<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1998
FILE NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERWORLD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 7372
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
<CAPTION>
<S> <C>
DELAWARE 13--3818716
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
------------------------
395 HUDSON STREET, 6TH FLOOR
NEW YORK, NEW YORK 10014
(212) 301-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MICHAEL J. DONAHUE
CHAIRMAN
INTERWORLD CORPORATION
395 HUDSON STREET, 6TH FLOOR
NEW YORK, NEW YORK 10014
(212) 301-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
JULIE M. ALLEN, ESQ. ALAN SINGER, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP MORGAN, LEWIS & BOCKIUS LLP
30 ROCKEFELLER PLAZA 2000 ONE LOGAN SQUARE
NEW YORK, NEW YORK 10112 PHILADELPHIA, PENNSYLVANIA 19103
(212) 408-2400 (215) 963-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------------------------------
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value............................... $59,685,000 $17,608
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE RELATED REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 22, 1998
Shares
INTERWORLD CORPORATION
Common Stock
------------------
This is an initial public offering of shares of common stock of InterWorld
Corporation. InterWorld is offering shares and selling stockholders
identified in this prospectus are offering 1,325,000 shares. InterWorld will not
receive any proceeds from the sale of shares by the selling stockholders. There
is currently no public market for the shares. InterWorld expects that the
initial public offering price in the offering will be between $ and $
per share.
InterWorld has applied to have the common stock quoted on the Nasdaq
National Market under the symbol "INTW."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
<TABLE>
<CAPTION>
PER SHARE TOTAL(1)
--------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to the Company..................................... $ $
Proceeds to the Selling Stockholders........................ $ $
</TABLE>
- ------------------------------------
(1) InterWorld and certain selling stockholders have granted the underwriters an
option to purchase a maximum of additional shares from InterWorld
and an aggregate of 200,000 additional shares from such selling stockholders
to cover over-allotments of shares. If the option is exercised in full, the
total Public Offering Price will be $ , the total Underwriting
Discounts and Commissions will be $ , the total Proceeds to the
Company will be $ and the total Proceeds to the Selling
Stockholders will be $ .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The underwriters are offering the shares subject to various conditions and
may reject all or part of any order. It is expected that the shares will be
ready for delivery on or about , 1998 against payment in immediately
available funds.
CREDIT SUISSE FIRST BOSTON
INVEMED ASSOCIATES
HAMBRECHT & QUIST
Prospectus dated , 1998
<PAGE> 3
[INSIDE COVER ART]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements; Certain Defined Terms........... 11
Use of Proceeds............................................. 11
Dividend Policy............................................. 11
Dilution.................................................... 13
Capitalization.............................................. 14
Selected Consolidated Financial Data........................ 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 24
Management.................................................. 34
Certain Transactions........................................ 41
Principal and Selling Stockholders.......................... 44
Description of Capital Stock................................ 46
Shares Eligible for Future Sale............................. 48
Underwriting................................................ 49
Notice to Canadian Residents................................ 51
Legal Matters............................................... 52
Experts..................................................... 52
Change in Independent Accountants........................... 53
Additional Information...................................... 53
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------------------
InterWorld was incorporated in Delaware in 1995. InterWorld's principal
executive offices are located at 395 Hudson Street, 6th Floor, New York, New
York 10014, (212) 301-2500. InterWorld's website is located at
www.interworld.com. INFORMATION IN THE COMPANY'S WEBSITE IS NOT A PART OF THIS
PROSPECTUS.
Unless otherwise stated, all information contained in this prospectus
assumes no exercise of the over-allotment option to purchase up to
shares of common stock granted by InterWorld and certain selling
stockholders to the underwriters of the offering. Also, unless otherwise stated,
all information contained in this prospectus reflects the conversion of all
outstanding shares of preferred stock into shares of common stock at the time of
the closing of the offering.
For the definition of certain capitalized terms, see "Forward-Looking
Statements; Certain Defined Terms."
InterWorld is a registered service mark and a trademark of the Company, and
Process-Centric is a trademark of the Company. Trademarks of other companies
appearing in this prospectus are the property of their respective holders.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in the common stock. You should read the entire
prospectus carefully.
THE COMPANY
InterWorld is a leading provider of enterprise-class, Internet commerce
software for business-to-business and business-to-consumer applications.
InterWorld's Internet commerce products, consisting of its Commerce Exchange
platform, application modules, tools and business adapters, provide a software
solution designed to enable businesses to conduct commerce over the Internet and
to more efficiently manage their selling chain processes. Specifically, the
InterWorld solution is designed to enable businesses to:
- increase revenues by expanding product availability through an
Internet-based distribution channel;
- reduce operating expenses by streamlining selling chain processes,
including sales, order management, fulfillment and customer service; and
- enhance customer service levels by offering on-line customer self-service
capabilities.
The InterWorld solution scales to meet the demands of large organizations
that have complex transactions within their enterprises and with their customers
and trading partners, high numbers of simultaneous users, high transaction rates
and large datastores. The InterWorld solution can be fully integrated into every
phase of the selling chain, from order entry to fulfillment, enabling an
organization to incorporate its Internet commerce solution with its existing
back office systems. The solution can be extended to access trading partner
systems and financial clearinghouses. The functionality and the ease of
implementing, maintaining and upgrading InterWorld's solution address what
InterWorld believes is a growing desire by businesses to maximize return on
investment by more effectively deploying, implementing and maintaining their
information systems. In addition, InterWorld provides comprehensive maintenance,
training, consulting and systems integration services to facilitate the
deployment and support of its products.
The InterWorld family of products includes the Commerce Exchange platform,
application modules, tools and business adapters. The products comprise a highly
modular system that simplifies customization to meet each customer's specific
requirements. The platform offers independence from specific databases,
operating systems and Web servers through the use of a sophisticated abstraction
layer that is accessible from application programming interfaces. The
applications and tools provide a complete framework for implementing Internet
commerce solutions based on client-specific objectives and business practices.
Business adapters enable integration of the Internet commerce solution with
other information systems within the organization or across the Internet within
a trading partner community.
The Internet provides an attractive medium for commerce because of its
global reach, accessibility, use of open standards and ability to enable
real-time interaction. As a result, organizations are increasingly connecting
their business processes to the Internet to facilitate and support
business-to-business and business-to-consumer commerce. International Data
Corporation estimates that Internet commerce revenue per year will grow from
approximately $10.6 billion in 1997 to approximately $223.1 billion in 2001.
Many businesses are looking to implement Internet commerce solutions that
apply the benefits of information technology to automate their selling chain
processes. Critical to such implementation is enterprise-class Internet commerce
software, which provides the basis for complex, mission-critical transactions
over the Internet. Before the commercial availability of such software, many
organizations built custom solutions or deployed low-end merchant servers.
1
<PAGE> 6
Organizations attempting to custom develop solutions face numerous problems, and
InterWorld believes few have succeeded in developing large scale Internet
commerce applications on a timely and cost-effective basis. Alternatively,
organizations deploying low-end merchant servers generally do not achieve the
functionality required for large enterprises. In response to these limitations,
businesses are seeking commercially available software solutions capable of
meeting enterprise-class standards. Forrester Research, Inc. estimates that the
Internet commerce software market will grow from $121 million in 1997 to $3.8
billion in 2002.
InterWorld's objective is to establish and maintain a leadership position
in the enterprise-class Internet commerce application software market.
InterWorld markets its products and services primarily through its global direct
sales organization, which includes nine offices in the U.S. and four
international offices. In addition, InterWorld has several strategic marketing
alliances, including relationships with Electronic Data Systems Corporation,
Federal Express Corporation, Hewlett-Packard Company and NCR Corporation. As of
March 31, 1998, InterWorld had over 45 customers, including Broderbund Software,
Inc., Cendant Corporation, Electronic Data Systems Corporation, Genesis Direct,
Inc., Micro Warehouse, Inc., Multiple Zones International, Inc. and Toys "R" Us
Inc.
2
<PAGE> 7
THE OFFERING
Common Stock Offered:
Offered by the Company........ shares
Offered by the Selling
Stockholders................ 1,325,000 shares
Total.................... shares(1)
Common Stock to be Outstanding
After the Offering............ shares(1)(2)
Selling Stockholders............ Michael J. Donahue, Chairman and co-founder
of InterWorld; Joseph C. Robinson, a
director and co-founder of InterWorld;
Robert L. Zangrillo, a principal stockholder
and co-founder of InterWorld; and Global
Retail Partners, L.P. and certain of its
affiliates.
Use of Proceeds................. InterWorld expects to use the net proceeds
from the sale of shares offered by it for
working capital and general corporate
purposes. See "Use of Proceeds." InterWorld
will not receive any proceeds from the sale
of shares offered by the selling
stockholders.
Dividend Policy................. InterWorld currently intends to retain all
future earnings to fund the development and
growth of its business. Therefore,
InterWorld does not currently anticipate
paying cash dividends. See "Dividend
Policy."
Proposed Nasdaq National Market
Symbol........................ INTW
- ------------------------------------
(1) If the underwriters exercise the option granted to them in connection with
the offering to purchase additional shares of common stock
from InterWorld and 200,000 additional shares from certain selling
stockholders to cover over-allotments, the total number of shares to be
offered would increase by up to shares, and the total number
of shares to be outstanding after the offering would increase by up to
shares.
(2) Outstanding shares do not include 6,257,614 shares of common stock reserved
for issuance under InterWorld's stock option plan, of which options to
purchase 3,537,457 shares of common stock were outstanding as of June 15,
1998 at a weighted average exercise price of $2.87 per share, and 1,000,000
shares of common stock reserved for issuance under InterWorld's employee
stock purchase plan. See "Management -- Stock Plans." Outstanding shares
also do not include 444,656 shares of common stock reserved for issuance
under outstanding warrants at a weighted average exercise price of $6.42 per
share and warrants to purchase up to an additional 14,118 shares of common
stock at an exercise price of $9.775 per share that InterWorld has agreed to
issue in the event that InterWorld borrows under a line of credit. See
"Certain Transactions" and "Description of Capital Stock -- Warrants."
