required by Section 6.3.
(g) EVIDENCE OF COVERAGE. A duplicate original policy, or a
--------------------
certificate of insurance with the actual policy attached shall be deposited with
Landlord before the earlier of the date Tenant takes possession of the Premises
or authorizes anyone to have access to the Premises for any purposes, including
the commencement of the construction of the Tenant Improvements, and on renewal
of the policy a certificate of insurance listing the insurance coverages
required hereunder and naming Landlord and any other interested parties as
additional insured shall be deposited with Landlord not less than seven (7) days
before expiration of the term of the policy.
6.3 WAIVER OF SUBROGATION. Landlord and tenant each hereby releases the
---------------------
other from any and all liability or responsibility to the other or anyone
claiming through or under the other by way of subrogation or otherwise for any
loss or damage to property and/or loss of business interruption, extra expense
and rental loss insurance caused by fire or any other perils
12
<PAGE>
insured in policies of insurance covering such property, even if such loss or
damage shall have been caused by the fault or negligence of the other party, or
anyone for whom such party may be responsible, including, without limitation,
any subtenants or occupants of the Premises; provided, however, that this
release shall be applicable and in force and effect only to the extent that
such release shall be lawful at that time and in any event only with respect to
loss or damage occurring during such time as the releasing party's insurance
policies shall contain a clause or endorsement to the effect that such release
shall not adversely affect or impair said policies or prejudice the right of
the releasing party to recover thereunder, and then only to the extent of the
sum of (a) the deductible amount under the applicable insurance policy plus (b)
the collected insurance proceeds actually received under such insurance policy;
provided, however, that if Tenant fails to obtain and/or maintain in full force
and effect the insurance coverage required of Tenant under Section 6.2 hereof
(including without limitation the required waiver of subrogation endorsement as
described below and the required naming of Landlord and Master Landlord as
additional named insureds), Tenant shall nevertheless release (and shall be
deemed to have released) Landlord from any liability as set forth above, as
fully as if Tenant had not so failed to obtain and/or maintain such insurance
coverage, but Landlord shall in such event not release (or be deemed to have
released) any liability of Tenant to Landlord for such event. Each party shall
cause each policy for property damage insurance to include a provision
permitting such a release of liability (commonly referred to as a waiver of
subrogation endorsement) as described above; provided, that if an insurer will
not include such a provision in such policy or if the inclusion of such a
provision would involve an additional premium in excess of fifteen percent (15%)
of the premium which would otherwise be charged, the party carrying the policy
shall so advise the other party within a reasonable time. If the other party
notifies the party carrying the policy that it desires such a provision to be
included in the policy, the party carrying the policy shall use its best efforts
to cause such a provision to be so included provided the other party shall
promptly pay all premiums therefor over and above said fifteen percent (15%)
excess premium.
ARTICLE VII
-----------
ASSIGNMENT AND SUBLETTING
-------------------------
7.1 RIGHT TO ASSIGN, AND SUBLEASE AND ENCUMBER. Landlord and Tenant
------------------------------------------
recognize and specifically agree that this Article VII is an economic provision,
like Rent, and that Landlord's right to recapture and to share in profits is
granted by Tenant to Landlord in consideration of certain other economic
concessions granted by Landlord to Tenant. Tenant may voluntarily assign or
encumber its interest in this Lease or in the Premises, or sublease all or any
part of the Premises, or allow any other person or entity to occupy or use all
or any part of the Premises, upon first obtaining Landlord's prior consent
(which consent shall not be unreasonably withheld or delayed), but only if such
assignment or sublease does not conflict with or result in a breach of Article
IV and if such proposed assignee or sublessee of Tenant's proposed assignment or
sublease is not:
a. a governmental entity;
b. a person with whom Landlord has negotiated for space in the
Building during the twelve (12) month period ending with the date Landlord
receives notice of such assignment, encumbrance or subletting;
c. a present tenant in the Building;
d. a person or business entity whose tenancy in the Building would
violate any exclusivity arrangement which Landlord has with any other tenant or
occupant of the Building; or
e. a person whose tenancy results in more people working at, or
visiting, the Premises than would have worked at, or visited, the Premises if
the Premises had been used for normal business office purposes typical of a
class A building in the vicinity of the Building.
13
<PAGE>
Any assignment, encumbrance or sublease without Landlord's prior
consent shall be voidable, at Landlord's election, and shall, at Landlord's
further election, constitute a default. No consent to an assignment,
encumbrance, or sublease shall constitute a further waiver of the provisions of
this Article VII.
7.2 PROCEDURE FOR ASSIGNMENT AND SUBLEASE/LANDLORD'S RECAPTURE
----------------------------------------------------------
RIGHTS. Tenant shall advise Landlord by notice of (a) Tenant's intent to assign,
- ------
encumber, or sublease this Lease, (b) the name of the proposed assignee or
sublessee, and evidence reasonably satisfactory to Landlord that such proposed
assignee or sublessee is comparable in reputation, stature and financial
condition to the other tenants then leasing comparable space in the Building,
and (c) the terms of the proposed assignment or subletting. Landlord shall,
within thirty (30) days of receipt of such notice, and any additional
information requested by Landlord concerning the proposed assignee's or
sublessee's financial responsibility, elect one of the following:
(i) Consent to such proposed assignment, encumbrance or
sublease; or
(ii) Refuse such consent, which refusal shall be not
unreasonably withheld.
Notwithstanding the foregoing, in the event Tenant, prior to seeking to
assign or encumber its interest in this Lease or in the Premises, or sublease
all or any part of the Premises, or allow any other person or entity to occupy
or use all or any part of the Premises, shall determine that it no longer needs
a11 or a part of the Premises, Tenant shall advise Landlord by written notice
("Intention Notice") to Landlord describing which portion (or all) of the
Premises Tenant no longer needs. By written notice to Tenant ("Termination
Notice") within fifteen (15) days of receipt by Landlord of the Intention
Notice, Landlord shall elect one of the following: (a) in the event such
Intention Notice shall state that Tenant no longer needs the entire Premises,
terminate the Lease; or (b) in the event such Intention Notice shall state that
Tenant no longer needs only a portion of the Premises, terminate the Lease as to
such portion of the Premises for the proposed term. Pursuant to the receipt by
Tenant of the Termination Notice, the Lease, either as to the entire Premises
or to a portion of the Premises as shall be set forth in the Intention Notice,
shall terminate and such termination shall be effective ninety (90) days
following the date Tenant receives the Termination Notice.
7.3 CONDITIONS REGARDING CONSENT TO SUBLEASE AND ASSIGNMENT. In
-------------------------------------------------------
the event that Landlord shall consent to an assignment or sublease under the
provisions of this Article VII, Tenant shall pay Landlord's processing costs,
reviewing costs reasonable administrative and attorneys' fees incurred in giving
such consent. Notwithstanding any permitted assignment or subletting, Tenant
shall at all times remain directly, primarily and fully responsible and liable
for all payments owed by Tenant under the Lease and for compliance with all
obligations under the terms, provisions and covenants of the Lease. If for any
proposed assignment or sublease, Tenant receives rent or other consideration,
either initially or over the term of the assignment or sublease, in excess of
the rent required by this Lease, or, in the case of the sublease of a portion of
the Premises, in excess of such rent fairly allocable to such portion, after
appropriate adjustments to assure that all other payments called for hereunder
are taken into account, Tenant shall pay to Landlord as additional rent, fifty
percent (50%) of the excess of each such payment of rent or other consideration
received by Tenant within five (5) days of its receipt or, in the event the
sublessee or assignee makes payment directly to Landlord, Landlord shall refund
fifty percent (50%) of the excess to Tenant; provided, however, that Tenant may
deduct from such excess of each such payment of rent or other consideration
received by Tenant the actual reasonable and documented costs of the following
to the extent paid by Tenant in connection with the assignment or subletting:
(a) brokers' commissions, (b) attorneys' fees, (c) the costs of advertising the
space for sublease or assignment and (d) any improvement allowance, planning
allowance or moving expenses granted to the assignee or sublessee by Tenant.
Landlord may, from time to time, request documentation from Tenant supporting
the above deductions from excess consideration and Tenant shall supply such
supporting documentation to Landlord within five (5) days of Landlord's request.
7.4 INTENTIONALLY OMITTED
---------------------
14
<PAGE>
7.5 AFFILIATED COMPANIES/RESTRUCTURING OF BUSINESS ORGANIZATION. Occupancy
-----------------------------------------------------------
of all or part of the Premises by parent, subsidiary, or affiliated companies of
Tenant shall not be deemed an assignment or subletting provided that such
parent, subsidiary or affiliated companies were not formed as a subterfuge to
avoid the obligation of this Article VII. If Tenant is a corporation,
unincorporated association, trust or general or limited partnership, then the
sale, assignment, transfer or hypothecation of any shares, partnership interest,
or other ownership interest of such entity which from time to time in the
aggregate exceeds twenty-five percent (25%) of the total outstanding shares,
partnership interests or ownership interests of such entity or which effects a
change in the management or control of Tenant, or the dissolution, merger,
consolidation, or other reorganization of such entity, or the sale, assignment,
transfer or hypothecation of more than forty percent (40%) of the value of the
assets of such entity, shall be deemed an assignment subject to the provisions
of this Article VII. Tenant shall notify Landlord not less than thirty (30) days
of such assignment or transfer.
7.6 LANDLORD'S RIGHT TO ASSIGN. Landlord shall have the right to sell,
--------------------------
encumber, convey, transfer, and/or assign any of its rights and obligations
under the Lease.
ARTICLE VIII
------------
"DAMAGE OR DESTRUCTION"
-----------------------
8.1 LOSS COVERED BY INSURANCE. If, at any time prior to the expiration
-------------------------
or termination of this Lease, the Premises or the Building is wholly or
partially damaged or destroyed by a fire or casualty, the loss to Landlord from
which is (except for any applicable deductible) fully covered by insurance
maintained by Landlord or for Landlord's benefit, which casualty renders the
Premises totally or partially inaccessible or unusable by Tenant in the ordinary
conduct of Tenant's business, then:
a. REPAIRS WHICH CAN BE COMPLETED WITHIN ONE YEAR. Within sixty (60)
----------------------------------------------
days of notice to Landlord of such damage or destruction, Landlord shall provide
Tenant with notice of its determination of whether the damage or destruction can
be repaired within one (1) year of such damage or destruction without the
payment of overtime or other premiums. If all repairs to such Premises or
Building can, in Landlord's judgment, be completed within one (1) year following
the date of notice to Landlord of such damage or destruction without the payment
of overtime or other premiums, Landlord shall, at Landlord's expense, repair the
same and this Lease shall remain in full force and effect and a proportionate
reduction of the Rent shall be allowed Tenant for such portion of the Premises
as shall be rendered inaccessible or unusable to Tenant, and which is not used
by Tenant, during the period of time that such portion is unusable or
inaccessible and not used by Tenant.
b. REPAIRS WHICH CANNOT BE COMPLETED WITHIN ONE YEAR. If all such
-------------------------------------------------
repairs to the Building and Premises cannot, in Landlord's judgment, be
completed within one (1) year following the date of notice to Landlord of such
damage or destruction without the payment of overtime or other premiums,
Landlord shall notify Tenant of such determination and Landlord may, at
Landlord's sole and absolute option, upon written notice to Tenant given within
sixty (60) days after notice to Landlord of the occurrence of such damage or
destruction, elect to repair such damage or destruction at Landlord's expense,
and in such event, this Lease shall continue in full force and effect but the
Rent shall be proportionately reduced as hereinabove provided in Section 8.1(a).
If Landlord does not elect to make such repairs, then either Landlord or Tenant
may, by written notice to the other no later than ninety (90) days after the
occurrence of such damage or destruction elect to terminate this Lease as of the
date of the occurrence of such damage or destruction.
8.2 LOSS NOT COVERED BY INSURANCE. If, at any time prior to the expiration
-----------------------------
or termination of this Lease, the Premises or the Building is totally or
partially damaged or destroyed from a casualty, the loss to Landlord from which
is not fully covered by insurance maintained by Landlord or for Landlord's
benefit, which damage renders the Premises inaccessible or unusable to Tenant in
the ordinary course of its business, Landlord, at its option, upon written
notice to Tenant within sixty (60) days after notice to Landlord of the
occurrence of, such damage or destruction, may elect to repair or restore such
damage or destruction, or
15
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Landlord may elect to terminate this Lease. If Landlord elects to repair or
restore such damage or destruction, this Lease shall continue in full force and
effect but the Rent shall be proportionately reduced as provided in Section
8.1(a). If Landlord does not elect by notice to Tenant to repair such damage, or
if the damage cannot, in Landlord's judgment, be completed within one (1) year
following the date of notice to Landlord of such damage or destruction, the
Lease shall terminate.
8.3 DESTRUCTION DURING FINAL YEAR. Notwithstanding anything to the
-----------------------------
contrary contained in Sections 8.1 and 8.2, if the Premises or the Building is
wholly or partially damaged or destroyed within the final twelve (12) months of
the Term of this Lease, Landlord may, at its option, by giving Tenant notice
within sixty (60) days after notice to Landlord of the occurrence of such damage
or destruction, elect to terminate the Lease.
8.4 DESTRUCTION OF TENANT'S PERSONAL PROPERTY, TENANT IMPROVEMENTS OR
-----------------------------------------------------------------
PROPERTY OF TENANT'S EMPLOYEES. In the event of any damage to or destruction of
- ------------------------------
the premises or the Building, under no circumstances shall Landlord be required
to repair any injury, or damage to, or make any repairs to or replacements of;
Tenant's personal property. However, Tenant shall deliver to Landlord the
proceeds of insurance received by Tenant from the "all risk" property policy
carried by Tenant on its Tenant Improvements, and Landlord shall, pursuant to
its receipt thereof, repair same to the extent Landlord shall receive such
insurance proceeds from Tenant (but if the amount of insurance proceeds shall
not be sufficient to cause the repair of the Tenant Improvements to be fully
made by Landlord, Tenant shall pay to Landlord, within ten (10) days of receipt
of request therefor, the additional amount of funds requested by Landlord in
order to complete the repair of the Tenant Improvements) and this Lease shall
remain, to the extent Landlord shall receive such insurance proceeds from Tenant
(but if the amount of insurance proceeds shall not be sufficient to cause the
repair of the Tenant Improvements to be fully made by Landlord, Tenant shall
pay to Tenant within ten (10) days of receipt of request therefor, the
additional amount of funds requested by Landlord in order to complete the repair
of the Tenant Improvements), in full force and effect. Landlord shall have no
responsibility for any contents placed or kept in or on the Premises or the
Building or the Real Property by Tenant or Tenant's Employees.
8.5 EXCLUSIVE REMEDY. This Article VIII shall be Tenant's sole and
----------------
exclusive remedy in the event of damage or destruction to the Premises or the
Building, and Tenant, as a material inducement to Landlord entering into this
Lease, irrevocably waives and releases Tenant's rights under California Civil
Code Sections 1932(2) and 1933(4). No damages, compensation or claim shall be
payable by Landlord for any inconvenience, any interruption or cessation of
Tenant's business, or any annoyance, arising from any damage to or destruction
of all or any portion of the Premises or the Building.
ARTICLE IX
----------
CONDEMNATION
------------
9.1 PERMANENT TAKING - WHEN LEASE CAN BE TERMINATED. If the whole of
-----------------------------------------------
the Premises, or so much of the Premises as to render the balance unusable by
Tenant, shall be taken under the power of eminent domain, the Lease shall
automatically terminate as of the date of final judgment in such condemnation,
or as of the date possession is taken by the condemning authority, whichever is
earlier. A sale by Landlord under threat of condemnation shall constitute a
"taking" for the purpose of this Article IX. No award for any partial or entire
taking shall be apportioned and Tenant assigns to Landlord any award which may
be made in such taking or condemnation, together with all rights of Tenant to
such award, including, without limitation, any award or compensation for the
value of all or any part of the leasehold estate; provided that nothing
contained in this Article IX shall be deemed to give Landlord any interest in or
to require Tenant to assign to Landlord any award made to Tenant for (a) the
taking of Tenant's personal property, or (b) interruption of or damage to
Tenant's business, or (c) Tenant's unamortized cost of the Tenant Improvements
to the extent in excess of the Tenant Improvement Allowance.