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
INCEPTION DECEMBER 31, MARCH 31,
(MARCH 28, 1995) TO ------------------- ------------------
DECEMBER 31, 1995 1996 1997 1997 1998
------------------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Product licenses............ $ 25 $ 779 $ 4,883 $ 491 $ 2,159
Services.................... 331 1,241 3,073 583 1,102
Other....................... 3 408 100 100 --
------ ------- -------- ------- -------
Total revenues,
net............... 359 2,428 8,056 1,174 3,261
Gross profit (loss)........... 228 289 927 (1,045) 2,060
Loss from continuing
operations(1)............... (264) (7,197) (21,675) (5,520) (3,716)
Basic loss per share and
diluted loss per share from
continuing
operations(1)(2)............ $(0.02) $ (0.53) $ (1.61) $ (0.41) $ (0.28)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------- --------------------
1995 1996 1997 1997 1998
----- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 50 $ 6,111 $ 6,081 $ 1,477 $ 12,952
Working capital (deficit)............ (286) 4,653 3,802 (1,722) 12,209
Total assets......................... 175 8,865 17,431 6,491 25,601
Mandatorily redeemable preferred
stock.............................. -- 13,431 37,319 14,211 47,199
Total stockholders' deficit.......... (189) (7,119) (28,795) (12,569) (30,082)
</TABLE>
--------------------------------------------------
(1) On March 30, 1998, InterWorld completed a spin-off
distribution of a subsidiary, ActionWorld, Inc., reducing its
majority ownership of ActionWorld to a minority interest of
approximately 18%. Since March 30, 1998, the Company's
minority interest in ActionWorld has decreased to
approximately 15% due to private equity financings by
ActionWorld. ActionWorld is an on-line retailer of game and
entertainment software that commenced operations in 1997.
ActionWorld has been presented as a discontinued operation in
InterWorld's consolidated statement of operations for the year
ended December 31, 1997. Including the results of ActionWorld,
InterWorld's net loss for the year ended December 31, 1997 is
$(23,612,000) and its basic loss per share and diluted loss
per share for 1997 is $(1.75). See Note 13 of Notes to
Consolidated Financial Statements.
(2) Upon the closing of the offering, all outstanding shares of
InterWorld's Series A preferred stock will automatically
convert into an aggregate of 7,539,999 shares of common stock.
For the periods ended December 31, 1997 and March 31, 1998,
the pro forma basic and diluted loss per share from continuing
operations reflecting the effects of the conversion would have
been $(1.20) and $(0.19), respectively. Pro forma basic and
diluted loss per share for the periods ended December 31, 1997
and March 31, 1998 would have been $(1.31) and $(0.19),
respectively. See Note 14 of Notes to Consolidated Financial
Statements.
4
<PAGE> 9
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of common stock of
InterWorld.
LIMITED OPERATING HISTORY; HISTORICAL LOSSES AND ACCUMULATED DEFICIT
InterWorld was incorporated in 1995 and has only a limited operating
history. Since inception, InterWorld has incurred substantial costs to develop
and market its products and has incurred net losses. As of March 31, 1998,
InterWorld had an accumulated deficit of $34.8 million. InterWorld expects that
its operating expenses will increase substantially in the foreseeable future as
it continues to develop its products, increase its sales and marketing efforts
and expand its international operations. Accordingly, InterWorld expects to
incur additional losses for the foreseeable future. It is difficult to predict
InterWorld's future results. InterWorld may never achieve or sustain revenue
growth or profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NEW MARKET; DEPENDENCE ON THE INTERNET
InterWorld's products facilitate electronic commerce over the Internet. The
market for InterWorld's products is new and rapidly evolving. The demand for
recently introduced products in a new and rapidly evolving market is uncertain.
The following factors highlight the uncertainty of market acceptance of
InterWorld's products, particularly by companies with complex selling chain
processes, on which InterWorld focuses its product development, sales and
marketing activities:
- the market is characterized by rapid technological changes and evolving
industry standards;
- there is intense competition in the Internet commerce software industry;
- the products are relatively expensive and require a large capital
commitment by the customer;
- InterWorld's customers may not be successful in using its products to
conduct their commercial operations electronically;
- consumers and businesses may not adopt electronic commerce; and
- the infrastructure necessary to support increased commerce on the
Internet may not develop.
InterWorld's future growth and success depends on the acceptance of the
Internet as a medium for commerce. The Internet may not become a viable
commercial marketplace because of consumer concerns regarding security,
reliability, cost, ease of use and quality of service. InterWorld will be
materially adversely affected if the Internet does not become a viable medium
for commerce or if its products are not widely accepted in the Internet commerce
software market.
PRODUCT AND CUSTOMER CONCENTRATION
Commerce Exchange and related products and services have accounted for most
of InterWorld's revenues to date. InterWorld expects Commerce Exchange and
related products and services to continue to account for most of its revenues
for the foreseeable future. InterWorld's future growth will depend on the
successful development and customer acceptance of enhanced versions of Commerce
Exchange and new products. InterWorld may not successfully develop or market any
enhanced or new products. Moreover, competition or technological change could
adversely affect the pricing of or demand for Commerce Exchange, which would
have a material adverse effect on InterWorld. In 1996, software license and
service revenues from Scholastic
5
<PAGE> 10
Corporation accounted for approximately 31% of InterWorld's total revenues and
from Cliggot Communications Inc. accounted for approximately 17% of total
revenues. In 1997, software license and service revenues from Toys "R" Us Inc.
accounted for approximately 11% of total revenues and from Electronic Data
Systems Corporation accounted for approximately 10% of total revenues. In the
three months ended March 31, 1998, software license and service revenues from
Cendant Corporation accounted for approximately 15% of total revenues and from
Electronic Data Systems Corporation accounted for approximately 11% of total
revenues. In addition, as of June 15, 1998, a majority of InterWorld's customers
were in the implementation phase of deploying InterWorld's software. As a
result, InterWorld's products are currently being used by only a limited number
of customers to conduct electronic commerce. If any of InterWorld's customers
experience difficulty implementing InterWorld's software or if the software once
implemented does not meet customers' expectations, InterWorld's reputation could
be damaged, which could have a material adverse effect on InterWorld. See
"Business -- Products" and "-- Customers."
COMPETITION
There is intense competition in the Internet commerce software industry,
particularly with respect to product performance, customer service and price.
InterWorld expects competition to continue and intensify in the future.
InerWorld competes against the in-house development efforts of companies engaged
in Internet commerce, as well as other software application vendors and
developers. InterWorld's current competitors include BroadVision, Inc.,
CommerceOne, Inc., Connect, Inc., International Business Machines Corporation
("IBM"), Microsoft Corporation, Netscape Communications Corporation, Open Market
Inc., Oracle Corporation and Pandesic LLC. InterWorld expects other companies to
enter its market. Many of InterWorld's present and potential competitors have
greater financial, technical, marketing and other resources than InterWorld.
This may place InterWorld at a disadvantage in responding to the offerings of
its competitors, technological changes or changes in customer requirements.
Also, many of its competitors can take advantage of greater name recognition,
more extensive customer bases and a broader range of product offerings.
InterWorld will be materially adversely affected if it is not able to compete
successfully. See "Business -- Competition."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
InterWorld's quarterly operating results will generally depend on the
volume and timing of sales of its products, which are difficult to predict.
InterWorld plans to increase its operating expenses to achieve revenue growth.
If InterWorld's revenues do not increase as anticipated and InterWorld's
spending levels are not reduced accordingly, a significant decline in quarterly
operating results could occur. InterWorld expects to experience fluctuations in
quarterly operating results due to many factors, including:
- the size and timing of significant customer agreements (which typically
occur near the end of its fiscal quarter);
- the length of the sales cycle for InterWorld's products;
- fluctuations in demand for the InterWorld's products;
- the introduction of new products by InterWorld or its competitors;
- changes in prices by InterWorld or its competition;
- the timing and amount of expenditures by InterWorld;
- the timing of the hiring of new personnel; and
- general economic conditions.
6
<PAGE> 11
In addition, InterWorld believes, based on general software industry trends,
that sales of its products will typically be highest in the fourth quarter of
the year and lowest in the first quarter. As a result, period-to-period
comparisons of InterWorld's results of operations may not be meaningful, and you
should not rely on them as an indication of future performance. It is also
likely that in some future quarter InterWorld's operating results will not meet
the expectations of analysts and investors. In that case, the price of the
common stock is likely to decline. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON SYSTEMS INTEGRATORS
InterWorld has established strategic relationships with systems integrators
that expand the distribution of its products. InterWorld's growth will depend,
in part, on maintaining and expanding such relationships. InterWorld may not be
able to develop or maintain relationships with systems integrators. If systems
integrators adopted, or promoted more vigorously, a competing product or
technology, InterWorld would be materially adversely affected. In addition, if
the systems integrators with which InterWorld has a strategic relationship are
not successful in selling systems that include InterWorld's products, InterWorld
would be materially adversely affected. See "Business -- Strategy" and "-- Sales
and Marketing."
RISK OF TECHNOLOGICAL CHANGE
The Internet commerce software industry is characterized by rapid
technological change. Technological change can render products obsolete.
InterWorld's success depends, in part, on its ability to respond to
technological change in a timely and cost-effective manner. If InterWorld is not
able to successfully respond to technological change, it could be materially
adversely affected.
RISK OF PRODUCT DEFECTS
Software products, such as those developed by InterWorld, may contain
undetected errors that become apparent when the products are introduced or when
the volume of usage increases. Errors in InterWorld's products, implementation
errors or other performance difficulties could result in decreased sales of its
products, increased service and warranty costs and liability to customers, which
could have a material adverse effect on InterWorld. InterWorld's risk of
liability to customers is particularly pronounced because of its belief that its
products will be critical to its customers' operations.
MANAGEMENT OF GROWTH
InterWorld has grown rapidly since it was incorporated in 1995.
InterWorld's rapid growth has placed, and is expected to continue to place, a
significant strain on its management and operations. To manage its growth,
InterWorld must continue to enhance its operating and financial systems,
infrastructure and controls. In the past, InterWorld has experienced certain
inefficiencies in its operating and financial systems, infrastructure and
controls. InterWorld must also expand, train and manage its employee base.
InterWorld's growth will also depend on its ability to expand its sales and
marketing organization, penetrate different markets and expand its capacity to
support a larger customer base. If InterWorld is unable to manage its growth
effectively, it would be materially adversely affected.
PROPRIETARY RIGHTS
Actions taken by InterWorld to establish and protect its proprietary rights
may be inadequate to prevent imitation of its products by others. Moreover,
others may claim violation of their proprietary rights by InterWorld.
BroadVision, Inc. and Open Market Inc., two of InterWorld's competitors, have
recently been issued U.S. patents on certain aspects of their electronic
commerce software products. Although InterWorld does not believe that it is
infringing their patent rights, either of those companies may claim that
InterWorld is doing so. If any such claim was made against InterWorld,
InterWorld could be materially adversely affected, particularly if it was
unsuccessful in defending such claim. See "Business -- Proprietary Rights."
7
<PAGE> 12
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
International expansion is a component of InterWorld's strategy. InterWorld
may not be successful in expanding its activities in international markets. Even
if InterWorld is successful in penetrating international markets, it will
confront additional technological challenges in keeping its international
product offerings current and conforming them to commercial standards in various
countries. In addition, there are risks in doing business in international
markets, including:
- changes in laws and regulations;
- export controls on encryption technology and other export restrictions;
- tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- political and economic instability; and
- fluctuations in currency exchange rates.
Any of these events could have a material adverse effect on InterWorld. See
"Business -- Strategy."
POSSIBLE NEED FOR ADDITIONAL FINANCING
InterWorld currently expects that its available cash resources, including
the net proceeds from the offering, will be sufficient to meet its working
capital requirements for at least the next twelve months. However, InterWorld
may need additional financing to support more rapid growth than currently
anticipated or to respond to competitive pressures or unanticipated
requirements. Additional financing, if needed, may not be available on
satisfactory terms or at all. Any additional equity financing may cause
investors to experience dilution. Any debt financing may result in restrictions
on InterWorld's spending or payment of dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DEPENDENCE ON KEY PERSONNEL
InterWorld believes that its ability to successfully implement its business
strategy and to operate profitably depends on continued employment of its
executive management team. If one or more members of the management team become
unable or unwilling to continue in their present positions, InterWorld could be
materially adversely affected. The Chief Financial Officer of InterWorld has
committed to accept an executive operating position with ActionWorld.
Accordingly, InterWorld is actively seeking to hire a new Chief Financial
Officer. See "Management."
CONTROL BY MANAGEMENT
Following the offering, InterWorld's executive officers and directors will
beneficially own a total of approximately % of the outstanding common
stock. Accordingly, if they act together, they can effectively control
InterWorld and they will effectively have the power to elect a majority of the
directors, appoint management and approve actions requiring the approval of a
majority of InterWorld's stockholders. The interests of management could
conflict with the interests of the other stockholders of InterWorld. See
"Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of InterWorld's common stock could decline as a result of
sales of a large number of shares in the market after the offering, or the
perception that such sales could occur. These factors also could make it more
difficult for InterWorld to raise funds through future offerings of common
stock.
8
<PAGE> 13
There will be shares of common stock outstanding immediately
after the offering. Of these shares, the shares sold in the
offering will be freely transferable without restriction or further registration
under the Securities Act of 1933, except for any shares purchased by
"affiliates" of InterWorld, as defined in Rule 144 under the Securities Act. The
remaining 20,057,385 shares outstanding will be "restricted securities" as
defined in Rule 144. These shares may be sold in the future without registration
under the Securities Act to the extent permitted pursuant to Rule 144 or an
exemption under the Securities Act. Holders of 7,414,999 shares of common stock
outstanding immediately after the offering will also have registration rights
enabling them to cause InterWorld to register their shares under the Securities
Act for sale. See "Description of Capital Stock -- Registration Rights."
In connection with the offering, InterWorld, its executive officers and
directors and certain of its stockholders, including the selling stockholders,
who will hold a total of shares outstanding after the offering have
agreed that, with certain exceptions relating to transfers that will not occur
in market transactions, they will not sell any shares of common stock without
the consent of Credit Suisse First Boston Corporation for one year after the
date of this prospectus. In addition, certain other stockholders, who will hold
a total of shares outstanding after the offering, have agreed that,
with certain exceptions relating to transfers that will not occur in market
transactions, they will not sell any shares of common stock for a period of 180
days after the date of this prospectus, or more than a total of
shares during the period from 181 days to 270 days after the date of this
prospectus, or more than a total of shares during the period from
271 days to one year after the date of this prospectus (plus any unsold shares
that could have been sold in the period from 181 to 270 days after the date of
this prospectus), in any case, without the consent of Credit Suisse First Boston
Corporation. See "Underwriting."
LACK OF PUBLIC MARKET FOR COMMON STOCK; DETERMINATION OF PUBLIC OFFERING PRICE
There has not been a public market for InterWorld's common stock.
InterWorld has applied for quotation of the common stock on the Nasdaq National
Market. InterWorld does not know the extent to which investor interest in
InterWorld will lead to the development of a trading market or how liquid that
market might be. The initial public offering price for the shares of common
stock will be determined through negotiations among InterWorld, the selling
stockholders and the underwriters of the offering. Investors may not be able to
resell their shares at or above the initial public offering price and may suffer
a loss on their investment. See "Underwriting."
CERTAIN ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK
Certain provisions of the Delaware General Corporation Law could make it
more difficult for a third party to acquire control of InterWorld, even if such
change in control would be beneficial to stockholders. The Certificate of
Incorporation provides that InterWorld's Board of Directors may issue preferred
stock without stockholder approval. Such issuance could make it more difficult
for a third party to acquire InterWorld. See "Description of Capital Stock."
BROAD DISCRETION AS TO USE OF PROCEEDS
InterWorld expects to use the net proceeds from the offering for working
capital and general corporate purposes. InterWorld is unable to identify the
specific uses to which the net proceeds will be applied. Accordingly,
InterWorld's management will have broad discretion with respect to the
expenditure of the proceeds. Actual expenditures for product development, sales
and marketing, international expansion and other purposes will depend on market
and other conditions existing in the future. Investors will be relying on the
judgment of InterWorld's management regarding the application of the proceeds.
See "Use of Proceeds."
9
<PAGE> 14
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share will exceed the net tangible
book value per share. Accordingly, the purchasers of shares sold in the offering
will experience immediate and substantial dilution in their investment. See
"Dilution."
ABSENCE OF DIVIDENDS
InterWorld does not anticipate paying any cash dividends on its common
stock in the foreseeable future. See "Dividend Policy."
10
<PAGE> 15
FORWARD-LOOKING STATEMENTS;
CERTAIN DEFINED TERMS
Certain statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements include, without limitation, statements about the
market opportunity for Internet commerce software solutions, InterWorld's
strategy, new product development, competition, expected expense levels,
seasonality and the adequacy of InterWorld's available cash resources and other
statements contained herein that are not historical facts. When used in this
prospectus, the words "anticipate," "believe," "estimate" and similar
expressions are generally intended to identify forward-looking statements, but
are not the exclusive expressions of forward-looking statements. Because such
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements, including but not
limited to changes in general economic and business conditions (including in the
Internet commerce software industry), actions of competitors, InterWorld's
inability to recover its material costs in sales of its products and services,
the extent to which InterWorld is able to develop new products, including
products related to Commerce Exchange, and markets for its products, the time
required for such development, the level of demand for such products, product
defects, changes in InterWorld's business strategies and other factors discussed
under "Risk Factors."
As used in this prospectus (this "Prospectus"), unless the context requires
otherwise, "InterWorld" or the "Company" means InterWorld Corporation and its
consolidated subsidiaries. As used in this Prospectus, "Common Stock" means the
common stock, $.01 par value per share, of InterWorld; "Offering" means the
offering of Common Stock contemplated by this Prospectus; "Securities Act" means
the Securities Act of 1933, as amended; "Selling Stockholders" means Michael J.
Donahue, Joseph C. Robinson, Robert L. Zangrillo and Global Retail Partners,
L.P. and certain of its affiliates; and "Underwriters" means the underwriters of
the Offering.
USE OF PROCEEDS
The Company estimates that it will receive net proceeds from the sale of
shares in the Offering of approximately $ million, based upon an
assumed initial public offering price of $ and after deduction of
underwriting discounts and commissions and expenses payable by the Company,
estimated at $ . The Company estimates that it will receive
additional net proceeds of up to $ million if the Underwriters exercise the
option granted to them in connection with the Offering to purchase additional
shares from the Company to cover over-allotments. The Company expects to use the
net proceeds for working capital and general corporate purposes, including
development, sales and marketing, international expansion and capital
expenditures. The Company may use a portion of the net proceeds to fund possible
acquisitions of businesses and technologies that are complementary to those of
the Company. The Company currently has no agreements, and is not engaged in any
negotiations, with respect to any acquisitions. Pending use of the net proceeds,
the Company intends to invest the net proceeds in short-term, investment grade
securities. See "Risk Factors -- Broad Discretion as to Use of Proceeds."
InterWorld will not receive any proceeds from the sale of shares by the Selling
Stockholders.
DIVIDEND POLICY
Historically, InterWorld has not paid cash dividends on its Common Stock.
InterWorld currently intends to retain all future earnings to fund the
development and growth of its business. Therefore, InterWorld does not currently
anticipate paying any cash dividends. Future decisions
11
<PAGE> 16
regarding cash dividends on the Common Stock will be made by InterWorld's Board
of Directors and will depend on the Company's results of operations, financial
position, capital requirements, general business conditions, restrictions
imposed by financing arrangements, if any, legal and regulatory restrictions on
the payment of dividends and other factors the Board of Directors deems
relevant.
12
<PAGE> 17
DILUTION
As of March 31, 1998, InterWorld had a net tangible book value of
approximately $0.80 per share. Net tangible book value per share represents net
tangible assets (total assets less liabilities and intangible assets) of the
Company, divided by the total number of shares outstanding before the Offering
(after giving effect to the conversion of all outstanding shares of InterWorld's
mandatorily redeemable preferred stock into Common Stock). Without taking into
account any changes in net tangible book value after March 31, 1998, other than
to give effect to the Offering (at an assumed initial public offering price of
$ per share and after deduction of underwriting discounts and commissions
and expenses payable by the Company), the pro forma net tangible book value of
the Common Stock as of March 31, 1998 would have been approximately $ per
share. The following table shows the effect of the Offering as if it had
occurred at March 31, 1998 and illustrates the immediate increase in net
tangible book value of $ per share and an immediate dilution of $ per
share to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Net tangible book value per share as of March 31, 1998..... $0.80
Increase in net tangible book value per share attributable
to the Offering..........................................
-----
Pro forma net tangible book value per share as of March 31,
1998 after giving effect to the Offering.................
-----
Immediate dilution per share to new investors in the
Offering................................................. $
=====
</TABLE>
The following table summarizes, as of June 15, 1998, the differences
between the number of shares purchased from the Company, the total consideration
paid and the average price paid per share by the existing stockholders and by
new investors in the Offering at an assumed initial public offering price of
$ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)......... 21,382,385 % $48,807,847 % $2.28
New investors(1)................. $
---------- --- ----------- ---
Total.................. % $ %
========== === =========== ===
</TABLE>
- ------------------------------------
(1) Does not give effect to sales of shares by the Selling Stockholders. Sales
by the Selling Stockholders in the Offering will reduce the number of shares
held by existing stockholders to 20,057,385 shares, or % of the shares
outstanding (or 19,857,385 shares and %, if the over-allotment option
is exercised in full), and will increase the number of shares held by new
investors to shares, or % of the shares outstanding (or
shares and %, if the over-allotment option is exercised
in full). See "Principal and Selling Stockholders."