16
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9.2 PERMANENT TAKING - WHEN LEASE CANNOT BE TERMINATED. In the event
--------------------------------------------------
of a partial taking which does not result in a termination of the Lease under
Section 9.1, Rent shall be proportionately reduced based on the portion of the
Premises rendered unusable, and Landlord shall restore the Premises or the
Building to the extent of available condemnation proceeds.
9.3 TEMPORARY TAKING. No temporary taking of the Premises or any part of
----------------
the Premises and/or of Tenant's rights to the Premises or under this Lease shall
terminate this Lease or give Tenant any right to any abatement of any payments
owed to Landlord pursuant to this Lease; any award made to Tenant by reason of
such temporary taking shall belong entirely to Tenant.
9.4 EXCLUSIVE REMEDY. This Article IX shall be Tenant's sole and exclusive
----------------
remedy in the event of a taking or condemnation. Tenant hereby waives the
benefit of California Code of Civil Procedure Section 1265.130.
9.5 RELEASE UPON TERMINATION. Upon termination of the Lease pursuant to
------------------------
this Article IX, Tenant and Landlord hereby agree to release each other from any
and all obligations and liabilities with respect to the Lease except such
obligations and liabilities which arise or accrue prior to such termination.
ARTICLE X
---------
DEFAULTS/REMEDIES
-----------------
10.1 EVENTS OF DEFAULT. For purposes of this Lease a "default" or "event of
-----------------
default" shall mean the occurrence of any of the following and the failure of
Tenant to cure same within the time hereinafter provided for cure:
a. Any failure by Tenant to pay any Rent or any other charge (or any
portion thereof) required to be paid by Tenant under this Lease, within ten (10)
days after Tenant has received written notice from Landlord that such payment
was not made when due hereunder; or
b. Any breach or failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after Tenant has
received written notice thereof from Landlord provided that if the nature of
such default is such that the same cannot reasonably be cured within a thirty
(30) day period, Tenant shall not be deemed to be in default if it shall
promptly commence such cure within such thirty (30) day period and thereafter
rectify and cure said default with due diligence within a reasonable period of
time; or
c. To the extent permitted by law, a general assignment by Tenant for
the benefit of creditors, or the filing by or against Tenant of any proceeding
under an insolvency or bankruptcy law, unless in the case of a proceeding filed
against Tenant the same is dismissed within ninety (90) days, or the appointment
of a trustee or receiver to take possession of all or substantially all of the
assets of Tenant unless possession is restored to Tenant within sixty (60) days,
or any execution, attachment, levy, sale or other judicially authorized seizure
or disposal of Tenant's leasehold interest hereunder or of all or substantially
all of Tenant's assets located upon the Premises or of Tenant's interest in this
Lease, unless in the case of an attachment, levy or seizure the same shall be
discharged within sixty (60) days.
10.2 REMEDIES UPON DEFAULT. Upon the occurrence of any event of default
---------------------
by Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies (each and all of which shall be cumulative and
nonexclusive) without any notice or demand whatsoever:
a. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in Rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for prosecution or any claim or
17
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damages therefor; and Landlord may recover from Tenant the following: (i) The
worth at the time of award of any unpaid Rent which has been earned at the time
of such termination; plus (ii) The worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus (iii) The worth at the time of award of the
amount by which the unpaid Rent for the balance of the Lease term after the time
of award exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided.
As used in Subsections (a)(i) and (ii) above, the "worth at the time
of award" shall be computed by allowing interest at the Interest Rate. As used
in Subsection (a)(iii) above, the "worth at the time of award" shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).
b. Landlord may at its election reenter the Premises and, without
terminating this Lease, at any time and from time to time relet the Premises and
improvements or any parts of them for the account and in the name of Tenant or
Landlord or otherwise to cure any default by Tenant or to exercise any other
right or remedy of Landlord hereunder. Landlord may execute any leases made
under this provision either in Landlord's name or in Tenant's name and shall be
entitled to all Rents from the use, operation or occupancy of the Premises or
improvements or both. Tenant shall nevertheless pay to Landlord on the due date
specified in this Lease the equivalent of all sums required of Tenant under this
Lease, plus Landlord's expenses, less the proceeds of any reletting or
attornment. In addition to all other rights and remedies it may have, Landlord
shall have all of the rights and remedies of a landlord under Section 1951.4 of
the California Civil Code. Landlord may do all things reasonably necessary for
such reletting, including repairing, remodeling and renovating of the Premises
or improvements and Tenant shall reimburse Landlord on demand for all costs
incurred by Landlord in connection therewith. If Landlord relets the Premises it
shall apply any sums received upon such reletting in the following order of
priority: (i) to the payment of all costs incurred by Landlord in restoring the
Premises to good order and repair, or in remodeling, renovating or otherwise
preparing the Premises for reletting, (ii) to the payment of all costs
(including without limitation any brokerage commissions) incurred by Landlord in
reletting the Premises, and in fulfilling Landlord's obligations with respect to
such reletting (such as, by way of example, providing services or utilities),
(ii) to the payment of Rent (and any interest thereon) due and unpaid hereunder,
and (iv) the balance, if any, to the payment of future Rent as the same may
become due hereunder, but Tenant shall not in any event have any claim or right
to receive any sums so collected by Landlord, even if such sums exceed the Rents
payable hereunder. No act by or on behalf of Landlord under this provision shall
constitute a termination of this Lease unless Landlord gives Tenant notice of
termination. Notwithstanding any election by Landlord not to terminate this
Lease Landlord may at any time thereafter elect to terminate this Lease for any
previous breach or default hereunder by Tenant which remains uncured or for any
subsequent breach or default.
c. Landlord shall be entitled at its election to each installment of
Rent or to any combination of installments for any period before termination,
plus interest at the Interest Rate on each such installment of Rent from the
due date of each such installment.
10.3 Assignment of Rents. Tenant assigns to Landlord all subrents and
-------------------
other sums falling due from subtenants, licensees and concessionaires (herein
called "subtenants") during any period in which Tenant is in default and Tenant
shall not have any right to such sums during that period. Landlord may at
Landlord's election reenter the Premises, without terminating this Lease, and
either or both collect these sums or bring action for the recovery of the sums
directly from such obligors. Landlord shall receive and collect all subrents
and proceeds from reletting, applying them in the following order of priority:
(a) to the payment of all costs incurred by Landlord in restoring the Premises
to good order and repair, or in remodeling, renovating or otherwise preparing
the Premises for reletting, (b) to the payment of all costs (including, without
limitation, attorneys' fees or brokers' commissions or both) incurred by
Landlord in reletting the Premises, and in fulfilling Landlord's obligations
with respect to such reletting (such as, by way of example, providing services
or utilities), (c) to the payment of Rent (and any interest thereon) due and
unpaid hereunder, and (d) the balance, if any, to the payment of future Rent as
the same may become due hereunder. Tenant shall nevertheless pay to Landlord on
the due date specified
18
<PAGE>
in this Lease the equivalent of all sums required of Tenant under this Lease,
plus Landlord's expenses, less proceeds of the sums assigned and actually
collected under this provision.
10.4 WAIVER OF DEFAULT. No waiver by Landlord or Tenant of any violation or
-----------------
breach of any of the terms, provisions and covenants herein contained shall be
deemed or construed to constitute a waiver of any other or later violation or
breach of the same or any other of the terms, provisions, and covenants herein
contained. Forbearance by Landlord in enforcement of one or more of the remedies
herein provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default. The acceptance of any Rent hereunder by
Landlord following the occurrence of any default, whether or not known to
Landlord, shall not be deemed a waiver of any such default, except only a
default in the payment of the Rent so accepted.
10.5 BANKRUPTCY. If Tenant assumes this Lease and proposes to assign the
----------
same pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. (S)101 et
seq., or any successor statute (the "Bankruptcy Code") to any person or entity
who shall have made a bona fide offer to accept an assignment of this Lease on
terms acceptable to Tenant then notice of such proposed assignment, setting
forth (a) the name and address of such person, (b) all of the terms and
conditions of such offer, and (c) the adequate assurance to be provided Landlord
to assure such person's future performance under this Lease, including, without
limitation, the assurance referred to in Section 365(b)(3) of the Bankruptcy
Code, shall be given to Landlord by Tenant no later than twenty (20) days after
receipt by Tenant but in any event no later than ten (10) days prior to the date
that Tenant shall make application to a court of competent jurisdiction for
authority and approval to enter into such assignment and assumption, and
Landlord shall thereupon have the prior right and option, to be exercised by
notice to Tenant given at any time prior to the effective date of such proposed
assignment, to accept an assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as the bona fide offer made
by such person, less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease.
ARTICLE XI
----------
DEFAULT BY LANDLORD
-------------------
Landlord shall not be in default hereunder unless Landlord fails to perform
the obligations required of Landlord within a reasonable time, but in no event
later than thirty (30) days after written notice by Tenant to Landlord in
writing specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for performance, then Landlord shall not be
in default if Landlord commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion. Tenant shall have
no rights as a result of any default by Landlord until Tenant gives thirty (30)
days' notice to any person who has a recorded interest pertaining to the
Building, specifying the nature of the default. Such person shall then have the
right to cure such default, and Landlord shall not be deemed in default if such
person cures such default within thirty (30) days after receipt of notice of the
default, or within such longer period of time as may reasonably be necessary to
cure the default. Notwithstanding anything to the contrary in the Lease,
Landlord's liability to Tenant for damages resulting from Landlord's breach of
any provision or provisions of the Lease shall not exceed the value of
Landlord's equity interest in the Building.
ARTICLE XII
-----------
SUBORDINATION, ATTORMENT AND NON-DISTURBANCE
--------------------------------------------
12.1 SUBORDINATION ATTORNMENT AND NON-DISTURBANCE. This lease shall be
---------------------------------------------
subject and subordinate at all times to the Master Lease and to the lien of
any mortgage, deed of trust or other security interest ("mortgage") now existing
or hereafter executed in any amount which effects the Building or for which
Landlord's interest or estate in the Premises is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such liens to this Lease. In the event that any
mortgage is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any
19
<PAGE>
subordination, have the right to attorn to, and shall attorn to, and become
Tenant of, the successor in interest to Landlord on all of the terms and
conditions contained in this Lease. Tenant covenants and agrees to execute and
deliver, within five (5) days of request by Landlord and in the form requested
by Landlord, any additional instruments evidencing the priority or subordination
of this Lease with respect to the lien of any such mortgage. A condition
precedent to the subordination herein and to the execution of any future
instrument of subordination is that Landlord shall obtain for the benefit of
Tenant a non-disturbance and attornment agreement from the lender in whose favor
the subordination is given, in content reasonably acceptable to Tenant. Tenant
shall promptly review and execute any non-disturbance agreement submitted to
Tenant by Landlord which meets with the requirements of this Section, and shall
promptly advise Landlord if Tenant disapproves of any such proposed agreement.
Said agreement shall provide that (a) Tenant will not be named or joined in any
proceeding to enforce the mortgage unless such is required by law in order to
perfect the proceeding, (b) enforcement of the mortgage will not terminate the
Lease or disturb Tenant in the possession and use of the Premises, unless Tenant
is in default beyond the period provided in the Lease to remedy the default, and
(c) any party succeeding to the interest of the Landlord as a result of the
enforcement of the mortgage shall be bound to the Tenant under all the terms,
covenants and conditions of this Lease from and after the date of succeeding to
the Landlord's interest under this Lease and for the balance of the Term of the
Lease, except that in no event will such party be liable for claims arising
prior to the date of succession, or be subject to offsets or defenses Tenant
might have against a prior Landlord, or be bound by any amendment to the Lease
made without the lender's consent, or be liable for completion of construction
of any improvements, or be bound by any Rent payments made more than one month
in advance to the prior Landlord, and (d) Tenant is obligated to attorn to any
party succeeding to the interest of the Landlord as a result of the enforcement
of a mortgage.
12.2 LANDLORD'S RIGHT TO ASSIGN. Landlord's interest in the Lease may
--------------------------
be assigned to any mortgagee or trust deed beneficiary as additional security.
Nothing in this Lease shall empower Tenant to do any act without Landlord's
prior consent which can, shall or may encumber the title of the owner of all or
any part of the Building.
12.3 NON-DISTURBANCE. Subject to Section 7.4 and notwithstanding any of
---------------
the provisions of this Article XII to the contrary, Tenant shall be allowed to
occupy the Premises, subject to the conditions of this Lease, and this Lease
shall remain in effect, until an event of default occurs or until Tenant's
rights are modified because of a condemnation proceeding pursuant to Article
IX, or because of the occurrence of damage and destruction pursuant to Article
VIII of the Lease.
12.4 ATTORNEY-IN-FACT. If Tenant fails to execute and deliver promptly any
---------------
documents or instruments required by this Article XII, such failure shall, at
Landlord's option, constitute a default under the Lease, and Tenant hereby
irrevocably constitutes and appoints Landlord as Tenant's special attorney-in-
fact to execute and deliver any such documents or instruments.
ARTICLE XIII
------------
ESTOPPEL CERTIFICATES
---------------------
Either party shall, upon not less than twenty (20) days' prior notice from
the other party (which request shall be made no more often than four (4) times
in any twelve (12)-month period), execute, acknowledge and deliver to the other
party a statement (a) certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications) provided such
certification is true at the time, (b) certifying the date to which the Basic
Rent has been paid in advance, (c) stating whether or not, to the best knowledge
of the certifying party, the requesting party is in default under this Lease,
and if so, specifying such default and/or (d) certifying as to such other
matters with respect to this Lease as the requesting party may reasonably
request. Any such certificate made by Tenant or Landlord may be relied upon by
any prospective purchaser of the Premises or any part thereof, any prospective
assignee or subtenant of Tenant, any prospective mortgagee of Landlord, but,
provided such certificate was given in good faith by
20
<PAGE>
the certifying party, it may not be relied upon by the requesting party to
dispute any claim by the certifying party of a default by the requesting party.
ARTICLE XIV
-----------
ENTRY BY LANDLORD
-----------------
Landlord reserves the right at all reasonable times and upon reasonable
notice to Tenant to enter the Premises to inspect the same, ascertain whether
Tenant has complied with the terms of this Leasee, perform work required to be
performed by Tenant but with respect to which Tenant is in default, or
otherwise to cure any default of Tenant, or show the same to prospective
purchasers, insurers and mortgagees and, during the last two (2) years of the
Lease Term.
ARTICLE XV
----------
TENANT'S AND LANDLORD'S REPAIR OBLIGATIONS
------------------------------------------
15.1 TENANT'S REPAIR. Tenant shall, at Tenant's sole cost and expense, keep
---------------
the nonstructural portion of the Premises in good and sanitary condition and
repair at all times during the Term. All damage, injury or breakage to any part
or portion of the Premises or the Building caused by the willful or negligent
act or omission of Tenant or Tenant's Employees shall be promptly repaired by
Tenant, at Tenant's sole cost and expense, to the satisfaction of Landlord;
provided, however, that Tenant shall be entitled to receive reimbursement for
such expense to the extent that the cost of any such repair is covered by
insurance obtained by Landlord as part of Operating Expenses and is related to
damage to the Building rather than to the Premises. Landlord may make any
repairs which are not made by Tenant within a reasonable amount of time (except
in the case of emergency when such repairs can be made immediately), and charge
Tenant for the cost of such repairs. Tenant shall be solely responsible for the
design and function of all of Tenant Improvements whether or not installed by
Landlord at Tenant's request. Tenant waives all rights to make repairs to the
Premises or to the Building at the expense of Landlord, or to deduct the cost
of such repairs from any payment owed to Landlord under the Lease.