The calculation of pro forma net tangible book value per share and the
other computations above exclude shares issuable by the Company
upon exercise of the over-allotment option, 12,566 shares issued by the Company
since March 31, 1998 upon the exercise of stock options, 6,257,614 shares
reserved for issuance under the Company's stock option plan, 1,000,000 shares
reserved for issuance under the Company's employee stock purchase plan, 444,656
shares reserved for issuance under outstanding warrants and warrants to purchase
up to an additional 14,118 shares that the Company has agreed to issue in the
event that the Company borrows under a line of credit. See "Management -- Stock
Plans," "Certain Transactions" and "Description of Capital Stock -- Warrants."
13
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 (i) on an actual basis, (ii) on a pro forma basis giving effect
to the automatic conversion of all outstanding shares of InterWorld's
mandatorily redeemable preferred stock into Common Stock upon the consummation
of the Offering and (iii) as adjusted to give effect to the Offering (at an
assumed initial public offering price of $ per share).
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Mandatorily redeemable Series A convertible
preferred stock
($.01 par value; 8,200,000 shares authorized,
7,539,999 issued and outstanding actual, none
issued and outstanding pro forma and pro forma
as adjusted)................................... $ 47,199 --
Stockholders' equity:(1)
Preferred stock ($0.01 par value; 15,000,000
shares authorized; none issued and
outstanding actual, pro forma and pro forma
as adjusted)................................ -- --
Common stock ($0.01 par value, 27,000,000
shares authorized actual and 100,000,000
shares authorized pro forma; 13,829,820
issued and outstanding actual; 21,369,819
shares issued and outstanding pro forma;
shares issued and outstanding pro
forma as adjusted).......................... 138 214
Receivables on stock option exercises.......... (6) (6)
Additional paid-in capital..................... 4,635 51,758
Accumulated deficit............................ (34,849) (34,849)
-------- -------- --------
Total stockholders' (deficit) equity... (30,082) 17,117
-------- -------- --------
Total capitalization.............. $ 17,117 $ 17,117
======== ======== ========
</TABLE>
- ------------------------------------
(1) For a description of InterWorld's capital stock and the beneficial ownership
of the outstanding shares thereof, see "Principal and Selling Stockholders"
and "Description of Capital Stock." Outstanding shares do not include 12,566
shares issued since March 31, 1998 upon the exercise of stock options.
Outstanding shares also do not include 6,257,614 shares of Common Stock
reserved for issuance under InterWorld's stock option plan, of which options
to purchase 3,537,457 shares of Common Stock were outstanding as of June 15,
1998 at a weighted average exercise price of $2.87 per share, and 1,000,000
shares of Common Stock reserved for issuance under InterWorld's employee
stock purchase plan. See "Management -- Stock Plans." Outstanding shares
also do not include 444,656 shares of Common Stock reserved for issuance
under outstanding warrants at a weighted average exercise price of $6.42 per
share and warrants to purchase up to an additional 14,118 shares of Common
Stock at an exercise price of $9.775 per share that the Company has agreed
to issue in the event that the Company borrows under a line of credit. See
"Certain Transactions" and "Description of Capital Stock -- Warrants." Pro
forma authorized shares reflect an amendment to InterWorld's Certificate of
Incorporation to be effected prior to the Offering.
14
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below for the period from
inception (March 28, 1995) through December 31, 1995 and as of and for the years
ended December 31, 1996 and 1997 have been derived from the consolidated
financial statements of the Company included elsewhere in this Prospectus, which
have been audited by PricewaterhouseCoopers LLP, independent accountants. The
selected consolidated financial data below as of December 31, 1995 have been
derived from audited consolidated financial statements of the Company that are
not included in this Prospectus. The unaudited consolidated financial data below
as of and for the three months ended March 31, 1997 and for the three months
ended March 31, 1998 have been derived from unaudited financial statements of
InterWorld included elsewhere in this Prospectus. The unaudited financial data
as of March 31, 1997 have been derived from unaudited financial statements that
are not included in this Prospectus. The unaudited statements have been prepared
on the same basis as the audited statements and, in the opinion of InterWorld,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation thereof. Results for the three months ended
March 31, 1997 and 1998 are not indicative of results for the full year. You
should read the data below together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated financial
statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
INCEPTION YEAR ENDED THREE MONTHS ENDED
(MARCH 28, 1995) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------- ------------------
1995 1996 1997(2) 1997 1998(2)
-------------------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Product licenses............ $ 25 $ 779 $ 4,883 $ 491 $ 2,159
Services.................... 331 1,241 3,073 583 1,102
Other....................... 3 408 100 100 --
------ ------- -------- ------- -------
Total revenues,
net................ 359 2,428 8,056 1,174 3,261
------ ------- -------- ------- -------
Cost of revenues:
Product licenses............ 1 82 278 43 42
Services.................... 130 1,735 6,744 2,069 1,159
Other....................... -- 322 107 107 --
------ ------- -------- ------- -------
Total cost of
revenues........... 131 2,139 7,129 2,219 1,201
------ ------- -------- ------- -------
Gross profit (loss)........... 228 289 927 (1,045) 2,060
Operating expenses:
Research and development.... 234 2,362 6,863 1,263 2,003
Sales and marketing......... -- 2,435 8,487 1,729 2,192
General and
administrative............ 258 2,730 6,405 1,469 1,181
Noncash employee
compensation.............. -- 71 752 25 377
------ ------- -------- ------- -------
Total operating
expenses........... 492 7,598 22,507 4,486 5,753
------ ------- -------- ------- -------
Loss from operations.......... (264) (7,309) (21,580) (5,531) (3,693)
Total other income
(expense)................... -- 112 (95) 11 (23)
------ ------- -------- ------- -------
Loss from continuing
operations.................. (264) (7,197) (21,675) (5,520) (3,716)
Discontinued operations(1):
Expenses from discontinued
operations................ -- -- (1,310) (128) --
Provision for operating
losses
to date of disposition.... -- -- (627) -- --
------ ------- -------- ------- -------
Net loss...................... $ (264) $(7,197) $(23,612) $(5,648) $(3,716)
====== ======= ======== ======= =======
Basic loss per share and
diluted loss per share...... $(0.02) $ (0.53) $ (1.75) $ (0.42) $ (0.28)
====== ======= ======== ======= =======
Basic loss per share and
diluted loss per share from
continuing operations....... $(0.02) $ (0.53) $ (1.61) $ (0.41) $ (0.28)
====== ======= ======== ======= =======
</TABLE>
15
<PAGE> 20
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------- --------------------
1995 1996 1997 1997 1998
----- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 50 $ 6,111 $ 6,081 $ 1,477 $ 12,952
Working capital (deficit).............. (286) 4,653 3,802 (1,722) 12,209
Total assets........................... 175 8,865 17,431 6,491 25,601
Mandatorily redeemable preferred
stock................................ -- 13,431 37,319 14,211 47,199
Total stockholders' deficit............ (189) (7,119) (28,795) (12,569) (30,082)
</TABLE>
- ------------------------------------
(1) On March 30, 1998, InterWorld completed a spin-off distribution of a
subsidiary, ActionWorld, Inc., reducing its majority ownership of
ActionWorld to a minority interest of approximately 18%. Since March 30,
1998, the Company's minority interest in ActionWorld has decreased to
approximately 15% due to private equity financings by ActionWorld.
ActionWorld is an on-line retailer of game and entertainment software that
commenced operations in 1997. ActionWorld has been presented as a
discontinued operation in InterWorld's consolidated statement of operations
for the year ended December 31, 1997. See Note 13 of Notes to Consolidated
Financial Statements.
(2) Upon the closing of the Offering, all outstanding shares of InterWorld's
Series A preferred stock will automatically convert into an aggregate of
7,539,999 shares of Common Stock. For the periods ended December 31, 1997
and March 31, 1998, the pro forma basic and diluted loss per share from
continuing operations reflecting the effects of the conversion would have
been $(1.20) and $(0.19), respectively. Pro forma basic and diluted loss per
share for the periods ended December 31, 1997 and March 31, 1998 would have
been $(1.31) and $(0.19), respectively. See Note 14 of Notes to Consolidated
Financial Statements.
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
InterWorld is a leading provider of enterprise-class, Internet commerce
software for business-to-business and business-to-consumer applications.
InterWorld's Internet commerce products, consisting of its Commerce Exchange
platform, application modules, tools and business adapters, provide a software
solution designed to enable businesses to conduct commerce over the Internet and
to more efficiently manage their selling chain processes.
InterWorld derives revenues primarily from licensing its Internet commerce
software products and providing related services and support to its customers.
The Company's core product, Commerce Exchange, was commercially introduced in
December 1995.
The Company generally prices licenses of Commerce Exchange on a tiered
system based on the underlying hardware configuration. A typical prototype
configuration is available for a license fee of approximately $75,000. The
minimum production configuration that supports redundancy, fault-tolerance and
distributed load balancing across multiple processors is generally available for
a license fee of approximately $195,000. Licenses for product configurations
that support additional processors, servers and users are available for higher
license fees. Application modules, tools, business adapters and component
plug-ins are provided at an additional cost to the customer. See
"Business -- Products."
Revenue from customer product licenses is recognized upon shipment to the
customer under an executed software license agreement when no significant
Company obligations or contractual commitments remain and collection is
probable. If acceptance by the customer is required, revenue is recognized upon
customer acceptance. License revenue from resellers of the Company's products is
recognized upon shipment to the reseller when collection is probable.
Revenue from services such as custom development, implementation and
installation is recognized as the services are rendered. Revenue from services
requiring significant modification or customization of the Company's software
products is recognized on a percentage-of-completion basis. Revenue from
maintenance and customer support services is recognized ratably over the term of
the agreement for such services. The Company's license agreements typically
require the customer to purchase one year of maintenance and customer support
services.
The Company has incurred significant research and development expenses to
develop its products. The Company charges all research and development costs
incurred to establish the technological feasibility of a product or product
enhancement to research and development expense as incurred. In addition, the
Company has made substantial investments in its infrastructure to support
revenue growth.