15.2 Landlord's Repair.
-----------------
(a) SCOPE OF LANDLORD'S REPAIRS. So long as no event of default
---------------------------
has occurred, Landlord shall maintain and repair the structural elements and the
public and common areas of the Building as the same may exist from time to time,
except for non-insured damage or wear and tear which is the result of a
negligent or willful act or omission of Tenant or Tenant's Employees. Landlord
shall have no obligation to make repairs under this Article XV until a
reasonable time after receipt of written notice of the need for such repairs.
In no event shall any payments owed by Tenant under the Lease be abated, nor
shall Landlord have any liability for interruption or interference in Tenant's
business, on account of Landlord's failure to make repairs under this Article
XV.
(b) LANDLORD'S RIGHT OF ENTRY TO MAKE REPAIRS. In addition to the
-----------------------------------------
right of entry set forth above in Article XIV, Landlord and Landlord's agents,
contractors, licensees, employees, directors, officers, partners, trustees and
invitees (collectively, "Landlord's Employees") shall have the right to enter
the Premises at all reasonable times for the purpose of making any alterations,
additions, improvements or repairs to the Premises or the Building as Landlord
may deem necessary or desirable, without liability to Tenant. Landlord shall
give reasonable notice to Tenant of Landlord's intent to enter the Premises and
effect repairs, except, however, in an emergency situation, in which case no
prior notice shall be required.
21
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ARTICLE XVI
------------
SURRENDER OF PREMISES
---------------------
16.1 SURRENDER OF PREMISES. No act or thing done by Landlord or
---------------------
Landlord's Employee during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in a writing signed by Landlord. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not,
or a mutual termination hereof, shall not work a merger, and at the option of
Landlord, shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.
16.2 REMOVAL OF TENANT PROPERTY BY TENANT. Upon the expiration of the Lease
------------------------------------
Term, or upon any earlier termination of this Lease, Tenant shall, subject to
the provisions of Article VIII and this Article XVI, quit and surrender
possession of the Premises to Landlord in as good order and condition as at the
commencement of the Lease Term, and as thereafter improved by Tenant,
reasonable wear and tear and repairs hereunder excepted. Upon such expiration or
termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises all items of furniture, trade fixtures, equipment,
free-standing cabinet work, and other articles of personal property which,
pursuant to Section 16.3 below, are and shall remain the property of Tenant,
and such property of any other persons claiming under Tenant, but shall not
remove any fixtures, Alterations, additions and tenant improvements to the
Premises which are, pursuant to Section 16.3 below, the property of Landlord,
and in all cases Tenant shall repair any damage to the Premises caused by any
such removal. Any Tenant's property which shall not be removed as aforesaid at
the expiration or termination of this Lease shall be deemed to have been
abandoned by Tenant, and may be removed by Landlord, at Tenant's expense,
without any liability to Tenant and without the requirement of any accounting to
Tenant therefor.
16.3 PROPERTY RIGHTS. All items of furniture, trade fixtures, equipment,
---------------
free-standing cabinet work, and other personal property acquired at Tenant's
expense (and not purchased with the proceeds of the Tenant Improvement
Allowance) shall be and remain Tenant's property at all times. All fixtures
(other than trade fixtures), Alterations, additions, repairs or improvements
attached to or built into, on, or about the Premises prior to or during the Term
hereof; at Tenant's expense (and not purchased with proceeds of the Tenant
Improvement Allowance) shall be and remain Tenant's property during the Term of
this Lease, but at the expiration or earlier termination hereof shall remain
part of the Premises and shall without further action by the parties become the
property of Landlord. All fixtures, Alterations, additions, repairs,
improvements, furniture, equipment, free-standing cabinet work and other
personal property paid for from the Tenant Improvement Allowance, shall be and
remain at all times the property of Landlord and shall not be removed by Tenant
at the end of the Lease Term. Upon written request from Tenant, Landlord shall
from time to time execute and deliver any instrument consistent with the
foregoing and otherwise reasonably acceptable to Landlord that may be required
by any equipment supplier, vendor, lessor and/or lender whereby Landlord waives
and/or releases any rights it may have or acquire with respect to any furniture,
equipment, personal property or trade fixtures Tenant or any subtenant of Tenant
may affix to the Premises amid agreeing that the same do not constitute realty.
ARTICLE XVII
------------
ARBITRATION
-----------
17.1 ARBITRATION.
-----------
a. No dispute between Landlord and Tenant shall be subject to
determination by arbitration unless a provision of thus lease specifies
specifically so provides Except as provided in Section 28.3 with respect to
arbitration of Fair Market Remutal Rate, whenever aiuy provision of this Lease
specifically provides that a matter shall be determined by arbitration in
accordance with thus Article XVII and either party notifies the other in writing
that such matter shall be so determined, then (i) each party shall, within
thirty (30) days thereafter, appoint an arbitrator and each party shall notify
the other party of the name and address of the arbitrator so appointed;
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<PAGE>
(ii) if either party shall fail to make such appointment and to serve notice
thereof within the time prescribed, then the appointment of an arbitrator on
behalf of such party shall be made in the same manner as provided in clause (iv)
below for the appointment of a third arbitrator in the case where the two
arbitrators shall fail to agree upon such third arbitrator; (iii) the
arbitrators so appointed shall meet within ten (10) days after the second
arbitrator is appointed and shall, if possible, determine such matter within
thirty (30) days after the second arbitrator is appointed, and their
determination shall be final and binding on the parties; (iv) if for any reason
such two arbitrators fail to agree on such matter within such period of thirty
(30) days, they shall appoint a third arbitrator, and in the event of their
failure to agree upon such third arbitrator within ten (10) days after the time
prescribed, either party on behalf of both may apply to the Los Angeles office
of the American Arbitration Association (or successor thereto) for the
appointment of such third arbitrator, and the other party shall not raise any
question as to the full power and jurisdiction of the American Arbitration
Association (or successor thereto) to entertain the application and make the
appointment; and (v) after the appointment of the third arbitrator each of the
first two arbitrators shall submit their respective determinations to the third
arbitrator who must select one or the other of such determinations, and the
selection so made shall in all cases be binding upon the parties. If any
arbitrator shall die, become disqualified or incapacitated, or shall fail or
refuse to act, before such matter shall have been determined, then, in place of
such arbitrator, an arbitrator shall promptly be appointed in the same manner as
the arbitrator who shall have died or become disqualified or incapacitated, or
who shall have failed or refused to act.
b. All arbitration shall be finally determined in the City of Los
Angeles and shall be governed (except as provided above) in accordance with the
applicable Rules of the American Arbitration Association (or any successor
thereto) and the judgement on the award rendered may be entered in any court
having jurisdiction. Landlord and Tenant agree and acknowledge that the
provisions of this Article XVII constitute an "Agreement" for purposes of
California Code of Civil Procedure Section 1280(a). Each arbitrator appointed
pursuant to Subsection (a) shall be an independent real estate management
professional who is either (i) a member of the Institute of Real Estate Managers
having the designation of Certified Property Manager, or (ii) a qualified full-
time professional property manager having primary responsibility for the
management and operation of one or more first-class office buildings in
metropolitan Los Angeles, and who is in either case resident in, and with at
least ten (10) years of full-time commercial property management experience in,
metropolitan Los Angeles.
17.2 PAYMENT OF EXPENSES. Each party shall pay the fees and expenses of
-------------------
the arbitrator appointed by or on behalf of it, and each shall pay one-half of
the fees and expenses of the third arbitrator, if any.
ARTICLE XVIII
-------------
SECURITY DEPOSIT
----------------
Concurrently with the execution of this Lease, Tenant shall deposit with
Landlord a security deposit in the sum specified in provision (p) of the
Fundamental Lease Provisions as the Security Deposit. The Security Deposit
shall be held by Landlord as security for the full and faithful performance of
Tenant's covenants and obligations under this Lease. The Security Deposit is
not an advance Basic Rent deposit, an advance payment of any other kind, or a
measure of Landlord's damages in case of Tenant's default. If Tenant fails to
comply with the full and timely performance of any or all of Tenant's covenants
and obligations set forth in this Lease, then Landlord may, from time to time,
without waiving any other remedy available to Landlord, use the Security
Deposit, or any portion of it, to the extent necessary to cure or remedy such
failure or to compensate Landlord for all damages sustained by Landlord
resulting from Tenant's failure to comply fully and timely with its obligations
pursuant to this Lease. Tenant shall immediately pay to Landlord on demand the
amount so applied in order to restore the Security Deposit to its original
amount, and Tenant's failure to immediately do so shall constitute a
default under the Lease. If Tenant is in compliance with the covenants and
obligations set forth in this Lease at the time which is sixty (60) days
following the time of both the expiration or termination of the Lease and
Tenant's vacating of the Premises as provided in California Civil Code Section
1950.7, Landlord shall return the Security Deposit to Tenant after the
expiration or termination of the Lease and Tenant's vacating of the Premises.
Each time the
23
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Basic Rent shall increase pursuant to the provisions of this Lease, within five
(5) business days thereafter, Tenant shall pay to Landlord as additional
Security Deposit an amount equal to the difference between the new Basic Rent
and the Basic Rent in effect immediately prior to such increase. Landlord's
obligations with respect to the Security Deposit are those of a debtor and not a
trustee. Landlord shall not be required to maintain the Security Deposit
separate and apart from Landlord's general or other funds, and Landlord may
commingle the Security Deposit with any of Landlord's general or other funds.
Tenant shall not at any time be entitled to interest on the Security Deposit.
ARTICLE XIX
-----------
NO LIENS BY TENANT
------------------
Tenant shall at all times keep the Premises and the Building free from any
liens arising out of any work performed or allegedly performed, materials
furnished or allegedly furnished or obligations incurred by or for Tenant. At
any time Tenant either desires or is required to make any alterations, Landlord
may require Tenant, at Tenant's sole cost and expense, to obtain and provide to
Master Landlord and Landlord a completion and/or performance bond in a form and
by a surety acceptable to Landlord and in an amount not less than one and one-
half (1-1/2) times the estimated cost of such alterations to insure Master
Landlord and Landlord against liability from mechanics' and materialmen's liens
and to insure completion of the work and may also require such additional items
or assurances as Landlord in its sole discretion may deem reasonable or
desirable. Tenant agrees to indemnify and hold Landlord harmless from and
against any and all claims for mechanics', materialmen's or other liens in
connection with any alterations, repairs, or any work performed, materials
furnished or obligations incurred by or for Tenant, and in connection therewith,
Tenant shall provide Landlord with notice of any and all liens filed against the
Premises and/or the Building. Landlord reserves the right to enter the Premises
for the purpose of posting such notices of non-responsibility as may be
permitted by law, or desired by Landlord.
ARTICLE XX
----------
SERVICES
--------
20.1 HEATING, VENTILATING OR AIR-CONDITIONING. Subject to the full
----------------------------------------
performance by Tenant of all of Tenant's obligation under this Lease, Landlord
shall, on Monday through Friday, from 8:00 A.M. to 6:00 P.M., and on Saturday,
from 9:00 A.M. to 1:00 P.M., excepting state and federal holidays, provide to
the Premises heating, ventilation and air-conditioning ("HVAC") when, in the
judgment of Landlord, it may be required for the comfortable occupancy of the
Premises for general office purposes (subject, however, to any governmental act,
proclamation or regulation). Landlord shall not be responsible for any room
temperatures if Tenant's lighting and receptacle loads exceed the capacity of
Building Standard lighting and receptacles or the limits imposed by any
governmental authority. Landlord hereby reserves the right to modify the
Business Hours of the Building set forth above as long as the total business
hours of the Building shall include at least ten (10) hours on Mondays through
Fridays and four (4) hours on Saturdays.
20.2 CLEANING. Subject to the full performance by Tenant of the all of
--------
Tenant's obligations under this Lease, Landlord shall provide janitorial
services to the Premises comparable to the janitorial services being provided by
comparable landlords of comparable office buildings in the vicinity of the
Building ("Comparable Buildings"), each evening, five (5) days per week (except
state and federal holidays), provided the Premises are used exclusively in
accordance with Article IV of the Lease, and are kept reasonably in order by
Tenant. Tenant shall pay to Landlord the cost of removal of any of Tenant's
refuse and rubbish to the extent the same exceeds the refuse and rubbish usually
attendant upon the use of the Premises for general purposes. Landlord shall
not be responsible or liable for any act of omission or commission on the part
of the persons employed to perform said janitorial services, and said janitorial
services shall be performed at Landlord's direction without interference by
Tenant or Tenant's Employees.
24
<PAGE>
20.3 ADDITIONAL SERVICES. Tenant agrees to immediately pay on demand all
-------------------
reasonable charges imposed by Landlord from time to time for all Building
services and utilities supplied to or used by Tenant in excess of or in addition
to those standard Building services and utilities which Landlord agrees to
provide Tenant in accordance with Sections 20.1 and 20.2 above (said excess and
additional building services and utilities are referred to as "Additional
Services"). Landlord may at any time cause a metering system or similar device
to be installed at Tenant's expense (which expense Tenant shall pay within ten
(10) working days of receipt of an invoice from Landlord covering the
installment cost of such metering system or similar device) to measure the
amount of building services, utilities and/or Additional Services consumed by
Tenant or used in the Premises.
20.4 LANDLORD'S RIGHT TO CEASE PROVIDING SERVICES. Landlord reserves the
--------------------------------------------
right in its sole and absolute discretion to reduce, interrupt or cease
providing the HVAC and janitorial services to the Premises or the Building, for
any or all of the following reasons or causes:
a. any accident, emergency, governmental regulation, or "act of
god," including, but not limited to, force majeure events; or
b. the making of any repairs, additions, alterations or
improvements to the Premises or the Building until said repairs, additions,
alterations or improvements shall have been completed.
No such interruption, reduction or cessation of any such services or
utilities shall constitute an eviction or disturbance of Tenant's use or
possession of the Premises or Building, or an ejection or eviction of Tenant
from the Premises, or a breach by Landlord of any of its obligations, or render
Landlord liable for any damages, including but not limited to any damages,
compensation or claims arising from any interruption or cessation of Tenant's
business, or entitle Tenant to be relieved from any of its obligations under the
Lease, or result in any abatement of Rent. In the event of any such
interruption, reduction or cessation, Landlord shall use reasonable diligence to
restore such service where it is within Landlord's reasonable control to do so.
ARTICLE XXI
-----------
SECURITY SERVICES
-----------------
21.1 LANDLORD'S OBLIGATION TO FURNISH SECURITY SERVICES. Tenant
--------------------------------------------------
acknowledges that Landlord does not furnish any security services to the
Premises or to the Building. Accordingly, Tenant shall have sole responsibility
for the protection of itself; Tenant's Employees and all property of Tenant and
Tenant's Employees located in, on or about the Premises or the Building.
Landlord reserves the right, in its sole discretion, to provide security
services to the Building at any time during the Term and to include the cost of
any such security services in the Operating Expenses for the Building.
Notwithstanding anything to the contrary contained in this Lease, (a) any
security service that may be provided by Landlord is intended solely for the
operation and benefit of the Building and is not intended for the benefit or
protection of the Premises or the invitees of Tenant and the other tenants
and/or occupants occupying space in the Building, and (b) Landlord and Tenant
shall not be liable to each other for injury, death or damage to or loss of
property by reason of Landlord's or Tenant's act or failure to act in providing
or maintaining any security in the Building.