17
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data for the
periods indicated expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
INCEPTION YEAR ENDED THREE MONTHS ENDED
(MARCH 28, 1995) DECEMBER 31, MARCH 31,
TO DECEMBER 31, ---------------- ------------------
1995 1996 1997 1997 1998
---------------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Revenues, net:
Product licenses............ 7.0% 32.1% 60.7% 41.8% 66.2%
Services.................... 92.2 51.1 38.1 49.7 33.8
Other....................... 0.8 16.8 1.2 8.5 --
----- ------ ------ ------ ------
Total revenues,
net............... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ====== ====== ====== ======
Cost of revenues:
Product licenses............ 0.3% 3.4% 3.5% 3.7% 1.3%
Services.................... 36.2 71.4 83.7 176.2 35.5
Other....................... -- 13.3 1.3 9.1 --
----- ------ ------ ------ ------
Total cost of
revenues.......... 36.5 88.1 88.5 189.0 36.8
----- ------ ------ ------ ------
Gross profit (loss)........... 63.5 11.9 11.5 (89.0) 63.2
Operating expenses:
Research and development.... 65.2 97.3 85.2 107.6 61.4
Sales and marketing......... -- 100.3 105.4 147.3 67.2
General and
administrative........... 71.8 112.4 79.5 125.1 36.2
Noncash employee
compensation............. -- 2.9 9.3 2.1 11.6
----- ------ ------ ------ ------
Total operating
expenses.......... 137.0 312.9 279.4 382.1 176.4
----- ------ ------ ------ ------
Loss from operations.......... (73.5) (301.0) (267.9) (471.1) (113.2)
Net loss...................... (73.5)% (296.4)% (293.1)% (481.1)% (114.0)%
===== ====== ====== ====== ======
</TABLE>
Total Revenues. Total revenues include revenues from product licenses,
services and sales of hardware. The Company's total revenues increased from $1.2
million in the three months ended March 31, 1997 to $3.3 million in the three
months ended March 31, 1998. The Company's total revenues increased from $2.4
million in 1996 to $8.1 million in 1997. These increases resulted primarily from
increased licenses of the Company's software products and, to a lesser extent,
from the provision of services to a larger customer base. Total revenues
increased from $0.4 million in the period ended December 31, 1995 to $2.4
million in 1996. This increase resulted primarily from the introduction of the
initial version of the Company's product in December 1995. During the period
from inception to December 31, 1995, the Company was principally engaged in
research and development of its software products and, as a result, the Company
recognized only a limited amount of revenue.
Cost of Revenues. Cost of product licenses revenues consists of royalties
payable to third parties for software that is embedded in or bundled with the
Company's products, the costs of product media, documentation and manufacturing
costs. Cost of services revenues consists primarily of costs related to
employees and consultants providing services and support. Total cost of revenues
decreased from $2.2 million in the three months ended March 31, 1997 to $1.2
million in the three months ended March 31, 1998. Total cost of revenues
increased from $2.1 million in 1996 to $7.1 million in 1997. Total cost of
revenues increased as a percentage of total revenues from 88.1% in 1996 to 88.5%
in 1997. In 1997, particularly during the earlier part of the year, the Company
hired outside consultants to supplement its professional services organization
and to provide services and support to its expanding customer base. During the
course of 1997, the
18
<PAGE> 23
Company hired additional personnel, which reduced its reliance on outside
consultants, and instituted implementation methodologies which resulted in
shorter implementation cycles. These measures, combined with the introduction of
enhanced versions of Commerce Exchange, reduced the Company's cost of revenues
as a percentage of total revenues. As a result, cost of revenues as a percentage
of total revenues decreased from 189.0% for the three months ended March 31,
1997 to 36.8% for the three months ended March 31, 1998. Total cost of revenues
increased from $0.1 million in the period ended December 31, 1995 to $2.1
million in 1996. Total cost of revenues increased as a percentage of total
revenues for these periods from 36.5% to 88.1%. In 1996, the Company began to
build its customer service and support infrastructure.
Research and Development. Research and development expenses consist of
costs related to research and development personnel, including salaries and
related expenses and consulting fees, and costs related to facilities and
equipment used in research and development. Research and development expenses
increased from $1.3 million in the three months ended March 31, 1997 to $2.0
million in the three months ended March 31, 1998. Research and development
expenses increased from $0.2 million in the period ended December 31, 1995, to
$2.4 million in 1996 and to $6.9 million in 1997. These increases were
principally due to personnel increases to support the design, development and
introduction of the Company's products. The Company expects to continue to incur
significant research and development expenses in future periods.
Sales and Marketing. Sales and marketing expenses consist of salaries and
related expenses for sales and marketing personnel, sales commissions and other
incentive compensation, travel and entertainment expenses and marketing
programs, including trade shows, promotional materials and advertising. Sales
and marketing expenses increased from $1.7 million in the three months ended
March 31, 1997 to $2.2 million in the three months ended March 31, 1998. Sales
and marketing expenses increased from $2.4 million in 1996 to $8.5 million in
1997. These increases were due primarily to the expansion of the Company's sales
and marketing organization and expanded marketing activities, including
advertising designed to increase awareness of the Company's brand. The Company
did not incur any sales and marketing expenses in the period from inception to
December 31, 1995. The Company expects to continue to incur significant sales
and marketing expenses in future periods.
General and Administrative. General and administrative expenses consist of
salaries and related expenses for administrative, finance and human resources
personnel and related facilities and equipment costs. General and administrative
expenses decreased from $1.5 million in the three months ended March 31, 1997 to
$1.2 million in the three months ended March 31, 1998. During the first quarter
of 1997, the Company incurred higher general and administrative expenses as it
expanded its infrastructure. General and administrative expenses increased from
$0.3 million in the period ended December 31, 1995 to $2.7 million in 1996 and
to $6.4 million in 1997 as the Company expanded its administrative
infrastructure to manage and support its growth.
Noncash Employee Compensation. Noncash employee compensation consists of
noncash charges for stock options granted to employees at exercise prices deemed
below the fair market value of the Company's Common Stock at the time of grant.
The amount of the charge is equal to the difference between the exercise price
and the fair market value multiplied by the number of options granted. The
charge is amortized over the vesting period of the options (typically, five
years). The Company recorded noncash employee compensation expense of $0.4
million in the three months ended March 31, 1998, $0.8 million in 1997 and $0.1
million in 1996. The Company estimates that it will recognize approximately
$ of noncash employee compensation expense in future periods. In
particular, in the quarter in which the Offering is consummated, the Company
estimates that it will recognize approximately $ of noncash employee
compensation expense related to options that vest upon the consummation of the
Offering.
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<PAGE> 24
Total Other Income (Expense). Other income (expense) consists primarily of
interest income earned on cash and cash equivalents, net of cash and noncash
interest expense for leased equipment. The Company had no total other income
(expense) in the period ended December 31, 1995, $0.1 million in 1996 and $(0.1)
million in 1997.
Income Taxes. The Company has incurred losses since inception which have
generated net operating loss carryforwards of approximately $24.0 million at
December 31, 1997 and $26.0 million at March 31, 1998 for federal and state
income tax purposes. These carryforwards are available to offset future taxable
income and expire in 2010 through 2013 for federal income tax purposes. The
Company also had research and development tax credit carryforwards in the amount
of $0.5 million at December 31, 1997 and $0.6 million at March 31, 1998, which
expire in 2000 through 2003. These losses and credits are subject to limitations
on utilization in future years because certain ownership changes have occurred.
The Company has historically filed its corporate income tax returns utilizing a
fiscal year end of March 31, which the Company intends to change to December 31,
effective December 31, 1998.
The net operating loss carryforwards and temporary differences between
carrying amounts of assets and liabilities for financial reporting and income
tax purposes result in a net deferred tax benefit of $14.3 million at December
31, 1997 and $15.0 million at March 31, 1998. The Company's operating plans
anticipate taxable income in future periods; however, such plans make
significant assumptions which cannot be reasonably assured, including market
acceptance of the Company's products. Therefore, in consideration of the
Company's accumulated losses and the uncertainty of its ability to utilize this
deferred tax benefit in the future, the Company has recorded a valuation
allowance in the amount of $14.3 million at December 31, 1997 and $15.0 million
at March 31, 1998 to offset the deferred tax benefit amount.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the nine quarters in the period ended March 31,
1998. The quarterly data have been prepared on the same basis as the audited
financial statements appearing elsewhere in this Prospectus and, in the opinion
of InterWorld, include all adjustments (consisting only of normal
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<PAGE> 25
recurring adjustments) necessary for a fair presentation thereof. The results of
operations for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
--------- -------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues, net:
Product licenses... $ 144 $ 169 $ 228 $ 238 $ 491 $ 758 $ 1,533 $ 2,101 $ 2,159
Services........... 301 182 489 269 583 603 917 970 1,102
Other.............. 68 -- 276 64 100 -- -- -- --
----- ----- ------- ------- ------- ------- ------- ------- -------
Total
revenues,
net........ 513 351 993 571 1,174 1,361 2,450 3,071 3,261
----- ----- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Product licenses... 3 26 27 26 43 59 80 96 42
Services........... 193 111 551 880 2,069 1,805 1,576 1,294 1,159
Other.............. 39 -- 232 51 107 -- -- -- --
----- ----- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues... 235 137 810 957 2,219 1,864 1,656 1,390 1,201
----- ----- ------- ------- ------- ------- ------- ------- -------
Gross profit
(loss)............. 278 214 183 (386) (1,045) (503) 794 1,681 2,060
Operating expenses:
Research and
development...... 197 335 818 1,012 1,263 1,799 1,854 1,947 2,003
Sales and
marketing........ 80 267 620 1,468 1,729 2,441 2,297 2,020 2,192
General and
administrative... 211 203 1,075 1,241 1,469 1,732 1,714 1,490 1,181
Noncash employee
compensation..... -- -- -- 71 25 26 581 120 377
----- ----- ------- ------- ------- ------- ------- ------- -------
Total
operating
expenses... 488 805 2,513 3,792 4,486 5,998 6,446 5,577 5,753
----- ----- ------- ------- ------- ------- ------- ------- -------
Loss from
operations......... (210) (591) (2,330) (4,178) (5,531) (6,501) (5,652) (3,896) (3,693)
Other income
(expense):
Interest income.... 1 21 40 50 43 47 31 97 63
Interest expense... -- -- -- -- (32) (80) (96) (105) (86)
----- ----- ------- ------- ------- ------- ------- ------- -------
Total other
income
(expense)... 1 21 40 50 11 (33) (65) (8) (23)
----- ----- ------- ------- ------- ------- ------- ------- -------
Loss from continuing
operations......... $(209) $(570) $(2,290) $(4,128) $(5,520) $(6,534) $(5,717) $(3,904) $(3,716)
===== ===== ======= ======= ======= ======= ======= ======= =======
</TABLE>
InterWorld's quarterly operating results will generally depend on the
volume and timing of sales of the Company's products, which are difficult to
predict. The Company plans to increase its operating expenses to achieve revenue
growth. If InterWorld's revenues do not increase as anticipated and InterWorld's
spending levels are not reduced accordingly, a significant decline in quarterly
operating results could result. InterWorld expects to experience fluctuations in
quarterly operating results due to many factors, including:
- the size and timing of significant customer agreements (which typically
occur near the end of the Company's fiscal quarter);
- the length of the sales cycle for the Company's products;
- fluctuations in demand for the Company's products;
- the introduction of new products by the Company or its competitors;
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<PAGE> 26
- changes in prices by the Company or its competition;
- the timing and amount of expenditures by the Company;
- the timing of the hiring of new personnel; and
- general economic conditions.