21.2 TENANT'S RIGHT TO INSTALL SECURITY SYSTEM. If Tenant wishes to
-----------------------------------------
establish or install any automated and/or nonautomated security system in, on or
about the Premises, Tenant shall first notify Landlord of Tenant's plan for any
such system, and Landlord shall have the right to review and approve or
disapprove said plan in Landlord's discretion. If Landlord approves any such
plan and Tenant establishes or installs any automated and/or non-automated
security system in, on or about the Premises, and should such system adversely
affect the Premises or the Building or the desirability of the Premises or the
Building as office space, or as an office building, or have an adverse effect
on other tenants respectively, Landlord shall subsequently have the right to
review Tenant's security system from time to time and request Tenant to make
changes in personnel and/or equipment. Tenant shall make such requested changes
immediately thereafter. Landlord shall have no obligation to maintain, service
or
25
<PAGE>
respond to Tenant's security system. Tenant hereby indemnifies and holds
Landhord harmless from and against any and all claims, losses and damages
(including, but not limited to actual and consequential damages) by or on behalf
of Tenant, or any other person, including but not limited to its employees,
visitors, invitees, licenses or customers arising directly or indirectly from
Landlord's not maintaining, servicing or responding to Tenant's security system.
ARTICLE XXII
------------
SUBSTITUTED PREMISES
--------------------
Landlord shall have the right to relocate the Premises to another part of
the Building on the following terms and conditions:
a. The new premises shall be substantially the same in size,
dimensions, configuration, decor, and quality as the Premises described in this
Lease, and shall be placed in that condition by Landlord at its sole cost;
b. The physical relocation of the Premises shall be accomplished by
Landlord at its sole cost;
c. Landlord shall give Tenant at least sixty (60) days' notice of
Landlord's intention to relocate the Premises;
d. The physical relocation of the Premises shall take place on a
weekend, if practicable, and shall be accomplished as quickly as reasonably
practicable;
e. All documented, reasonable and actual out-of-pocket costs
incurred by Tenant as a result of the relocation, including, without limitation,
costs incurred in changing addresses on Tenant's then present stock of
stationery and business cards, directories, advertising, and other such items,
but excluding any lost revenues or any intangible costs, shall be paid by
Landlord;
f. If the relocated premises are smaller than the Premises as they
existed before the relocation, Basic Rent shall be reduced to a sum computed by
multiplying the Basic Rent by a fraction, the numerator of which shall be the
total number of RSF in the relocated premises, and the denominator of which
shall be the total number of RSF in the Premises before relocation; and
g. The parties shall immediately execute an amendment to this Lease
stating the relocation of the Premises and the reduction of the Basic Rent, if
any.
ARTICLE XXIII
-------------
RULES AND REGULATIONS
---------------------
Tenant shall faithfully observe and comply with the Building rules and
regulations ("Rules and Regulations"), a copy of which is attached to this Lease
as Exhibit "D", and all reasonable modifications and additions to the Rules and
Regulations from time to time put into effect by Landlord; provided, however,
that no modifications or additions to the Rules and Regulations shall interfere
with Tenant's permitted use of the Premises as set forth in Section 4.1.
Landlord shall not be responsible to Tenant for the nonperformance of any of the
Rules and Regulations by any other occupant or tenant of the Building.
ARTICLE XXIV
------------
HOLDING OVER
------------
24.1 SURRENDER OF POSSESSION. Tenant shall surrender possession of the
-----------------------
Premises immediately upon the expiration of the Term or termination of the
Lease. If Tenant shall continue to occupy or possess the Premises after such
expiration or termination without the
26
<PAGE>
consent of Landlord, then unless Landlord and Tenant have otherwise agreed in
writing, Tenant shall be a tenant from month-to-month. All the terms, provisions
and conditions of the Lease shall apply to this month-to-month tenancy except
those terms, provisions and conditions pertaining to the Term, and except that
the Basic Rent shall be immediately adjusted upward upon the expiration or
termination of the Lease to equal the greater of (a) one hundred fifty percent
(150%) of the then prevailing monthly rental rate for similar commercial space,
as determined by Landlord, or (b) one hundred fifty percent (150%) of the Basic
Rent for the Premises in effect under this Lease during the month which includes
the day immediately prior to the date of the expiration or termination of the
Lease. This month-to-month tenancy may be terminated by Landlord or Tenant upon
fifteen (15) days' prior notice to the nonterminating party. In the event that
Tenant fails to surrender the Premises upon such termination or expiration, then
Tenant shall indemnify and hold Landlord harmless against all loss or liability
resulting from or arising out of Tenant's failure to surrender the Premises,
including, but not limited to, any amounts required to be paid to any tenant or
prospective tenant who was to have occupied the Premises after said termination
or expiration and any related attorneys' fees and brokerage commissions.
24.2 PAYMENT OF MONEY AFTER TERMINATION. No payment of money by Tenant to
----------------------------------
Landlord after the termination of the Lease by Landlord, or after the giving of
any notice of termination to Tenant by Landlord which Landlord is entitled to
give Tenant under the Lease, shall reinstate, continue or extend the Term of
the Lease or shall affect any such notice given to Tenant prior to the payment
of such money, it being agreed that after the service of such notice or the
commencement of any suit by Landlord to obtain possession of the Premises,
Landlord may receive and collect when due any and all payments owed by Tenant
under the Lease, and otherwise exercise its rights and remedies. The making of
any such payments by Tenant shall not waive such notice, or in any manner affect
any pending suit or judgment obtained.
ARTICLE XXV
-----------
WAIVER
------
The waiver by Landlord or Tenant of any term, covenant, agreement or
condition contained in this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other term, covenant, agreement,
condition or provision of this Lease, nor shall any custom or practice which
may develop between the parties in the administration of the Lease be construed
to waive or lessen the right of Landlord or Tenant to insist upon the
performance by the other in strict accordance with all of the terms, covenants,
agreements, conditions, and provisions of the Lease. The subsequent acceptance
by Landlord of any payment owed by Tenant to Landlord under the Lease, or the
payment of Rent by Tenant, shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant, agreement, condition or provision of
the Lease, other than the failure of Tenant to make the specific payment so
accepted by Landlord, regardless of Landlord's or Tenant's knowledge of such
preceding breach at the time of the making or acceptance of such payment.
ARTICLE XXVI
------------
RIGHT TO PERFORMANCE
--------------------
All covenants and agreements to be performed by Tenant under the Lease
shall be performed by Tenant at Tenant's sole cost and expense. If Tenant shall
fail to perform any act on its part to be performed under the Lease, and such
failure shall continue for three (3) days after notice thereof to Tenant
(provided that no notice shall be required in cases of emergency), Landlord may,
but shall not be obligated to do so, without waiving or releasing Tenant from
any obligations of Tenant, perform any such act on Tenant's part to be made or
performed as provided in the Lease. All costs incurred by Landlord with
respect to any such performance by Landlord (including reasonable attorneys'
fees) shall be immediately paid by Tenant to Landlord.
27
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ARTICLE XXVII
-------------
PARKING
-------
Landlord shall maintain and operate, or cause to be maintained and
operated, a subterranean automobile parking facility ("Parking Facility").
Tenant shall have the right, so long as Tenant complies with the terms,
provisions and conditions of this Lease and is occupying the Premises, to park
in the Parking Facility the number of passenger size automobiles set forth in
provision (v) of the Fundamental Lease Provisions, which parking spaces shall be
unreserved. In the event that, from time to time, the Parking Facility is
renovated or replaced, in whole or in part, Landlord shall have the right to
relocate Tenant's parking privileges to other parking facilities on a temporary
basis. If only a portion of the Parking Facility is renovated or replaced (for
example, due to repairs to the air ventilation system or other maintenance
work), Landlord shall also have the right to relocate Tenant's parking
privileges within the Parking Facility, either by allocating different parking
spaces to Tenant, re-striping the parking areas within the Parking Facility or
by any other reasonable means.
Tenant shall pay Landlord (or Landlord's parking contractor, if so directed
by Landlord) the monthly charges established from time to time by Landlord (or
Landlord's parking contractor, as the case may be) for parking in the Parking
Facility, payable in advance, with Tenant's payment of Basic Rent. As of the
date hereof, there is currently no charge for each of Tenant's parking spaces.
No deductions from the monthly charge shall be made for days on which the
Parking Facility is not used by Tenant. Tenant may, from time to time, request
additional parking spaces, and if Landlord or its parking contractor shall
provide the same, such spaces shall be provided and used on a month-to-month
basis, and otherwise on the foregoing terms and provisions, and subject to such
monthly parking charges as Landlord, or Landlord's parking contractor, as the
case may be, shall establish from time to time.
Tenant shall at all times comply with all applicable ordinances,
rules, regulations, codes, laws, statutes and requirements of all federal,
state, county and municipal governmental bodies or their subdivisions respecting
the use of the Parking Facility. Landlord reserves the right to adopt from time
to time, modify and enforce reasonable rules (the "Rules") governing the use of
the Parking Facility, including any key-card, sticker or other identification or
entrance system, and hours of operation. Landlord may refuse to permit any
person who violates any such Rules to park in the Parking Facility, and any
violation of the Rules shall subject the car to removal, at such person's
expense from the Parking Facility.
The parking spaces hereunder shall be provided on an unreserved "first-
come, first-served" basis. Tenant acknowledges that Landlord has or may arrange
for the Parking Facility to be operated by an independent contractor, not
affiliated with Landlord. In such event, Tenant acknowledges that Landlord shall
have no liability for claims arising through acts or omissions of such
independent contractor. Landlord shall have no liability whatsoever for any
damage to property or any other items located in the Parking Facility, nor for
any personal injuries or death arising out of any matter relating to the Parking
Facility, and in all events, Tenant agrees to look first to its insurance
carrier and to require that Tenant's Employees look to their respective
insurance carriers for payment of any losses sustained in connection with any
use of the Parking Facility. Tenant hereby waives on behalf of its insurance
carriers all rights of subrogation against Landlord or Landlord's agents.
Landlord reserves the right to assign specific spaces, and to reserve spaces for
visitors, small cars, disabled persons and for other tenants, guests of tenants
or other parties, and Tenant and persons designated by Tenant hereunder shall
not park in any such assigned or reserved spaces. Landlord also reserves the
right to close all or any portion of the Parking Facility in order to make
repairs or perform maintenance services, or to alter, modify, re-stripe or
renovate the Parking Facility, or if required by casualty, strike, condemnation,
act of God, governmental law or requirement or other reason beyond Landlord's
reasonable control. In such event, Landlord shall refund any prepaid parking
rent hereunder, prorated on a per diem basis. If, for any other reason, Tenant
or persons properly designated by Tenant, shall be denied access to the Parking
Facility, and Tenant or such persons shall have complied with the provisions of
this Lease, Landlord's liability shall be limited to such parking charges
(excluding tickets for parking violations) incurred by Tenant or such persons in
utilizing alternative
28
<PAGE>
comparable parking, which amount Landlord shall pay upon presentation or
documentation supporting Tenant's claims in connection therewith.
Tenant may validate visitor parking by such method or methods as Landlord
or Landlord's parking contractor, as the case may be, may approve, at the
validation rate from time to time generally applicable to visitor parking.
Tenant agrees to acquaint all persons to whom Tenant assigns parking
spaces with any rules promulgated by Landlord with respect to the Parking
Facility and the parking privileges granted to Tenant herein.
ARTICLE XXVIII
--------------
MUST-TAKE SPACE
28.1 MUST-TAKE COMMENCEMENT DATE. Provided that no Tenant default exists
---------------------------
and subject to the terms and conditions set forth herein, Tenant shall lease the
Must-Take Space as set forth in Exhibit "A" from Landlord. The Lease of the
Must-Take Space shall commence on March 1, 1998, or the date actual possession
of the Must-Take Space is given to Tenant ("Must-Take Commencement Date").
28.2 BASE RENT AND ADDITIONAL RENT. The Base Rent per rentable square foot
-----------------------------
of the Must-Take Space shall be equal to the Base Rent per rentable square foot
in effect from time to time for the Initial Premises. Tenant's obligation to pay
Base Rent with respect to the Must-Take Space shall commence on the Must-Take
Commencement Date. Tenant's obligation to pay Additional Rent with respect to
the Must-Take Space shall also commence on the Must-Take Commencement Date.
ARTICLE XXIX
------------
QUIET ENJOYMENT
---------------
So long as Tenant pays all of the Rent due hereunder and performs all of
Tenant's other obligations hereunder, Landlord shall do nothing to affect
Tenant's right to peaceably and quietly have, hold and enjoy the Premises.
ARTICLE XXX
-----------
NOTICES
-------
Anything contained in any provision of this Lease to the contrary
notwithstanding, Tenant agrees, with respect to the Premises, to comply with and
remedy any default in this Lease or the Master Lease which is Tenant's
obligation to cure, within the period allowed to Landlord under the Master
Lease, even if such time period is shorter than the period otherwise allowed
therein due to the fact that notice of default from Landlord to Tenant is given
after the corresponding notice of default from Master Landlord to Landlord (as
Master Tenant under the Master Lease). Landlord agrees to forward to Tenant,
promptly upon receipt thereof by Landlord, a copy of each notice of default
received by Landlord in its capacity as Master Tenant under the Master Lease.
Tenant agrees to forward to Landlord, promptly upon receipt thereof, copies of
any notices received by Tenant from Master Landlord, or from any governmental
authorities. All notices, demands and requests shall be in writing and shall be
sent either by hand delivery or by a nationally recognized overnight courier
service (e.g., Federal Express), in either case return receipt requested, to the
address of the appropriate party. Notices, demands and requests so sent shall be
deemed given when the same are received and addressed to the parties as follows:
If to Tenant, at the address(es) as specified for Tenant in provision(s) of the
Fundamental Lease Provision or to such other place as Tenant may from time to
time designate in notice to Landlord; if to Landlord, at the address(es)
specified in provision (t) of the Fundamental Lease Provisions or to such other
places as Landlord may from time to time designate in a notice to Tenant.
29
<PAGE>
ARTICLE XXXI
------------
BROKER
------
Landlord and Tenant represent and warrant to each other that no brokers
were involved in connection with the negotiation or consummation of this Lease
other than the brokers listed in provision (u) of the Fundamental Lease
Provisions. Each party agrees to indemnify the other, and hold it harmless, from
and against any and all claims, damages, losses, expenses and liabilities
(including reasonable attorneys' fees) incurred by said party as a result of a
breach of this representation and warranty by the other party.
ARTICLE XXXII
-------------
INTENTIONALLY OMITTED
---------------------
ARTICLE XXXIII
--------------
MISCELLANEOUS
-------------
33.1 SEVERABILITY. It is agreed that if any provision of this Lease shall
------------
be determined to be void by a court of competent jurisdiction, then such
determination shall not affect any other provision of this Lease and all such
other provisions shall remain in full force and effect.
33.2 ENTIRE AGREEMENT. It is understood and acknowledged that there are no
----------------
oral agreements between the parties hereto affecting this Lease and this Lease
supersedes and cancels any and all previous negotiations, arrangements,
agreements and understandings, if any, between the parties hereto with respect
to the subject matter hereof. This Lease contains all of the terms, covenants,
conditions, warranties and agreements of the parties relating in any manner to
the rental, use and occupancy of the Premises, and none of the terms, covenants,
conditions or provisions of this Lease can be modified, deleted or added to
except in writing signed by the parties hereto. All exhibits referred to herein
are incorporated by reference and made a part hereof.
33.3 CUMULATIVE RIGHTS. The various rights, options, elections, powers and
-----------------
remedies contained in this Lease shall be construed as cumulative and no one of
them shall (except as otherwise expressly provided herein) be exclusive of any
of the others, or of any other legal or equitable remedy which either party
might otherwise have in the event of breach or default in the terms hereof; and
the exercise of one right or remedy by such party shall not impair its right to
any other right or remedy until all obligations imposed upon the other party
have been fully performed.