In addition, the Company believes, based on general software industry trends,
that sales of its products will typically be highest in the fourth quarter of
the year and lowest in the first quarter. As a result, period-to-period
comparisons of the Company's results of operations may not be meaningful and
should not be relied on as an indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of mandatorily redeemable preferred stock, which have raised
approximately $48.1 million. At March 31, 1998, the Company had cash and cash
equivalents of $13.0 million and working capital of $12.2 million.
The Company has had significant negative cash flows from operating
activities to date. Net cash used in operating activities for 1997 and the three
months ended March 31, 1998 was $22.3 million and $2.8 million, respectively.
Net cash used in operating activities in each of these periods was primarily the
result of net losses.
Net cash used in investing activities consists primarily of capital
expenditures for computer equipment, purchased software, office equipment,
furniture, fixtures and leasehold improvements. Capital expenditures for
property and equipment for 1997 and the three months ended March 31, 1998
aggregated $3.5 million and $0.4 million, respectively. The Company's planned
capital expenditures for the remainder of 1998 are approximately $1.5 million,
primarily for computer equipment. As of December 31, 1997, the Company also had
commitments under operating leases of $7.9 million and under capital leases of
$3.6 million.
In June 1998, the Company entered into a secured loan agreement with
Comdisco, Inc. under which the Company may borrow up to $3.0 million. The loan
accrues interest, which is payable monthly, at a rate of 10% per annum and is
secured by the accounts receivable of the Company. The Company may borrow
amounts under the line of credit for a period of twelve months subsequent to its
initial borrowing under the loan agreement or until completion of the Offering
by the Company. The loan principal is due and payable at the later of 12 months
from the initial borrowing or 18 months from the date of the agreement. As of
the date of this Prospectus, the Company has not borrowed any amounts under the
loan agreement. See "Certain Transactions."
The Company believes that its available cash resources, including the net
proceeds from the Offering, will be sufficient to meet its working capital
requirements for at least the next twelve months. However, the Company may need
additional financing to support more rapid growth or to respond to competitive
pressures or unanticipated requirements. Additional financing, if needed, may
not be available on satisfactory terms or at all. See "Risk Factors -- Possible
Need for Additional Financing."
DISCONTINUED OPERATIONS
On March 30, 1998, the Company completed a spin-off distribution of its
subsidiary, ActionWorld, Inc., reducing its majority ownership of ActionWorld to
a minority interest of approximately 18%. Since March 30, 1998, the Company's
minority interest in ActionWorld has decreased to approximately 15% due to
private equity financings by ActionWorld. ActionWorld is an on-line retailer of
game and entertainment software that commenced operations in 1997. The Company
has presented ActionWorld as a discontinued operation in its consolidated
statement of operations for the year ended December 31, 1997. A provision of
$0.6 million for estimated
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<PAGE> 27
operating losses through the disposal date has been recorded at December 31,
1997. The costs of disposal were not significant. During 1997, ActionWorld had
no revenues and incurred net losses of $1.3 million. The basic loss per share
and diluted loss per share for the year ended December 31, 1997 attributable to
discontinuance of the operations of ActionWorld was approximately $0.14 per
share. See Note 13 of Notes to Consolidated Financial Statements.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other, a temporary inability
to process transactions, send invoices or engage in similar business activities.
The Company does not believe that it has material exposure to the Year 2000
issue with respect to its products or its own information systems since its
products and existing systems correctly define the year 2000. The Company has
not fully evaluated the impact of the Year 2000 issue on its suppliers and
customers. The Company is currently unable to predict the extent to which the
Year 2000 issue will affect its suppliers or customers, or the extent to which
it would be vulnerable to its suppliers' or customers' failure to remediate any
Year 2000 issues on a timely basis. If a major supplier or customer fails to
convert its systems on a timely basis or converts in a manner that is
incompatible with the Company's systems, the Company could be materially
adversely affected. In addition, retailers and other business-to-consumer users
of the Company's products may be unwilling to continue to license the Company's
products if their customers are unable to use their credit cards to make
electronic purchases because of Year 2000 problems affecting banks or other
credit card vendors.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130"), which requires the presentation of the components of comprehensive income
in a company's financial statements for reporting periods beginning after
December 15, 1997. Comprehensive income is defined as the change in a company's
equity during a financial reporting period from transactions and other events
and circumstances from nonowner sources (including cumulative translation
adjustments, minimum pension liabilities and unrealized gains/losses on
available-for-sale securities). Effective January 1, 1998, the Company adopted
FAS 130. The Company had no significant changes in its equity from nonowner
sources.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information" ("FAS 131"), which requires that public
business enterprises report certain information about operating segments. It
also requires that public business enterprises report certain information about
their products and services, geographic areas in which they operate and major
customers. FAS 131 is effective for fiscal years beginning after December 15,
1997. In the initial year of application, comparative information for earlier
years must be restated. The adoption of FAS 131 is not expected to have a
material impact on the Company's existing disclosures.
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<PAGE> 28
BUSINESS
OVERVIEW
InterWorld is a leading provider of enterprise-class, Internet commerce
software for business-to-business and business-to-consumer applications.
InterWorld's Internet commerce products, consisting of its Commerce Exchange
platform, application modules, tools and business adapters, provide a software
solution designed to enable businesses to conduct commerce over the Internet and
to more efficiently manage their selling chain processes. Specifically, the
InterWorld solution is designed to enable businesses to:
- increase revenues by expanding product availability through an
Internet-based distribution channel;
- reduce operating expenses by streamlining selling chain processes,
including sales, order management, fulfillment and customer service; and
- enhance customer service levels by offering on-line customer self-service
capabilities.
The InterWorld solution scales to meet the demands of large organizations
that have complex transactions within their enterprises and with their customers
and trading partners, high numbers of simultaneous users, high transaction rates
and large datastores. The InterWorld solution can be fully integrated into every
phase of the selling chain, from order entry to fulfillment, enabling an
organization to incorporate its Internet commerce solution with its existing
back office systems. The solution can be extended to access trading partner
systems and financial clearinghouses. The functionality and the ease of
implementing, maintaining and upgrading InterWorld's solution address what
InterWorld believes is a growing desire by businesses to maximize return on
investment by more effectively deploying, implementing and maintaining their
information systems. In addition, InterWorld provides comprehensive maintenance,
training, consulting and systems integration services to facilitate the
deployment and support of its products.
INDUSTRY BACKGROUND
Growth of Global Internet Commerce
The Internet is an increasingly significant global medium for
communications and on-line commerce. It is revolutionizing the ways in which
companies, government agencies, trading partners and individuals communicate and
conduct business. In addition to providing information, the Internet provides an
attractive medium for commerce because of its global reach, accessibility, use
of open standards and ability to enable real-time interaction. As a result,
organizations are increasingly connecting their business processes to the
Internet to facilitate and support business-to-business and business-to-consumer
commerce. International Data Corporation estimates that Internet commerce
revenue per year will grow from approximately $10.6 billion in 1997 to
approximately $223.1 billion in 2001.
Business Need for Internet Commerce Software Systems
In today's increasingly competitive global markets, businesses must
continuously improve their operations. Historically, businesses have focused on
using information technology to decrease expenses by optimizing internal
processes, such as finance, manufacturing, human resources and general office
operations. The Company believes that many businesses are now looking to
implement Internet commerce solutions that apply the benefits of information
technology to automate their selling chain processes, including sales, order
management, fulfillment and customer service. Critical to such implementation is
enterprise-class Internet commerce software, which provides the basis for
complex, mission-critical transactions over the Internet. Enterprise-class
Internet commerce software systems enable corporations to increase revenues by
expanding product availability through an Internet-based distribution channel,
reduce operating expenses
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<PAGE> 29
by streamlining order management and fulfillment processes and enhance customer
service by providing on-line customer support. Forrester Research, Inc.
estimates that the Internet commerce software market will grow from $121 million
in 1997 to $3.8 billion in 2002.
The Challenges of Developing Internet Commerce Software Systems
Similar to traditional enterprise application software, Internet commerce
software systems are mission-critical and extremely complex, requiring very
large resource commitments and posing significant technological barriers. Before
the commercial availability of enterprise-class Internet commerce application
software, many organizations built custom solutions or deployed low-end merchant
servers, which provide only basic Internet commerce functionality.
Organizations that attempt to custom develop enterprise-class Internet
commerce solutions face numerous problems, including slow time-to-market, high
cost of ownership and inadequate functionality. The Company believes that few
organizations have succeeded in internally developing large-scale custom
Internet commerce applications on a timely and cost-effective basis.
Alternatively, organizations that deploy low-end merchant servers face
significant challenges because they are not designed to support sophisticated
business processes. Specifically, these servers do not provide the security,
scalability, configurability and extensibility required by many large
organizations.
Market Opportunity
In response to the limitations inherent in the choices described above,
businesses embracing Internet commerce as a key element of their business
strategy are seeking commercially available software solutions capable of
meeting enterprise-class standards. The Company believes that this demand for
solutions represents a significant market opportunity, and to address this
demand successfully, such solutions must have the following characteristics:
- Complete Functionality -- Provide personalized, comprehensive application
functionality for efficiently managing selling chain processes, including
sales, order management, fulfillment and customer service.
- Modern Technology Platform -- Provide a best-of-breed, flexible and
secure technology platform to support Internet and intranet
interoperability, open systems architecture and state-of-the-art
development technologies and techniques.
- Configurability -- Enable modeling of existing internal business
processes and the extension of new business practices to the Internet.
- Scalability -- Manage increasing numbers of simultaneous users, high
transaction rates, large relational datastores and load balancing across
servers.
- Extensibility -- Enable integration into existing internal and trade
partner information systems.
- Ease of Implementation -- Enable rapid and cost-effective implementation.
THE INTERWORLD SOLUTION
The InterWorld solution is designed to provide businesses with
enterprise-class Internet commerce application software that is functionally
comprehensive, built upon a sophisticated technological foundation and scalable
to meet the requirements of global operations. The InterWorld solution enables
businesses to: (i) increase revenues by expanding product availability through
an Internet-based distribution channel; (ii) reduce operating expenses by
streamlining selling chain processes, including sales, order management,
fulfillment and customer service; and (iii) enhance customer service levels by
offering on-line customer self-service capabilities.
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<PAGE> 30
The key differentiators of the InterWorld solution are:
- Comprehensive Functionality -- The InterWorld solution is designed to
provide a comprehensive set of application modules for efficiently
managing selling chain processes, including sales, order management,
fulfillment and customer service. Consumers and business buyers are
provided with personalized buying experiences. Selling organizations are
provided with a workplace capable of remotely administering on-line
storefronts, user accounts, products, prices and content. In addition,
the system has multi-merchant capabilities, allowing organizations to
build sophisticated business-to-business trading partner communities and
on-line malls.