33.4 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be
-----------------------
deemed or construed by the parties hereto or by any third person to create the
relationship of principal and agent or of partnership or of joint venture or of
any association between Landlord and Tenant.
33.5 SUCCESSORS. This Lease and all of the covenants and conditions
----------
herein contained shall be binding upon and shall inure to the benefit of the
heirs, executors, administrators, assigns and other successors in interest of
each of the parties; provided that the foregoing shall not be deemed to permit
any assignment or sublease under this Lease not otherwise expressly permitted by
the terms hereof.
33.6 CAPTIONS. The titles or captions in this lease are for reference
--------
purposes only and have no effect upon the construction or interpretation of any
part hereof. The use herein of the singular includes the plural and vice versa,
and the use herein of the neuter gender includes the masculine and the feminine
and vice versa, whenever and wherever the context so requires.
30
<PAGE>
33.7 AUTHORITY. Each individual executing this Lease on behalf of a party
---------
hereto hereby represents and warrants respectively that such party is a duly
formed and existing entity qualified to do business in California, that such
party has full right and authority to execute and deliver this Lease and that
such person signing on behalf of Tenant or Landlord is authorized to do so.
33.8 INDUSTRY CLASS. Landlord and Tenant acknowledge and agree that for
--------------
purposes of this Lease the Building is considered to be a Class A building by
currently applicable commercial office building industry standards. Whenever
reference is made herein to the industry class of the Building, such reference
shall mean "Class A" unless due to the passage of time the Building shall no
longer fall within such class for reasons other than Tenant's failure to perform
its obligations hereunder, in which case such reference shall mean the then
actual industry classification applicable to such Building. Any dispute as to
the industry class of the Building may be submitted by either party to
arbitration pursuant to Article XVII hereof after giving the other party fifteen
(15) days prior notice of the intention to do so.
33.9 ATTORNEYS' FEES. If either party commences litigation against the
---------------
other for the specific performance of this Lease, for damages for the breach
hereof or otherwise for enforcement of any remedy hereunder, the prevailing
party shall be entitled to recover from the other party such costs and
reasonable attorneys' fees as may have been incurred.
33.10 GOVERNING LAW. This Lease shall be construed and enforced in
-------------
accordance with the laws of the State of California
33.11 MODIFICATION FOR LENDER. Upon Landlord's or Master Landlord's
-----------------------
request, Tenant agrees to modify this Lease to meet the requirements of any or
all lenders or ground lessors selected by Landlord or Master Landlord who
request such modification as a condition precedent to providing any loan or
financing or to entering into any ground lease affecting or encumbering the
Building or any part thereof; provided that such modification does not (a)
increase the Basic Rent, or (b) alter the Term, or (c) materially adversely
affect Tenant's rights under this Lease.
33.12 NO RECORDATION. Landlord and Tenant agree that in no event and under
--------------
no circumstances shall the Lease be recorded by Tenant.
33.13 CONFIDENTIALITY. This Lease document and the terms of this Lease,
---------------
and the covenants, obligations, and conditions contained in this Lease shall
remain strictly confidential. Tenant agrees to keep such terms, covenants,
obligations and conditions strictly confidential and not to disclose such
matters to any other landlord, tenant, prospective tenant, or broker. Provided,
however, Tenant may provide a copy of this Lease to a non-party solely in
conjunction with Tenant's reasonable and good faith effort to secure an assignee
or sublessee for the Premises
33.14 HAZARDOUS MATERIALS. Tenant shall comply with all federal, state
-------------------
or local laws, ordinances or regulations relating to industrial hygiene and
environmental conditions on, under or about the Building including, but not
limited to, soil and ground water conditions. Without limiting the generality
of the foregoing, Tenant shall not transport, use, store, maintain, generate,
manufacture, handle, dispose, release or discharge any "Hazardous Material" (as
defined below) upon or about the Building, nor permit Tenant's Employees or
other occupants of the Premises to engage in such activities upon or about the
Building. However, the foregoing provisions shall not prohibit the
transportation to and from, and the use, storage, maintenance and handling
within, the Premises of substances customarily used in connection with normal
office use provided: (a) such substances shall be used and maintained only in
such quantities as are reasonably necessary for the permitted use of the
Premises set forth in provision (r) of the Fundamental Lease Provisions,
strictly in accordance with applicable laws and the manufacturers' instructions
therefore, (b) such substances shall not be disposed of, released or discharged
on the Building, and shall be transported to and from the Premises in compliance
with all applicable laws, and as Landlord shall reasonably require, (c) if any
applicable law or Landlord's trash removal contractor requires that any such
substances be disposed of separately from ordinary trash, Tenant shall make
arrangements at Tenant's expense for such disposal
31
<PAGE>
directly with a qualified and licensed disposal company at a lawful disposal
site (subject to scheduling and approval by Landlord), and shall ensure that
disposal occurs frequently enough to prevent unnecessary storage of such
substances in the Premises, and (d) any remaining such substances shall be
completely, properly and lawfully removed from the Building upon expiration or
earlier termination of this Lease.
Landlord shall have the right, at the following times, to enter the
Premises in order to inspect same and to conduct any testing, monitoring or
analysis reasonably required in connection therewith (collectively
"Inspection"):
a. Once in any calendar year upon reasonable notice to Tenant;
b. At any time during the Term of this Lease if, in Landlord's
reasonable judgement, Tenant is violating the use restrictions of this Lease or
is not in strict compliance with the regulations, rules or procedures of any
applicable governmental entity with respect to the transport, use, storage,
maintenance, generation, manufacturing, handling, disposal, release or discharge
of Hazardous Materials at the Premises, in which case Landlord shall give notice
to Tenant of the reason for the Inspection and Tenant shall provide Landlord
with access to the Premises for such Inspection within five (5) days of any such
notice; provided, however, that in an emergency situation Tenant will provide
Landlord with immediate access to the Premises.
If Tenant is violating the use restrictions of this Lease or is not in
strict compliance with the regulations, rules or procedures of the applicable
governmental entity, then all reasonable costs and expenses reasonably incurred
by Landlord in connection with any Inspection shall become due and payable by
Tenant as additional rent, within ten (10) days of presentation by Landlord of
an invoice therefor. If a dispute exists between Landlord and Tenant as to
whether Landlord has sufficient reason to believe that Tenant may be violating
the use restrictions of this Lease or may not be in compliance with any other
provision of this Lease or any applicable governmental entity with respect to
the transport, use, storage, maintenance, generation, manufacturing, handling,
disposal, release or discharge of Hazardous Materials at the Premises, Tenant
will provide Landlord with access to the Premises for an Inspection in
accordance with the provisions of the immediately preceding paragraph; provided,
however, that if there is no such violation or strict non-compliance, Landlord
shall be liable for the cost and expense incurred by Landlord in connection with
such Inspection.
Tenant shall promptly notify Landlord of: (i) any enforcement, cleanup or
other regulatory action taken or threatened by any governmental or regulatory
authority with respect to the presence of any Hazardous Material on the
Premises or the migration thereof from or to other property, (ii) any demands
or claims made or threatened by any party against Tenant or the Premises
relating to any loss or injury resulting from any Hazardous Material, (iii) any
release, discharge or nonroutine, improper or unlawful disposal or
transportation of any Hazardous Material on or from the Premises, and (iv) any
matters where Tenant is required by law to give a notice to any governmental or
regulatory authority respecting any Hazardous Material on the Premises.
Landlord shall have the right (but not the obligation) to join and participate,
as a party, in any legal proceedings or actions affecting the Premises
initiated in connection with any environmental, health or safety law. At such
times as Landlord may reasonably request, Tenant shall provide Landlord with a
written list identifying any Hazardous Material then used, stored, or
maintained upon the Premises, the use and approximate quantity of each such
material, a copy of any material safety data sheet ("MSDS") issued by the
manufacturer thereof; written information concerning the removal,
transportation and disposal of the same, and such other information as Landlord
may reasonably require or as may be required by applicable law. The term
"Hazardous Material" for purposes hereof shall mean any chemical, substance,
material or waste or component thereof which is now or hereafter listed,
defined or regulated as a flammable explosive, radioactive material, hazardous
or toxic chemical, substance, material or waste or component thereof (whether
injurious by themselves or in conjunction with other materials) by any federal,
state or local governing or regulatory body having jurisdiction, or which would
trigger any employee or community "right-to-know" requirements adopted by any
such body, or for which any such body has adopted any requirements for the
preparation or distribution of an MSDS. Without limiting the generality of the
foregoing, Hazardous Material shall include, but not be limited to substances
defined as "hazardous substances", "hazardous materials", or "toxic
32
<PAGE>
substances" in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq.; the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801 et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; and those
substances defined as "hazardous wastes" in Section 25117 of the California
Health & Safety Code or as "hazardous substances" in Section 25316 of the
California Health & Safety Code; and in the regulations adopted and
publications promulgated from time to time pursuant to said laws.
If any Hazardous Material is released, discharged or disposed of by
Tenant, Tenant's Employees or any other occupant of the Premises, on or about
the Building in violation of the foregoing provisions, Tenant shall immediately,
properly and in compliance with applicable laws clean up and remove the
Hazardous Material from the Building and any other affected property and clean
or replace any affected personal property (whether or not owned by Landlord), at
Tenant's expense. Such clean-up and removal work shall be subject to Landlord's
prior written approval (except in emergencies), and shall include, without
limitation, any testing, investigation, and the preparation and implementation
of any remedial action plan required by any governmental body having
jurisdiction or reasonably required by Landlord. If Tenant shall fail to comply
with the provisions of this Section within five (5) days after written notice by
Landlord, or such shorter time as may be required by applicable law or in order
to minimize any hazard to persons or property, Landlord may (but shall not be
obligated to) arrange for such compliance directly or as Tenant's agent through
contractors or other parties selected by Landlord, at Tenant's expense (without
limiting Landlord's other remedies under this Lease or applicable law). If any
Hazardous Material is released, discharged or disposed of on or about the
Building and such release, discharge or disposal is not caused by Tenant,
Tenant's Employees or other occupants of the Premises, such release, discharge
or disposal shall be deemed damage under Article VIII of the Master Lease to
the extent that the Premises or common areas serving the Premises are affected
thereby; in such case, Landlord and Tenant shall have the obligations and rights
respecting such damage provided under Article VIII of the Master Lease.
IN WITNESS WHEREOF, the parties have executed the Lease as of the
date first set forth above, acknowledged that each party has carefully read
each and every provision of the Lease, that each party has freely entered into
the Lease of its own free will and volition, and that the terms, conditions and
provisions of the Lease are commercially reasonable as of the day and year
first above written.
"LANDLORD"
ARAI CORPORATION OF AMERICA, INC.,
a Delaware Corporation
By: /s/ David Mgrublian
------------------------------------
Name: Printed: David Mgrublian
----------------------------------
Its: Agent
-----------------------------------
Date Executed: 2-18-97
-------------------------
"TENANT"
THE SHOPPERS' SOURCE,
a California Corporation
By: /s/ Bob McNulty
-----------------------------------
Name Printed: Bob McNulty
-------------------------
Its: President/CEO
----------------------------------
Date Executed: 2/14/97
------------------------
33
<PAGE>
EXHIBIT "A"
PREMISES
--------
[FLOOR PLAN APPEARS HERE]
34
<PAGE>
EXHIBIT "B"
CONSTRUCTION AGREEMENT
------------ ---------
Landlord, at Landlord's sole cost and expense, shall cause the tenant
improvements identified herein with the following description and as noted on
Exhibit "A":
. Paint and wallcover removal and skim (8,881 RSF).
. Remove flooring and replace new.
. New carpet base.
. Strip tile and seal concrete.
. New VCT, paint, and wallcover removal and skim (777 RSF).
All work will be performed by a licensed general contractor of Landlord's choice
and shall be completed during normal business hours. All work shall be completed
in accordance with approved plans and specifications of the local governing
authorities.
35
<PAGE>
EXHIBIT "C"
NOTICE OF LEASE TERM DATES
--------------------------
To:
Date:__________________________
RE: Lease dated February 6, 1997 between Arai Corporation of America, Inc., a
---------------- ---------------------------------
Delaware Corporation, Landlord, and The Shoppers' Source, a California
-------------------- -------------------- ------------
Corporation, Tenant, concerning the Garden Level located at 2101 East Coast
----------- ------------ ---------------
Highway, Corona Del Mar, California 92625.
-----------------------------------------
Gentlemen:
In accordance with the subject Lease, we wish to advise and/or confirm as
follows:
1. That the Premises have been accepted herewith by the Tenant as being
substantially complete in accordance with the subject Lease, and that
there is no deficiency in construction.
2. That the Tenant has possession of the subject Premises and
acknowledges that under the provisions of the subject Lease, the Term
of said Lease commenced as of__________ for a term of five (5) years,
--------------
ending on ___________.
3. That in accordance with the subject Lease, rental commenced to accrue
on _____________________.
4. If the Commencement Date of the subject Lease is other than the first
day of the month, the first billing will contain a pro rata
adjustment. Each billing thereafter shall be for the full amount of
the monthly installment as provided for in said Lease.
5. Rent is due and payable in advance on the first day of each and every
month during the term of said Lease. Your rent checks should be made
payable to:
ARAI CORPORATION OF AMERICA, INC.
C/O INVESTMENT DEVELOPMENT SERVICES, INC.
888 WEST SIXTH STREET, NINTH FLOOR
LOS ANGELES, CA 90017
ARAI CORPORATION OF AMERICA, INC.,
a Delaware Corporation
By: _______________________________________________
Name Printed: _____________________________________
Its: ______________________________________________
Date Executed: ____________________________________
(LANDLORD)
36
<PAGE>
AGREED AND ACCEPTED:
THE SHOPPERS' SOURCE,
a California Corporation
By: /S/ Bob McNulty
------------------------------------
Name Printed: Bob McNulty
--------------------------
Its: President/CEO
-----------------------------------
Date Executed: 2/14/97
-------------------------
(TENANT)
Attest: ________________________________
Name Printed: __________________________
Its: ___________________________________
[SEAL]
37
<PAGE>
EXHIBIT "D"
-----------
RULES AND REGULATIONS
---------------------
1. The sidewalks, entrances, exits, passages, parking areas, courts,
elevators, vestibules, stairways, corridors, terraces, lobbies or halls shall
not be obstructed or used for any purpose other than ingress and egress. The
halls, passages, entrances, exits, elevators and stairways are not for the use
of the general public, and Landlord shall retain the right to control and
prevent access thereto of all persons whose presence, in the judgment of
Landlord, is deemed to be prejudicial to the safety, character, reputation and
interests of the Building and its tenants. No Tenant or Tenant's Employee shall
go up on the roof of the Building.
2. No curtains, blinds, shades or screens shall be attached to or hung
in, or used in connection with, any window of the Premises other than
Landlord's standard window covering without Landlord's prior consent. All
electric ceiling fixtures hung in offices or spaces along the perimeter of the
Building must be fluorescent, of a quality, type, design and bulb color approved
by Landlord. Neither the interior nor exterior of any windows shall be coated or
otherwise sunscreened without consent of Landlord.
3. No signs, picture, placard, advertisement, notice, lettering,
direction or handbill shall be exhibited, distributed, painted, installed,
displayed, inscribed, placed or affixed by any Tenant on any part of the
exterior of Premises or the interior of the Premises which is visible from the
exterior of the Premises, the Building or the Project without the prior consent
of Landlord. In the event of the violation of the foregoing by any Tenant,
Landlord may remove same without any liability, and may charge the expense
incurred in such removal to the Tenant violating this rule. Interior signs on
doors shall be inscribed, painted or affixed for each Tenant by the Landlord at
Tenant's expense, and shall be of a size, color and style acceptable to the
Landlord. Nothing may be placed on the exterior of corridor walls or corridor
doors other than Landlord's building standard sign on the corridor door, applied
and installed by Landlord.
4. The Building directory will be provided exclusively for the display of
the name and location of tenants of the Building and Landlord reserves the
right to exclude any other names therefrom. Any additional name(s) which Tenant
shall desire to have placed on the Building directory must first be approved by
Landlord and paid for by the Tenant.
5. Tenant shall not drill into, or in any way deface any part of the
Premises. No boring, cutting or stringing of wires or laying of linoleum or
other similar floor coverings shall be permitted, except with the prior consent
of the Landlord.
6. No bicycles, vehicles, birds or animals of any kind shall be brought
into or kept in or about the Premises or the Building, and no cooking shall be
done or permitted by Tenant on the Premises, except that the preparation of
coffee, tea, hot chocolate and similar items for Tenant and Tenant's Employees
shall be permitted; provided, however, that the power required shall not exceed
that amount which can be provided by a 30-amp circuit. No Tenant shall cause or
permit any unusual or objectionable odors to be produced or to permeate the
Premises or the Building.
7. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the use of
the Premises for general office purposes. No Tenant shall occupy or permit any
portion of the Premises to be occupied as an office for a public stenographer
or typist or for the manufacture or sale of liquor, narcotics, or tobacco in
any form, or as a medical office, or as a barber or manicure shop, or as an
employment bureau, or as a travel agency, without the consent of Landlord. No
Tenant shall sell or permit the sale of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises. No
Tenant shall engage or pay any employees on the Premises except those actually
working for such Tenant on the Premises nor shall any Tenant advertise for
laborers giving an address at the Premises. The Premises shall not be used for
lodging or sleeping or for any immoral or illegal purposes.
38
<PAGE>
8. No Tenant shall make, or permit to be made, any unseemly noises which
disturb other occupants of the Building, whether by the use of any musical
instrument, radio, television, phonograph, screening room, loud, unusual or
disruptive noise, or in any other way. No Tenant shall use, keep or permit to be
used any foul or noxious gas or substance in, on or about the Premises.
9. No Tenant nor any of Tenant's Employees shall at any time bring or
keep within the Premises or the Building any flammable, combustible or explosive
fluid, chemical substance, or material. Electric spaceheaters shall not be used
at any time by Tenant.
10. No new or additional locks or bolts of any kind shall be placed upon
any of the doors by Tenant, nor shall any changes be made in existing locks or
the mechanism thereof without the prior consent of Landlord. If Landlord
consents to such a lock change, Tenant must furnish Landlord with a key. Tenant
must, upon the termination of its tenancy, give, return, and restore to Landlord
all keys of stores, offices, vaults, and toilet rooms, either furnished to, or
otherwise procured by Tenant, and in the event at any time of any loss of keys
so furnished, Tenant shall pay to Landlord the cost of replacing the same or of
changing the lock or locks opened by such lost key if Landlord shall deem it
necessary to make such changes.
11. Furniture, freight, packages, equipment, safes, bulky matter or
supplies of any description shall be moved in or out of the Building only after
the Building Manager has been furnished with prior notice and given his approval
and only during such hours and in such manner as may be prescribed by the
Landlord from time to time. The scheduling and manner of all Tenant move-ins and
move-outs shall be subject to the discretion and approval of Landlord, and said
move-ins and move-outs shall only take place after 6:00 P.M. on weekdays, on
weekends, or at such other times as Landlord may designate. Landlord shall have
the right to approve or disapprove the movers or moving company employed by
Tenant, and Tenant shall cause said movers to use only the loading facilities
and elevators designated by Landlord. In the event Tenant's movers damage the
elevator or any other part of the Project, Tenant shall immediately pay to
Landlord the amount required to repair said damage. The moving of safes or other
fixtures or bulky or heavy matter of any kind must be done under the Building
Manager's supervision, and the person employed by any Tenant for such work must
be acceptable to Landlord, but such persons shall not be deemed to be agents or
servants of the Building Manager or Landlord, and Tenant shall be responsible
for all acts of such persons. The Landlord reserves the right to inspect all
safes, freight or other bulky or heavy articles to be brought into the Building
and to exclude from the Building all safes, freight or other bulky or heavy
articles which violate any of these Rules or the Lease of which these Rules are
a part. The Landlord reserves the right to determine the location and position
of all safes, freight, furniture or bulky or heavy matter brought onto the
Premises, which must be placed upon supports approved by Landlord to distribute
the weight.
12. No furniture shall be placed in front of the Building, or in any lobby
or corridor or balcony, without the prior written consent of Landlord. Landlord
shall have the right to remove all non-permitted furniture, without notice to
Tenant, and at the expense of Tenant.
13. No Tenant shall purchase water, ice, towel, janitorial or maintenance,
or other like services, from any person or persons not approved in writing by
the Landlord. No Tenant shall obtain or purchase food or beverages on the
Project from any vendor or supplier except at hours and under regulations fixed
by Landlord.
14. Landlord shall have the right to prohibit any advertising by any
Tenant which, in Landlord's opinion, tends to impair the reputation of the
Building or its desirability as an office building and, upon written notice from
Landlord, Tenant shall immediately refrain from or discontinue such advertising.
15. Landlord reserves the right to exclude from the Building between the
hours of 6:00 P.M. and 7:00 A.M., Monday through Friday, and at all hours on
Saturday, Sunday, state and federal holidays, all persons who are not authorized
by Tenant. Such authorization shall be in accordance with procedures established
by Landlord in its sole and absolute discretion. Each Tenant shall be
responsible for all persons for whom it causes to be present in the Building and
39
<PAGE>
shall be liable to Landlord for all acts of such persons. In the case of
invasion, riot, public excitement, act of God, or other circumstance rendering
such action advisable in Landlord's opinion, Landlord reserves the right to
prevent access of all persons, including Tenant, to the Building during the
continuance of the same by such actions as Landlord may deem appropriate,
including the closing and locking of doors.
16. Any persons employed by Tenant to do any work in or about the Premises
shall, while in the Building and outside of the Premises, be subject to and
under the control and direction of the superintendent of the Building (but shall
not be deemed to be an agent or servant of said superintendent or of the
Landlord), and Tenant shall be responsible for all acts of such persons.
17. All doors opening onto public corridors shall be kept closed, except
when in use for ingress and egress. All doors leading to equipment and utility
rooms shall be kept closed.
18. Canvassing, soliciting and peddling in the Building are prohibited
and each Tenant shall cooperate to prevent the same.
19. All office equipment of any electrical nature shall be placed by
Tenant in the Premises in settings and locations approved by Landlord, to absorb
or prevent any vibration, noise and annoyance.
20. No air conditioning unit or other similar apparatus shall be installed
or used by Tenant without the consent of Landlord.
21. Tenant shall faithfully observe and comply with the terms of any and
all covenants, conditions and restrictions recorded against the Project.
22. Restrooms and other water fixtures shall not be used for any purpose
other than that which the same are intended, and any damage resulting to the
same from misuse on the part of Tenant or Tenant's Employees shall be paid for
by Tenant. Each Tenant shall be responsible for causing all water faucets, water
apparatus and utilities to be shut off before Tenant or Tenant's Employees leave
the Premises each day and Tenant shall be liable for any waste or damage
sustained by other tenants or occupants of the Building or Landlord as a result
of Tenant's failure to perform said duty.
23. In the event the Building or the Premises is or later becomes equipped
with an electronic access control device, Tenant shall give Landlord the sum of
twenty-five dollars ($25.00) for each identification key or card issued to
Tenant as a deposit against the return of the identification key or card to
Landlord.
24. For all purposes of this Exhibit "D", the term "Tenant" shall be
defined to include and encompass Tenant's Employees and Tenant's contractors.
40
<PAGE>
EXHIBIT "E"
-----------
INSURANCE REQUIREMENTS FROM CONTRACTORS & VENDORS
-------------------------------------------------
Landlord requires a Certificate of Insurance from all contractors and/or
vendors with the following insurance coverages:
l. Commercial General Liability
$1,000,000. Each occurrence/Aggregate should include Premises/
operations, contractual liability, products/completed operations
and fire legal liability
2. Workers' Compensation - Statutory Limits
3. Employer's Liability - $1,000,000.
4. Waiver of Subrogation and Additional Insured in favor of:
Arai Corporation of America, Inc.
---------------------------------
and Investment Development Services, Inc.
-----------------------------------------
5. Thirty (30) days written Notice of Cancellation to Landlord
6. Contractor's/Vendor's insurance is primary and non-contributory to
Landlord's insurance
The Certificate of Insurance should be sent to:
Arai Corporation of America, Inc.
and Investment Development Services, Inc.
2915 Redhill Avenue, Suite A21OB
Costa Mesa, CA 92626
41
<PAGE>
EXHIBIT "F"
-----------
CONFIRMATION REAL ESTATE AGENCY RELATIONSHIPS
---------------------------------------------
Property Name: 2101 East Coast Highway
-----------------------------------------------------------
Property Address: 2101 East Coast Highway, Garden Level
-----------------------------------------------------------
Corona del Mar, CA 92625
-----------------------------------------------------------
Lessor: Arai Corporation of America, Inc., a Delaware Corporation
-----------------------------------------------------------
Lessee: The Shoppers' Source, a California Corporation
-----------------------------------------------------------
Transaction Type: Lease Agreement
-----------------------------------------------------------
The following agency relationship(s) is/are hereby confirmed for this
transaction:
Listing Agent: Investment Development Services, Inc.
---------------------------------------------------------
is the agent of (check if applicable)
X The Lessor exclusively
---
___ Both Lessor and Lessee
___ Other: ________________________
Representing Agent: Hughes Realty
-----------------------------------------------------
(If not the same as listing agent)
is the agent of (check if applicable)
___ The Lessor exclusively
X The Lessee exclusively
---
___ Both Lessor and Lessee
___ Other: __________________________
Ownership (check if applicable)
___ Owner/Lessor is a licensed California Real Estate Agent
___ Owner/Lessor is an attorney
We hereby acknowledge the agency relationships and disclosures described above.
ARAI CORPORATION OF AMERICA, INC., THE SHOPPERS' SOURCE,
A DELAWARE CORPORATION A CALIFORNIA CORPORATION
Lessor: /s/ [ILLEGIBLE] Lessee: /s/ Bob McNulty/CEO
-------------------------- ------------------------
Bob McNulty
Date: 2-18-97 Date: 2/14/97
--------------------------- --------------------------
42
<PAGE>
EXHIBIT "G"
-----------
TENANT EMERGENCY DIRECTIVE
--------------------------
TENANT: THE SHOPPERS' SOURCE
--------------------------------------------------------------
ADDRESS: 2101 E COAST HIGHWAY, GARDEN LEVEL, CORONA DEL MAR, CA 92625
--------------------------------------------------------------
DURING BUSINESS HOURS (8:30 A.M.-5:00 P.M.)
CONTACT: BUSINESS PHONE FAX NUMBER
- ------- -------------- ----------
___________________________ ____________________ __________________
___________________________ ____________________ __________________
___________________________ ____________________ __________________
___________________________ ____________________ __________________
AFTER BUSINESS HOURS (5:00 P.M.-8:30 A.M.)
CONTACT: HOME PHONE
- ------- ----------
__________________________________________________ _________________
__________________________________________________ _________________
__________________________________________________ _________________
__________________________________________________ _________________
ALSO PLEASE INDICATE WHERE YOUR MONTHLY RENT STATEMENT SHOULD BE SENT:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
ALL CHECKS SHOULD BE MADE PAYABLE TO: ARAI CORPORATION OF AMERICA, INC.
----------------------------------------
Send Checks To: ARAI CORPORATION OF AMERICA, INC.
C/O INVESTMENT DEVELOPMENT SERVICES, INC.
888 WEST SIXTH STREET, NINTH FLOOR
LOS ANGELES, CA 90017
43
<PAGE>
EXHIBIT "H"
-----------
OPTION TO EXTEND TERM
---------------------
1 . OPTION: Tenant is given the option ("Renewal Option") to extend the Term of
------
this Lease, on all the provisions contained in this Lease except as to
Rent. Such Renewal Option shall be for an additional five (5) year period
(the "Option Term") following the expiration of the initial Term stated in
Section 1.5 of the Lease (the "Initial Term"). If Tenant elects to exercise
such Renewal Option, such Renewal Option shall be exercised by Tenant
giving written notice of exercise of the Renewal Option (the "Option
Notice") to Landlord at least six (6) months but not more than nine (9)
months before the expiration of the Initial Term. If such Option Notice is
not sent during such three (3) month period, such Renewal Option shall be
null and void.
2. OPTION PERSONAL: The Renewal Option is personal to Tenant and may not be
---------------
exercised or assigned, voluntarily or involuntarily, by, or to, any person
or entity other than Tenant. The Renewal Option is not assignable separate
and apart from this Lease. In the event that at the time the Renewal Option
is exercisable by Tenant, this Lease has been assigned, or a sublease
exists as to twenty percent (20%) or more of the Premises, the Renewal
Option shall be deemed null and void and Tenant, any assignee, or any
sublessee, shall not have the right to exercise the Renewal Option.
3. EFFECT OF DEFAULT ON RENEWAL OPTION: Tenant shall have no right to exercise
-----------------------------------
the Renewal Option, (i) if, at the time permitted for the exercise of such
Renewal Option, or at any time prior to the commencement of the Option
Term, an Event of Default has occurred under any of the provisions of this
Lease, or (ii) in the event that Landlord has given to Tenant two (2) or
more notices of default under this Lease during the twelve (12) month
period prior to the time that Tenant intends to exercise the Renewal
Option.
4. RENT DURING THE OPTION TERM: Tenant shall pay to Landlord, as Rent for the
----------------------------
Premises during the Option Term the higher of (i) the Renewal Rental Rate
(as hereinafter defined) or (ii) Rental paid in the month immediately prior
to the beginning of the Option Term, plus Tenants Pro Rata Share of the
Operating Expense Adjustment and all other charges pursuant to the Lease.
Renewal Rental Rate shall mean the rate being charged to new tenants for
comparable space by Landlord in the Building or, if not enough comparable
transactions exist in the Building, then the rate being charged to new
tenants for comparable space in similar buildings in the Newport
Beach/Corona del Mar area with similar amenities taking into consideration
the size, location, floor level, the proposed term of the Option Term, the
extent of the services to be provided and any other relevant terms and
conditions in each instance disregarding "tenant concessions", if any, then
being offered to prospective new tenants in the Building or comparable
buildings. The term "tenant concessions" shall include, without limitation,
so-called free rent, tenant improvement allowances, lease takeovers, etc.
All Rent payable during the Option Term shall be payable in the same manner
and under the same terms and conditions as Rent is paid during the Initial
Term.
5. DOCUMENTATION: Landlord and Tenant shall execute and deliver appropriate
--------------
documentation to evidence any renewal of the Lease and the terms and
conditions of the lease during the Option Term.
6. TERMS: All terms used in this Option to Extend, unless otherwise defined in
-----
this Option to Extend, shall have the same meaning as the terms defined in
the Lease.
7. RENEWAL RENTAL RATE: Landlord shall determine the Renewal Rental Rate by
--------------------
using its good faith judgment. Landlord shall use its best efforts to
provide written notice of such amount within thirty (30) days (but in no
event later than sixty (60) days) after Tenant sends the Option Notice to
Landlord exercising the Renewal Option. Tenant shall have fifteen (15) days
(the "Tenant's Review Period") after receipt of Landlord's notice of the
new rental within which to accept such rental or to reasonably object
thereto in writing. In
44
<PAGE>
the event Tenant objects, Landlord and Tenant shall attempt to agree upon such
Renewal Rental Rate, using their best good faith efforts. If Landlord and Tenant
fail to reach agreement within fifteen (15) days following tenant's Review
Period (the "Outside Agreement Date"), then each party's determination shall be
submitted to arbitration in accordance with Subsections (a) through (h) below.