- State-of-the-Art Technology Foundation -- The InterWorld solution takes
advantage of advanced developments in technology and computing trends.
The foundation is based upon an architecture that separates the system
services from the applications that utilize those services. This
architecture eliminates platform-specific dependencies and provides a
robust, secure and highly flexible environment.
- Process-Centric Computing -- Process-Centric computing enables the
Company's customers to model their existing business processes and extend
those processes onto the Internet. This new model enables business
managers to mix and match business components, build personalized process
flows, adapt to dynamically changing business conditions and reduce the
long-term maintenance costs associated with supporting a highly
configured application. InterWorld believes that Process-Centric
computing will drive the next generation of enterprise applications by
placing these features directly in the hands of business experts.
- Scalability and Stability -- The InterWorld solution scales to meet the
demands of large organizations that have complex transactions within
their enterprises and with their customers and trading partners, high
numbers of simultaneous users, high transaction rates and large
datastores. The Company's solution can accommodate a customer's
increasing business volumes, while operating 24 hours a day, seven days a
week, 365 days a year.
- Integration and Extensibility -- The InterWorld solution can be fully
integrated into every phase of the selling chain, from order entry to
fulfillment, allowing an organization to incorporate its Internet
commerce solution with its existing back office systems. The solution can
be extended to access existing internal systems, trading partner systems
and financial clearinghouses.
- InterWorld Implementation Methodology -- InterWorld provides
comprehensive consulting and systems integration services to facilitate
the deployment of the Company's solution. InterWorld's implementation
methodology is designed to provide rapid and cost-effective
implementation and integration of the Company's solution.
The functionality and the ease of implementing, maintaining and upgrading
InterWorld's solution address what the Company believes is a growing desire by
businesses to maximize return on investment by more effectively deploying,
implementing and maintaining their information systems.
STRATEGY
The Company's objective is to establish and maintain a leadership position
in the enterprise-class Internet commerce application software market. The
Company believes that it has gained valuable experience in developing Internet
commerce application software for manufacturers, distributors, resellers,
retailers, direct marketers and commerce service providers. The Company's
strategy incorporates the following key elements:
Extend Product Functionality to Address Evolving Customer Needs. As the
Company's customers expand their Internet commerce activities, the Company will
seek to extend the selling
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<PAGE> 31
chain capabilities of its existing applications and develop new applications
that optimize organizations' sales, order management, fulfillment and customer
service processes. By involving customers in its product requirements process,
the Company will seek to enhance the efficiencies of selling chain processes
across industries.
Enhance Technology Platform. InterWorld will continue to enhance the
functionality, scalability and openness of its platform. By enhancing the
capabilities of the Commerce Exchange platform and extending the capabilities of
the tool set and application programming interface, the Company believes that it
will encourage third parties to develop applications on its technology platform.
Target Large Customers in Selected Vertical Markets. The Company focuses
its product development, sales and marketing activities on companies with
complex selling chain processes, including large domestic and international
manufacturers, distributors, resellers, retailers, direct marketers and commerce
service providers.
Expand Global Strategic Relationships. The Company pursues strategic
relationships with third parties that market, resell or integrate the Company's
products, including leading systems integrators, technology and service
providers and distributors. These relationships expand the Company's market to
include customers of its alliance partners. The Company has strategic
relationships with Electronic Data Systems Corporation, Federal Express
Corporation, Hewlett-Packard Company, KPMG Peat Marwick LLP and NCR Corporation.
Promote Customer Satisfaction. The Company provides extensive service and
support, including Internet and telephone technical support, comprehensive
instructor-led training and an account management team for each customer that
consists of a sales representative, technical account manager and, in many
cases, an executive sponsor.
Increase Global Sales Capabilities. The Company intends to expand its
global sales capabilities by increasing the size of its direct sales
organization and adding resellers in major markets. In particular, the Company
plans to expand its sales and marketing activities in Asia, Australia and
Europe. The Company is also developing localized versions of its products for
certain international markets.
PRODUCTS
[GRAPHIC -- INTERWORLD PRODUCT FAMILY]
The InterWorld family of products includes the Commerce Exchange platform,
application modules, tools and business adapters. The products comprise a highly
modular system that simplifies customization to meet each customer's specific
requirements. The platform offers independence from specific databases,
operating systems and Web servers through the use of a sophisticated abstraction
layer that is accessible from application programming interfaces. The
applications and tools provide a complete framework for implementing Internet
commerce solutions based on client-specific objectives and business practices.
Business adapters enable integration of the Internet commerce solution with
other information systems within the organization or across the Internet within
a trading partner community.
The Company generally prices licenses of Commerce Exchange on a tiered
system based on the underlying hardware configuration. A typical prototype
configuration is available for a license fee of approximately $75,000. The
minimum production configuration that supports redundancy, fault-tolerance and
distributed load balancing across multiple processors is generally available for
a license fee of approximately $195,000. Licenses for product configurations
that support additional processors, servers and users are available for higher
license fees. Application modules, tools, business adapters, component plug-ins,
maintenance services and professional services are provided at an additional
cost to the customer.
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Commerce Exchange Platform
Commerce Exchange provides an n-tier, cross platform, component-based
architecture that features advanced security, multi-merchant capabilities,
multiple database access and multiple Web server and operating system
interactions. The Commerce Exchange platform comes bundled with Order Management
and Customer Service application modules and development tools for customizing
solutions built upon the platform.
Commerce Exchange is based upon open standards and a Process-Centric
architecture. Developed in the object-oriented programming languages of C++ and
Java, the Commerce Exchange platform employs state-of-the-art software design
and development practices. In addition, Commerce Exchange provides open
application programming interfaces to enable custom application components to
"plug and play" with others. Commerce Exchange supports industry standard Web
browsers, including Microsoft Explorer and Netscape Navigator. The InterWorld
platform operates on multiple operating systems, including Microsoft Windows NT
and Sun Solaris-UNIX. Data access is handled via native drivers that support
high performance databases, including Microsoft SQL Server, Oracle and Sybase.
Microsoft IIS and Netscape Enterprise Web servers are supported. The
architecture facilitates migration to other database and server platforms as
customer demand or market conditions require.
The Commerce Exchange platform incorporates both generally accepted and
advanced Internet security standards. The security components enable secure
communication across the Internet among businesses, customers, trading partners
and the information systems they use to manage their businesses. These secure
trading environments can be established without affecting a customer's existing
security scheme or firewall. Commerce Exchange supports three main layers of
security, including object-level, file system and database security.
Application Modules
InterWorld's application modules provide sophisticated functionality across
the selling chain. These modules reside on top of the platform and are
implemented to support specific commerce functions and business processes. The
configurable nature of InterWorld's application modules enable customers to
adopt them in their standard form or to easily customize or extend them to meet
the customers' requirements. InterWorld Order Management and Customer Service
application modules are bundled with the Commerce Exchange platform.
InterWorld application modules include the following:
- Order Management: The InterWorld Order Management module is designed to
support the processing of orders within Commerce Exchange. It is
comprised of order entry, order management and accounting. Order entry
involves the capture of information required to place an order. Order
management involves the management of the order after it has been
entered, including payment, shipping, inventory and taxation. Order
Management supports multiple payment and shipping methods. Accounting
involves billing and account management, including the definition of
preferences such as billing addresses, ship to addresses, credit card
information, credit limits and credit card verification.
- Customer Service: The InterWorld Customer Service module enables on-line
customer self-service. Easy-to-use graphical interfaces enable customers
to view both order and payment account information. In addition, customer
preferences can be maintained through a customer's personal profile.
Customer Service provides a buyer with the ability to verify, edit and
change its customer profile, review order history and review payment
history.
- Catalog: The InterWorld Catalog module enables a customer to create an
interactive catalog that provides a dynamic on-line buying and selling
experience. Specific functionality includes personalized product
presentation, dynamic product pricing and discounting,
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<PAGE> 33
promotion via showcases, descendent products, up-selling, cross-selling,
product comparisons and product alternatives. Self-service functions of
the Catalog include advanced search capabilities, resulting in an
experience directed at buyers' specific needs. Selling organizations can
personalize their offerings for dissimilar buyers, diversified products
and different localities. Managing the creation, maintenance and usage
of thousands of products is accomplished via the Catalog's easy-to-use
administrator capabilities.
- Auction: The InterWorld Auction module creates an on-line auction
marketplace where businesses can liquidate after market goods by selling
directly to buyers who can bid for products. Auction supports various
auction models, such as Yankee and Dutch, and can support multiple
auctions occurring simultaneously. Auction is designed to support several
time limitations and rules for contention resolution where two bids
appear to meet the same criteria. Auction administration can be
accomplished locally or remotely.
Tools
Commerce Exchange features a number of tools that enable users and
administrators with limited programming experience to manage and customize
InterWorld's software. In addition, experienced engineers can utilize the
Company's tools to develop advanced, customized applications and vertical market
solutions based on the Company's software.
- Workplace: InterWorld's Workplace is an easy-to-use administrator
interface that, through its remote management capabilities, provides
either a single point of control or distributed administration for all
Commerce Exchange standard and custom applications. It enables real-time
administration of systems, object components and content, along with
authoring and reporting.
- Process Builder: InterWorld's Process Builder enables the modeling,
deployment and modification of business processes without the need for
traditional programming languages. Business process flows can be
personalized to an individual or group of individuals to support
business-to-business and business-to-consumer processes. InterWorld
provides a comprehensive component library of generic process components
that can be used in the creation of a wide variety of business processes,
including tasks like product selection, searches, customer registration,
inventory status, credit card verification and placing orders. Process
Builder's advanced development environment and comprehensive application
programming interface also allow developers and business administrators
to build new process components that interact with existing process
flows.
- Application Programming Interfaces ("APIs"): The InterWorld APIs provide
access to the objects and components that are used to build Commerce
Exchange, enabling customers and strategic partners to develop custom
applications. The APIs that are made available for customer development
are the same APIs that are used for internal development by InterWorld's
software engineers. These C++ APIs interface to all InterWorld software
components, providing a flexible infrastructure for the further
development and extension of Commerce Exchange functionality.
Business Adapters and Component Plug-Ins
[GRAPHIC --
BUSINESS ADAPTERS FOR ENTERPRISE INTEGRATION]
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<PAGE> 34
InterWorld Business Adapters provide interfaces with a customer's and its
trading partners' information systems. Business Adapters provide the ability to
integrate back office functions into the Internet commerce system. Business
Adapters also interface with enterprise resource planning, supply chain
management, customer asset management, fulfillment and fulfillment systems.