Failure of Tenant to so elect in writing within the Tenant's Review Period shall
conclusively be deemed its approval of the new rental determined by Landlord. In
the event that Landlord fails to timely generate the initial written notice of
Landlord's determination of the Renewal Rental Rate which triggers the
negotiation period of this Section 7, then Tenant may commence such negotiations
by providing the initial notice, in which event Landlord shall have fifteen (15)
days ("Landlord's Review Period") after receipt of Tenant's notice of the new
rental within which to accept such rental. In the event Landlord does not
affirmatively in writing consent to Tenant's proposed rental, such proposed
rental shall be deemed rejected and Landlord and Tenant shall attempt in good
faith to agree upon such Renewal Rental Rate, using their best good faith
efforts. If Landlord and Tenant fail to reach agreement within fifteen (15) days
following Landlord's Review Period (which shall be, in such event, the "Outside
Agreement Date" in lieu of the above definition of such date), then each party's
determination shall be submitted to arbitration in accordance with Subsections
(a) through (h) below.
(a) Landlord and Tenant shall each appoint one arbitrator who shall by
profession be a real estate broker who shall have been active over the five
(5) year period ending on the date of such appointment in the leasing of
commercial low-midrise properties in the Pasadena area. Neither Landlord
nor Tenant may consult with such arbitrator before he or she is appointed.
Each such arbitrator shall be appointed within fifteen (15) days after the
Outside Agreement Date.
(b) Not later than ten (10) days after both arbitrators are appointed, each
party shall separately, but simultaneously submit in a sealed envelope to
each arbitrator their separate suggested Renewal Rental Rate and shall
provide a copy of such submission to the other party. If the higher rate
of the two submitted suggested Renewal Rental Rates does not exceed the
lower rate by more than five percent (5%), then the two rates shall be
added and then divided by two (thus splitting the difference and avoiding
additional arbitration costs) with the resulting dollar amount becoming the
Renewal Rental Rate.
(c) If the Renewal Rental Rate is not determined pursuant to Subsection (b)
above, the two (2) arbitrators so appointed shall, on or before fifteen
(15) days from the date of the appointment of the last appointed
arbitrator, agree upon and appoint a third arbitrator who shall be a real
estate lawyer (neither party or the arbitrators may consult with such
arbitrator regarding the determination of the Renewal Rental Rate prior to
such appointment) instead of a broker, but who otherwise shall be qualified
under the same criteria set forth hereinabove for qualification of the
initial two (2) arbitrators.
(d) The three (3) arbitrators shall, within thirty (30) days of the appointment
of the third arbitrator, reach a decision as to whether the parties shall
use Landlord's or Tenant's submitted Renewal Rental Rate, and shall notify
Landlord and Tenant thereof. The determination of the arbitrators shall be
limited solely to the issue of whether Landlord's or Tenant's submitted
Renewal Rental Rate for the Premises is closer to the actual Renewal Rental
Rate for the Premises as determined by the arbitrators, taking into account
the requirements of this Subsection (d) regarding same.
(e) The decision of the majority of the arbitrators shall be binding upon
Landlord and Tenant.
(f) If either Landlord or Tenant of the two (2) arbitrators fail to appoint an
arbitrator within the time period set forth above, the unappointed
arbitrator or arbitrators
45
<PAGE>
shall be appointed as quickly as possible by, and upon petition by either
Party to any court of competent jurisdiction.
(g) The cost of arbitration shall be paid by Landlord and Tenant equally.
(h) The arbitrators selected shall each be paid a fee of $2,000 ($1,000 to each
arbitrator), which fee shall be increased by $100 for each year which
elapses between the Commencement Date and date the Option Notice was sent.
46
<PAGE>
[LETTERHEAD OF INVESTMENT DEVELOPMENT SERVICES, INC.]
August 13, 1997
Mr. Bob McNulty
The Shoppers Source
2101 East Coast Highway, Garden Level
Corona del Mar, CA 92625
RE: SECOND AMENDMENT TO LEASE
2101 EAST COAST HIGHWAY, GARDEN LEVEL - ADDITIONAL 714 RSF
CORONA DEL MAR, CA 92625
Dear Bob:
Enclosed are four (4) copies of the above referenced Second Amendment to Lease
for your review and execution.
If you find the documents to be in order, please sign and initial where
indicated on all four (4) copies. Please retain one (1) copy for your files and
return three (3) copies to us so that we may forward these copies to the
Landlord for its review and approval. As Investment Development Services, Inc.
acts in the capacity of agent only, until Landlord reviews and approves this
Lease, the enclosed remains subject to further revision.
Please be advised that nothing contained herein or in the enclosed shall
constitute a commitment on the part of the Landlord to proceed with the
Amendment until such time as Landlord, in its sole and absolute discretion, has
executed and delivered the Amendment. Until such time as Landlord, in its sole
and absolute discretion, has executed and delivered the Amendment, Landlord
shall have the right to accept any offers from, and enter into a lease with,
third parties with respect to the subject premises.
Investment Development Services, Inc. employees are not permitted to give legal
advice. If you have any questions on the content of the enclosed documents, you
should consult your attorney or other advisors.
Should you have any questions or comments, please call.
Sincerely,
/s/ Cathryn DeFazio /s/ [ILLEGIBLE]
Cathryn DeFazio Richard E. Saeger
Site Manager Real Estate Manager
CD/j1
cc: Arai Corporation of America, Inc.
David Saeta
Sam Okuda
2915 Redhill Avenue, Suite A210B, Costa Mesa, California 92626/(714)
435-3544/FAX (714) 546-8640
<PAGE>
SECOND AMENDMENT TO LEASE DATED FEBRUARY 6, 1997 BY AND BETWEEN
ARAI CORPORATION OF AMERICA, INC., A DELAWARE CORPORATION, AS
LESSOR, AND THE SHOPPER'S SOURCE, A CALIFORNIA CORPORATION, AS
LESSEE, FOR THE PREMISES KNOWN AS 2101 EAST COAST HIGHWAY, GARDEN
LEVEL, CALIFORNIA 92625
This Second Amendment to Lease is dated July 23, 1997.
SECTION 1.2 - RENTABLE AREA:
- ----------------------------
This section shall be amended to include the northeast corner of the
Garden Level comprising of 714 rentable square feet. Approximate square
footage shall be amended to read 9,291 usable square feet and 9,595
rentable square feet. Commencing March 1, 1998 the total square footage
shall be 10,042 usable square feet and 10,372 rentable square which
incorporates the Must-Take Space.
SECTION 2.2 - TERM OF LEASE:
- ----------------------------
The Commencement Date for northeast corner of the Garden Level
comprising of 714 rentable square feet shall be July 1, 1997, and the
Termination Date shall be April 14, 2002.
SECTION 3 OF EXHIBIT C - NOTICE OF LEASE TERM DATES:
- ----------------------------------------------------
The Base Monthly Rental, on a Full Service Gross basis, shall be as
follows:
<TABLE>
<CAPTION>
GARDEN LEVEL 714 RSF TOTAL
------------ ------- -----
<S> <C> <C> <C>
July 1, 1997 - April 14, 1998: $ 8,969.81 $721.14 $ 9,690.95
April 15, 1998 - April 14, 1999: $10,237.48 $756.84 $10,994.32
April 15, 1999 - April 14, 2000: $10,720.38 $792.54 $11,512.92
April 15, 1999 - April 14, 2001: $11,203.28 $828.24 $12,031.52
April 15, 2001 - April 14, 2002 $11,686.18 $863.94 $12,550.12
</TABLE>
SECTION O. OF FUNDAMENTAL LEASE PROVISIONS - TENANT'S PRO RATA SHARE:
- ---------------------------------------------------------------------
Effective July 1, 1997 - 20.44%
Effective March 1, 1998 - 20.10%
SECTION P. OF FUNDAMENTAL LEASE PROVISIONS - SECURITY DEPOSIT:
- --------------------------------------------------------------
Lessor recognizes that Lessee has a security deposit of $8,881.00 by
virtue of the Lease Agreement dated February 7, 1997. Lessor requires an
additional security deposit of $721.14 for the northeast corner of the
Garden Level comprising of 714 RSF, bringing the total security deposit
to $9,602.14. Lessor agrees to hold said deposit throughout the term of
this Lease in accordance with Lease Agreement.
SECTION Q. OF FUNDAMENTAL LEASE PROVISIONS - TENANT IMPROVEMENTS:
- ----------------------------------------------------------------
Lessor shall not be required to participate financially in any tenant
improvements involving the northeast corner of the Garden Level
comprising of 714 RSF. All work completed in the leased premises shall
be performed by licensed contractors showing evidence of $1,000,000 in
general liability insurance naming Arai Corporation of America, Inc. and
Investment Development Services, Inc. as additional insured and proof of
worker's compensation coverage. All work shall be completed per building
and governmental code.
In addition, Lessor shall reserve the right to hire independent
contractors to perform inspections of any and all Tenant Improvement
work completed without prior consent. Lessee shall be responsible for
all costs associated with the inspections and any work necessary to
correct deficiencies.
<PAGE>
Second Amendment
July 23, 1997
Page 2
SECTION R. OF FUNDAMENTAL LEASE PROVISIONS - USE:
- -------------------------------------------------
The northeast corner of the Garden Level comprising of 714 RSF shall be
used for computer and equipment storage to comply with building and/or
governmental codes.
SECTION V. OF FUNDAMENTAL LEASE PROVISIONS - PARKING:
- -----------------------------------------------------
No additional parking shall be allocated for the additional space in the
northeast corner of the Garden Level comprising of 714 RSF.
SECTION 5.3 - LEGAL FEES RELATED TO UNAUTHORIZED ALTERATIONS:
- -------------------------------------------------------------
Lessee shall be financially responsible for any and all legal fees related
to their current Lease default regarding unauthorized expansion.
SECTION 20.5 - SIGNAGE:
- -----------------------
No additional signage shall be allocated for the additional space in the
northeast corner of the Garden Level comprising of 714 RSF.
All terms and conditions of the base Lease Agreement, except those modified or
amended herein, shall remain in full force and effect.
ARAI CORPORATION OF AMERICA, INC., THE SHOPPER'S SOURCE, A
A DELAWARE CORPORATION CALIFORNIA CORPORATION
By: By: /s/ Robert McNulty
------------------------- -------------------------
David G. Mgrublian Robert McNulty
Its: Agent Its: CEO
------------------------- -------------------------
Date: _________________________ Date: _________________________
"Lessor" "Lessee"
<PAGE>
EXHIBIT 10.08
ASSIGNMENT OF PROPERTY RIGHTS
-----------------------------
THIS ASSIGNMENT is made by and between Mark Winkler, an individual,
(hereinafter "ASSIGNOR") and THE SHOPPERS' SOURCE, a California corporation
(hereinafter "SHOPPERS'") with offices at 2101 E. Coast Highway, Garden Level,
Corona Del Mar, CA 92625.
With reference to the following facts:
A. ASSIGNOR has been an independent contractor and is now an
employee and has performed services fOR SHOPPERS' in connection with the
development of certain on-line shopping software identified hereinbelow as
Property; and
B. ASSIGNOR and SHOPPERS' have agreed that as between the parties,
all right, title and interest of the said Property shall belong to SHOPPERS' and
that assistance given to its creation by ASSIGNOR was for the purpose of
exclusive and worldwide ownership and usage by SHOPPERS'.
IN CONSIDERATION of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree to the following terms and conditions:
1. "Property" as used herein shall mean all tangible and intangible
property relating to the development of on-line shopping software which may or
may not be proprietary to ASSIGNOR and which ASSIGNOR may have assisted in
developing, in whatever form, state, or condition, including, but not limited
to, verbal or written communications, documents, works, devices, models,
pictures, drawings, notes, storyboards, film, tape, or any other embodiment,
prototypes, electronically stored information, any intellectual property
inherent therein (such as copyrights, patents, trademarks, trade dress, trade
names, trade secrets, or know-how), packaging, labels, advertisements, ideas, or
promotional literature, whether hereafter or heretofore communicated to
SHOPPERS', and whether or not SHOPPERS' has been involved or participated in the
creation or exploitation of any embodiment of such on-line shopping software.
2. ASSIGNOR warrants that to the best of his knowledge:
-1-
<PAGE>
a. He has title to the Property and has all power and authority to
assign Property as provided for herein; and
b. Property does not infringe any other person's, firm's or
corporation's copyright, patent, trade secret or property; and
c. Property is original with Assignor.
3. All right, title and interest, in and to the Property shall be
exclusive to SHOPPERS'.
4. ASSIGNOR will not disclose, use, publish, convey, or disseminate
the Property to anyone in written, oral, audio, visual or electronic form except
after obtaining the express written permission of SHOPPERS', and ASSIGNOR agrees
to make reasonable efforts to prevent any unauthorized use, disclosure,
publication, conveyance, or dissemination of said Property.
5. ASSIGNOR agrees that at any time, ASSIGNOR will not circumvent his
obligations to SHOPPERS' hereunder by using the Property without express written
authorization of SHOPPERS'. Further, ASSIGNOR will not usurp any business
opportunities which SHOPPERS' or any agent of SHOPPERS' made available to
ASSIGNOR pursuant to this Agreement.
6. ASSIGNOR acknowledges that the consideration for this Agreement is
the opportunity for SHOPPERS' to consider the Property and/or the opportunity
for ASSIGNOR to perform or to have performed services for SHOPPERS' as an
independent contractor or an employee and to be given the opportunity to acquire
shares of Common stock in SHOPPERS'.
7. The parties agree that in the event of any breach of this Agreement
by ASSIGNOR, SHOPPERS' shall be entitled to immediate relief by preliminary
and/or permanent injunction and that breach of this Agreement will result in
irreparable and immeasurable harm to SHOPPERS'.
8. Although ASSIGNOR was not an employee of SHOPPERS', it is
understood that ASSIGNOR has become an employee, and if so, ASSIGNOR agrees that
all material, ideas and inventions pertaining to the business of SHOPPERS' or of
any customer or client of SHOPPERS', including, but limited to all patents and
copyrights thereon and renewals and extensions thereof and the names, addresses
and telephone numbers of customers of SHOPPERS', shall belong solely to
SHOPPERS', except for any idea or invention for which no equipment, supplies,
facility or trade secret information of SHOPPERS' was used and which is not
encompassed, the subject of this agreement and was not developed entirely on
employee's own time and having no relationship whatsoever to the subject matter
of the Property of this agreement, and (a) which does not relate at the time of
conception or reduction to practice of invention, (i) to the business of
SHOPPERS' or (ii) to SHOPPERS' actual or demonstrably anticipated research or
development, or (b) which does not result from any work performed by ASSIGNOR
for
-2-
<PAGE>
SHOPPERS'. By executing this agreement and initialing this page, ASSIGNOR
acknowledges that he has received notice from SHOPPERS' that the provisions of
this Section do not apply to any invention or Property which qualifies fully
under the Provisions of Section 2870 of the California Labor Code.
9. In the event of any disagreement, dispute, breach, termination,
litigation, arbitration, request for declaration of rights, or other
circumstance requiring resolution, either party shall resort only to, and the
exclusive forum for any such shall be, binding arbitration before the American
Arbitration Association in Los Angeles, California.
10. The obligations of ASSIGNOR under this Agreement continue in
perpetuity, even after the cessation of all relationships between ASSIGNOR and
SHOPPERS'.
11. The geographic scope of this Agreement is world-wide.
12. Should any portion of this Agreement be determined by a court of
law or arbitrator to be in conflict with any applicable law, then the validity
of the remaining portions of the Agreement shall not be affected thereby.
13. No term or provision of this Agreement may be amended, altered,
superseded, waived, released, discharged, or modified in any respect, except in
a writing signed by all the parties.
14. ASSIGNOR agrees that he shall indemnify and hold harmless SHOPPERS'
on any claim, demand, damage, debt, liability, account, remedy, cause of action,
action, cost, expense, or attorneys' fees arising out of or in connection with
any unauthorized use or disclosure of any of the Property.
15. Each and every representation, warranty, covenant, agreement, and
provision of this Agreement, shall inure to the benefit of and be binding on the
parties, and their predecessors, successors, and assigns, and their parent,
affiliated, and subsidiary corporations, and their partners, co-venturers,
officers, directors, shareholders, employees, insurers, attorneys, agents, and
representatives.
16. Each of the signatories to this Agreement hereby acknowledge and
represent that he has read this Agreement in its entirety and has had the
opportunity to consult with an attorney concerning the contents and consequences
of this Agreement, the Agreement being executed solely in reliance on his own
judgment,
-3-
<PAGE>
belief, and knowledge, that the terms of this Agreement contain the entire
agreement between the parties.
"ASSIGNOR":
Date: 7/3/97 /s/ Mark Winkler
------ ---------------------------
Mark Winkler
"SHOPPERS'":
Date: 7/10/97 /s/ Robert J. McNulty, CEO
------- ---------------------------
Robert J. McNulty, CEO
-4-
<PAGE>
EXHIBIT 10.09
[CITYSEARCH.COM LOGO]
August 19, 1997
Mr. Robert McNulty
Shopping.com
2101 East Coast Highway
Corona del Mar, CA 92625
Dear Bob,
We at CitySearch are pleased to be working with Shopping.com for our pilot in
electronic commerce. This letter will outline the terms of our relationship as
well as our respective roles and responsibilities.
DESCRIPTION OF THE PILOT
CitySearch will inaugurate electronic commerce capabilities for approximately
twelve existing customers (merchants) in Austin. Each customer will offer up to
twelve products for sale. Users will be able to access the CitySearch Electronic
Shopping Mall by clicking on buttons on the Austin home page, Austin shops and
services page, banners, and from within participating customer's infosites.
Once a user has seen a product description and has chosen to purchase the item,
the actual transaction will occur on Shopping.com's server. Shopping.com will
handle a variety of back-office activities, including:
. providing the "shopping cart" tools
. authenticating and verifying the purchaser's credit card
. communicating to the merchant that an order has been placed
. communicating to the purchaser when the order will be shipped
. collecting the payment from the user
. remitting the payment (less the credit card fee) to the merchant
. utilizing CitySearch provided design guidelines and page templates for the
pilot
The pilot will launch early in September and will run for a minimum of two
months. At end of two (or more) months, CitySearch will evaluate the pilot and
at that time decide whether and how opportunities within electronic commerce
should be pursued. An earlier termination of the pilot, though unlikely, will
remain our option.
CitySearch will provide banners for Shopping.com during the pilot in return for
the services Shopping.com will provide.
CITYSEARCH'S ROLES AND RESPONSIBILITIES
CitySearch's primary responsibilities in the pilot will be to:
. Develop, manage and monitor the electronic commerce program
. Select customers for participation in the pilot
. Market the program through the Austin CitySearch site
. Design banners and pages for participating customers
. Provide information to Shopping.com about merchants and SKUs
. Provide templated designs to Shopping.com for pages to be access on its server
<PAGE>
[LOGO OF CITYSEARCH.COM]
. Provide banners for Shopping.com on all owned-and-operated CitySearch shops
and services pages on a rotational basis
Develop, manage and monitor the electronic commerce program
- ----------------------------------------------------------
A representative of the CitySearch Product Management group will oversee the
pilot and coordinate all activities among CitySearch Pasadena (Home Office),
CitySearch Austin, and Shopping.com. This representative will be responsible
for day-to-day management of the pilot program and will be have the primary
responsibility for evaluating the pilot and determining its future.
Select customers for participation in the pilot
- -----------------------------------------------
CitySearch is currently in the process of selecting participants for the pilot.
We expect this process to be completed within the next two weeks. We will select
approximately 12 existing customers for the pilot, and each participant will be
offering up to 12 products and/or services for sale online. Potential customers
include bookstores, music stores, florists, gift shops, and restaurants.
Market the program through the Austin CitySearch site
- -----------------------------------------------------
We will promote the electronic commerce program through feature articles,
banners, buttons on the Austin home and shops and services area pages.
Design banners and pages for participating customers
- ----------------------------------------------------
Each existing infosite of participating customers will contain a new Electronic
Shopping page with subpages (one per product) listing detailed description and
photograph of the product/service available for sale online. Should a user wish
to purchase that item, a link will bring the user to another page residing on
the Shopping.com server that will allow to purchaser to select quantity,
color, size and other applicable variations and to complete the transaction.
We will also design banners for participating customers as another way to drive
traffic to these infosites and to create high awareness of the Electronic
Shopping Mall program.
Provide information to Shopping.com about merchants and SKUs
- ------------------------------------------------------------
In order for Shopping.com to provide its services, it will require vendor and
SKU identification. We will provide this information and update it as required.
Provide templated designs to Shopping.com for pages to be accessed on its server
- --------------------------------------------------------------------------------
Once a user links to the Shopping.com server to complete the transaction, the
look and feel will be similar to that of CitySearch. We will provide an HTML
template that Shopping.com will utilized on all pages related to the electronic
commerce pilot.
Provide banners for Shopping.com on all owned-and-operated CitySearch shops
- ---------------------------------------------------------------------------
and services pages on a rotational basis
- ----------------------------------------
We will place banners that link to Shopping.com on the Shops and Services area
page on each of the owned-and-operated CitySearch sites. These banners will
appear on a rotation basis, subject to inventory availability and other
Citysearch banner requirements. The amount of time that a banner appears on the
Shops and Service page will be no less than 25%.
<PAGE>
[LOGO OF CITYSEARCH.COM]
Shopping.com's Roles and Responsibilities
Shopping.com's primary responsibilities in the pilot will be to:
. Provide back-office support for the transaction and fulfillment of the goods
to be sold
. Provide customer support for merchants
. Provide customer support for purchasers
. Provide and maintain systems capable of supporting the pilot
Provide back-office support for the transaction and fulfillment of the goods to
- -------------------------------------------------------------------------------
be sold
- -------
The major activities involved in back-office support have already been listed.
These include: providing shopping cart tools, authenticating and verifying a
user's credit card, providing information to both the merchant and purchaser,
collecting payment from the user, and remitting the payment to the merchant.
These activities are among those that Shopping.com already has expertise in,
given its existing business. However, there might be pages that Shopping.com
will have to design or alter from existing templates, to take the purchaser
through the transaction process. Mock-ups of such pages are attached to this
letter.
The following steps of the transaction process will each require support (a page
design, link or action) by Shopping.com:
1. Shopping cart technology that allows the user to check contents of the
shopping cart
2. Ability to link back to CitySearch's Electronic Shopping mall to continue
shopping at a different merchant site so that only one checkout will be
required
3. Collect credit card information from purchaser securely
4. Confirm order with purchaser
5. Verify credit card number
6. Send order to merchant
7. Accept acknowledgement from merchant that product is in stock and will ship
8. Notify purchaser when product will ship
9. Receive invoice from merchant upon shipment of product
10. Remit money to merchant
Shopping.com ensures that its transaction server provides maximum security for
the purchaser, and is responsible for any claims arising from interception of an
unsecured transaction.
Provide customer support for merchants
- --------------------------------------
Shopping.com will be responsible for email, fax and telephone support of
merchants with issues arising from the electronic commerce program (i.e.
payment, fulfillment, and stock-outs). Of course, CitySearch will continue to
maintain the relationship with its customers for all non-pilot issues.
Shopping.com will provide CitySearch with copies of faxes and email between
itself and merchants upon CitySearch request. Shopping.com will maintain records
of all such communications and transactions for a period of one year after the
pilot concludes.
Provide customer support for purchasers
- ---------------------------------------
Shopping.com will handle all communication with purchasers regarding credit
cards, fulfillment, etc. and will serve as the intermediary between the
purchaser and merchant. Shopping.com will be staffed around the clock with CSR's
who will be able to respond to purchaser questions. Shopping.com will provide
CitySearch will copies of faxes, email, and telephone logs upon CitySearch
request.
3
<PAGE>
[CITYSEARCH.COM LOGO]
Provide and maintain systems capable of supporting the pilot
- ------------------------------------------------------------
Shopping.com will, to the best of its efforts, ensure that its servers and
software are functioning 24 hours a day, 7 days a week. Whenever possible it
will employ redundant systems. In addition, Shopping.com will maintain a system
(servers, hardware and software) and personnel (CSR's) that is adequate to
handle the anticipated volume of traffic that the pilot will generate. We
believe, for example, that under normal circumstances the following times would
be considered standard and acceptable.
<TABLE>
<CAPTION>
Activity Time
- -------- ----
<S> <C>
Credit Card Verification 1 hr
Notify Merchant of Order 1 hr (after credit card is verified)
Notify Purchaser of Shipping 1 hr (after merchant provides shipping information)
Remit payment to merchant 3 days (after merchant provides invoice)
</TABLE>
INDEMNIFICATION
Shopping.com defends, indemnifies and holds CitySearch harmless from all fines,
penalties, suits, proceedings, claims demands, actions, causes of action,
losses, liabilities, costs, charges, expenses, judicial and extra-judicial fees
and disbursements, attorneys' fees, or damages (whether compensatory or
punitive), of any kind or nature, arising out of or otherwise connected with the
services provided by Shopping.com under the terms outlined in this letter. This
indemnification shall survive termination of the agreement.
GENERAL TERMS AND CONDITIONS
The agreement between CitySearch and Shopping.com will begin once the terms
outlined in this letter are mutually accepted and will terminate upon the
conclusion of the electronic commerce pilot.
Either party may cancel the agreement on 60 days' written notice.
Sincerely,
/s/ Michael Theodore
Michael Theodore
CitySearch
<PAGE>
EXHIBIT 10.10
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED OR
REGISTERED UNDER APPLICABLE STATE SECURITIES LAWS. THIS NOTE CANNOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR RELIANCE ON
AN EXEMPTION THEREFROM.
SUBORDINATED
PROMISSORY NOTE
$_______ Corona Del Mar, California _________, 1997
FOR VALUE RECEIVED, SHOPPING.COM, a California corporation ("Payor"),
promises to pay in lawful money of the United States of America to
___________________ ("Payee") or order at Corona Del Mar, California, the sum
of____________ Dollars ($___________) on or before______________, or upon the
closing of an Initial Public Offering, whichever is the earlier, together with
simple interest thereon commencing on the date hereof on the unpaid principal at
the rate of Ten percent (10%) per annum interest payable quarterly at the last
day of the third, sixth or ninth month from the date above, and continuing
thereafter until the entire unpaid balance of principal hereunder and interest
thereon are paid in full.
The unpaid principal and interest thereon may be prepaid without
penalty. Each payment due hereunder shall be credited first to interest then
due and the remainder, if any, to principal. The interest shall thereupon cease
upon the principal so credited.
If this Note is not paid when due ("Event of Default"), and such Event
of Default is incurred for five (5) business days after the holder hereof
provides the Payor written notice of such Event of Default, Payee may, at its
option, declare the entire amount of the then unpaid principal and interest
immediately due and payable. The Payor hereby waives presentment, notice of
dishonor and protest.
If action or suit is commenced to enforce any of the terms of
provisions hereof, the prevailing party in such action shall be entitled to such
reasonable attorneys' fees, costs and expenses as may be fixed by the court.
Subordination:
Payor agrees, and the holder hereof by accepting this Note likewise
agrees, that the payment of the indebtedness evidenced by this Note is
subordinated, to the extent set forth below.
This Section shall constitute a continuing offer to all persons who,
in reliance upon such provisions, become holders of, or continue to hold,
"Senior Debt" (as defined below), and such provisions are made for the benefit
of the holders of Senior Debt.
<PAGE>
Such holders are made obligees hereunder and they or each of them may enforce
such provisions. "Senior Debt" is defined herein to mean any and all past,
current or future indebtedness of Payor to any bank, savings and loan or other
institutional lender.
Upon any distribution to creditors of Payor in a liquidation or
dissolution of Payor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Payor or its property:
(i) holders of Senior Debt shall be entitled to receive payment in
full in cash of the principal of, and accrued interest to the date of payment
on, the Senior Debt before the holder hereof shall be entitled to receive any
payment of principal of or interest on this Note; and
(ii) until the Senior Debt is paid in full in cash, any distribution
of cash, securities or other property to which the holder hereof would be
entitled but for this Section shall be made to holders of Senior Debt as their
interest may appear, except that the holder hereof may receive securities that
are subordinated to Senior Debt to at least the same extent as this Note.
Nothing herein shall:
(i) impair, as between Payor and the holder hereof, the obligation of
Payor, which is absolute and unconditional, to pay principal and interest on
this Note in accordance with its terms;
(ii) affect the relative rights of the holder hereof and creditors of
payor other than holders of Senior Debt; or
(iii) prevent the holder hereof from exercising its available remedies
upon an Event of Default, subject to the rights of holders of Senior Debt to
receive distributions otherwise payable to the holder thereof.
If Payor fails because of this Section to pay principal or interest on
this Note on the due date, such failure shall still constitute an Event of
Default.
No right of any holder of Senior Debt to enforce the subordination of
the indebtedness evidenced by this Note shall be impaired by any act or failure
to act by Payor or by its failure to comply with this Note.
The holder hereof shall not at any time be charged with knowledge of
the existence of any facts which would prohibit the making of any payment to the
holder hereof unless and until it receives actual notice of such facts; and
prior to the receipt of any such notice, the holder hereof shall be entitled to
assume conclusively that no such facts exist. Payor, a representative of Payor
or a holder of Senior Debt may give such notice.
<PAGE>
The holder hereof by his acceptance hereof agrees to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Section.
SHOPPING.COM
a California corporation
By____________________________
Robert J. McNulty
President
Accepted:
________________________
<PAGE>
EXHIBIT 23.01
LEWIS, D'AMATO, BRISBOIS & BISGAARD LLP
September 23, 1997
Shopping.com
2101 E. Coast Highway
Garden Level
Corona Del Mar, CA 92625
Ladies and Gentlemen:
We consent to your filing our opinion addressed to you dated the date
hereof as an exhibit to the Registration Statement, No. _______, of
Shopping.com, and further consent to the filing of our opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for the registration of the Shares. We also consent to the
identification of our firm as legal counsel to the Company in the section of the
Prospectus (which is part of the Registration Statement) entitled "Legal
Matters."
Very truly yours,
LEWIS, D'AMATO, BRISBOIS & BISGAARD LLP
<PAGE>
EXHIBIT 23.02
[LETTERHEAD OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We have issued our report dated June 17, 1997, accompanying the financial
statements of Shopping.com contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registrations Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
September 23, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1998
<PERIOD-START> FEB-01-1996 FEB-01-1997
<PERIOD-END> JAN-31-1997 JUL-31-1997
<CASH> 63 289,392
<SECURITIES> 0 0
<RECEIVABLES> 23,000 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,063 404,678
<PP&E> 13,441 826,055
<DEPRECIATION> 1,276 25,124
<TOTAL-ASSETS> 39,184 1,449,701
<CURRENT-LIABILITIES> 117,831 1,444,581
<BONDS> 0 0
0 0
0 1,173,281
<COMMON> 23,050 25,650
<OTHER-SE> (101,697) (1,268,011)
<TOTAL-LIABILITY-AND-EQUITY> 39,184 1,449,701
<SALES> 0 55,541
<TOTAL-REVENUES> 0 55,541
<CGS> 0 50,509
<TOTAL-COSTS> 201,697 1,064,808
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 6,538
<INCOME-PRETAX> (201,697) (1,066,314)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (201,697) (1,066,314)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (201,697) (1,066,314)
<EPS-PRIMARY> (0.03) (0.17)
<EPS-DILUTED> (0.03) (0.17)
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