InterWorld's Business Adapters are implemented by its professional services
organization to meet its customers' specific requirements. InterWorld's use of
Business Adapters allows it to enhance its solution without diverting resources
from the Company's core competencies. InterWorld's Business Adapters have been
implemented or technically designed for products from the following vendors:
- Enterprise Resource Planning: SAP Corporation, PeopleSoft, Inc., JD
Edwards & Company, Oracle Corporation (Financials), Smith-Gardner and
Associates, Inc. and SSA Software, Inc.
- Supply Chain Management: i2 Technologies, Inc.
- Customer Asset Management: Clarify Inc., Remedy Corporation and The
Vantive Corporation
- Sales Tax Calculation: TAXWARE International, Inc. and Vertex Inc.
- Shipping and Fulfillment Calculation: TanData Corporation and Federal
Express Corporation
- Payment Processing: CyberCash, Inc., Quest and FirstUSA Inc.
- Digital Product Clearinghouse: CyberSource Inc.
- Messaging Interfaces: TIBCO Inc., Active Software Inc. and IBM (Lotus
Notes)
- EDI Business Adapters: The Mercator Corporation, Software Technologies
Corporation and AT&T (InterCommerce)
- Zip Code: TAXWARE International, Inc. and Cybersource Inc.
In addition, InterWorld's professional service organization has designed
component plug-ins that provide extended functionality and that can be easily
integrated into the Company's solution. Component plug-ins include address book,
coupon, gift certificate, multiple ship to, subscription, survey and time and
billing.
PRODUCT DEVELOPMENT
As of March 31, 1998, InterWorld's development organization was comprised
of 61 developers, development managers, quality assurance personnel and testing
engineers. There are strategic and tactical development groups within the
organization. The strategic development group focuses on developing application
functionality for sales, order management, fulfillment and customer service
processes, as well as enhancing the platform and tools. The tactical development
group develops products and features in connection with specific customer
implementations. To the extent that the Company believes that such products have
broader application, they are transitioned into the core Commerce Exchange
family of products.
InterWorld employs a collaborative, customer-oriented product development
process. Through the participation in InterWorld's Customer Advisory Councils,
current and prospective customers have input into future product direction and
functionality.
InterWorld follows a rigorous quality assurance and testing process. This
process is designed to identify software defects through the entire development
cycle. Several test types are employed and defect reports and metrics are
tracked to ensure resolution, including system testing and performance
benchmarking.
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SERVICES AND SUPPORT
InterWorld provides a range of services associated with the implementation,
customization and maintenance of Commerce Exchange products. Services include
professional services, education and training services and client support
services.
Professional services include consulting and system integration services
that are associated with the planning, installation and customization of the
Commerce Exchange family of products. Professional services are generally billed
on a time-and-materials basis. InterWorld has developed a nine-step
implementation methodology that is designed to facilitate the successful, rapid
and cost-effective implementation of Commerce Exchange. InterWorld's
implementation methodology is based on the following steps: sales cycle
analysis, project planning and management, technology analysis and preparation,
business design, site design, site development, site testing, conversion and
post-implementation review.
Technical education and training services for InterWorld's customers and
certified systems integration partners are available both on-site and off-site
and cover the implementation, management, utilization and customization of
InterWorld's products.
InterWorld's customer support is available up to 24 hours a day, seven days
a week, 365 days a year. Technical support services include on-line support via
the Internet, toll-free telephone technical support, and direct support from a
customer satisfaction team. These services are provided in connection with
maintenance agreements and are typically charged as a percentage of license
fees. InterWorld has developed customer service programs, including one-to-one
workshops and customer satisfaction teams consisting of a sales representative,
a technical account manager and, in many cases, an executive sponsor. Customer
satisfaction is tracked on an account-by-account basis and reported to the
Company's executive management team.
CUSTOMERS
As of March 31, 1998, the Company had over 45 customers. InterWorld markets
its products and services to companies with complex selling chain processes,
including large domestic and international manufacturers, distributors,
resellers, retailers, direct marketers and commerce service providers. The
Company believes that those organizations that are most likely to use
InterWorld's products sell a large number of products, using diverse
distribution channels with a large number of trading partners.
The Company provides enterprise-class Internet commerce application
software to customers in a variety of industries, as indicated by the selected
customers set forth below, each of which was responsible for at least $150,000
in InterWorld revenues for the period from January 1, 1997 to March 31, 1998:
ActionWorld, Inc.
American Eagle Outfitters, Inc.
Banctec USA, Inc.
Broderbund Software, Inc.
Cendant Corporation
Digital Commerce Corporation
Electronic Data Systems Corporation
Genesis Direct, Inc.
Home Services Management, Inc.
J&R Electronics, Inc.
Micro Warehouse, Inc.
Multiple Zones International, Inc.
Softbank Corp.
Street Technologies Inc.
Toys "R" Us Inc.
WattMonitor LLC
SALES AND MARKETING
The Company markets its products and services primarily through its direct
sales organization. As of March 31, 1998, the Company's sales force consisted of
25 employees located in nine domestic offices (Atlanta, Bellevue, Boston,
Chicago, Dallas, Los Angeles, New York, Washington D.C. and San Francisco) and
four international offices (London, Melbourne, Sydney and
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<PAGE> 36
Toronto). The Company intends to continue to add sales personnel worldwide. The
Company supplements its direct sales efforts with strategic marketing alliances,
including relationships with Electronic Data Systems Corporation, Federal
Express Corporation, Hewlett-Packard Company, KPMG Peat Marwick LLP and NCR
Corporation.
The Company deploys sales teams consisting of both sales and technical
professionals to create industry specific proposals, presentations and
demonstrations that address the requirements of the customer. The decision
makers within InterWorld's prospective customers are typically their executive
management teams. Currently, the sales cycle for the Company's products
typically ranges from two to 12 months.
InterWorld's marketing programs are targeted at sales, marketing and
information technology executives within large, multi-national organizations.
Marketing activities include branding, such as advertising and public relations
campaigns; lead generation and management; direct mail campaigns; field and
channel marketing, including joint marketing with strategic partners; product
marketing; and development of technology alliances.
COMPETITION
There is intense competition in the Internet commerce software industry.
The Company expects competition to continue and intensify in the future. The
Company competes against the in-house development efforts of companies engaged
in Internet commerce, as well as other software application vendors and
developers. The Company's current competitors include BroadVision, Inc.,
CommerceOne, Inc., Connect, Inc., IBM, Microsoft Corporation, Netscape
Communications Corporation, Open Market Inc., Oracle Corporation and Pandesic
LLC. The Company expects other companies to enter its market. Many of the
Company's present and potential competitors have greater financial, technical,
marketing and other resources than the Company. This may place the Company at a
disadvantage in responding to the offerings of its competitors, technological
changes or changes in customer requirements. Also, many of its competitors can
take advantage of greater name recognition, more extensive customer bases and a
broader range of product offerings. The principal competitive factors affecting
the market for the Company's products are product performance, customer service
and price. The Company's market is still evolving, and the Company may not be
able to compete successfully with current or future competitors, and competitive
pressures faced by the Company may have a material adverse effect on the
Company. See "Risk Factors -- Competition."
PROPRIETARY RIGHTS
The Company relies on intellectual property laws, employee and third-party
non-disclosure agreements and other methods to protect its proprietary rights.
The Company currently has one patent application pending in the United States
relating to the Company's product architecture and technology. While the Company
believes that the pending patent application relates to a patentable invention,
the pending or any future patent applications may not be granted, and any patent
relied upon by the Company in the future may be challenged, invalidated or
circumvented. Moreover, the rights granted under any patent granted to the
Company or under licensing agreements may not provide competitive advantages to
the Company. The Company believes that, due to the rapid pace of technological
innovation for Internet commerce solutions, the Company's ability to establish
and maintain a position of technology leadership in the industry is dependent
more on the skills of its development personnel than upon the legal protections
afforded its existing technology.
The Company's success is dependent in part upon its proprietary software
technology. Its agreements with employees, consultants and others who
participate in the development of its software may be breached, and the Company
may not have adequate remedies for any breach. In addition, the Company's trade
secrets may otherwise become known to or independently
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<PAGE> 37
developed by competitors. Furthermore, the Company's efforts to protect its
proprietary technology may fail to prevent the development and design by others
of products or technology similar to or competitive with those developed by the
Company.
The computer software market is characterized by frequent and substantial
intellectual property litigation. Intellectual property litigation is complex
and expensive, and the outcome of such litigation is difficult to predict.
BroadVision, Inc. and Open Market Inc., two of the Company's competitors, have
recently been issued U.S. patents on certain aspects of their electronic
commerce products. Although the Company does not believe that it is infringing
their patent rights, either of those companies may claim that InterWorld is
doing so. If any such claim was made against InterWorld, the Company could be
materially adversely affected, particularly if it was unsuccessful in defending
such claim.
The Company's success will depend in part on its continued ability to
obtain and use licensed technology that is important to the performance of its
products. An inability to continue to procure or use such technology would
likely have a material adverse effect on the Company.
EMPLOYEES
As of March 31, 1998, the Company had a total of 187 employees. Of the
total employees, nine were in management, 61 were in development and product
management, 50 in sales and marketing, 40 in worldwide services and 27 in
internal operations. As of March 31, 1998, the Company had three independent
contractors in development and product management. None of the Company's
employees are represented by a labor union. The Company has not experienced any
work stoppages and considers its relations with its employees to be good.
PROPERTIES
InterWorld's principal offices are located in New York, New York and
consist of approximately 47,000 square feet of leased office space. The lease
for the New York offices expires in April 2008. The Company believes that its
existing facilities are adequate to meet its needs for the foreseeable future.
The Company also rents office space in various cities in the United States and
in other countries for sales and field service and support activities.
LITIGATION
InterWorld is not involved in any material litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Michael J. Donahue............... 35 Chairman
Alan J. Andreini................. 52 President and Chief Executive Officer, Director
Jerry Lyons...................... 40 Chief Financial Officer
Daniel Turano.................... 49 Vice President, Worldwide Field Operations
Susan Fairty..................... 39 Vice President, Marketing
Daniel R. Santell................ 40 Vice President, Worldwide Services
Stephen Law...................... 44 Vice President, Engineering
Steven Rabin..................... 43 Vice President, Development
Amy Aguilar-Brown................ 32 Vice President, Legal Affairs and Secretary
Kenneth G. Langone............... 63 Director
Joseph C. Robinson............... 35 Director
Yves Sisteron.................... 43 Director
Jack Slevin...................... 61 Director
Russell West..................... 55 Director
</TABLE>
Michael J. Donahue. Mr. Donahue co-founded InterWorld in March 1995 and
serves as its Chairman. He served as Co-Chairman and Chief Technology Officer of
the Company from April 1997 until June 1998. He also served as President of
InterWorld from March 1995 until April 1997. Prior to founding InterWorld, from
1992 to 1995, Mr. Donahue was the sole proprietor of Donahue & Associates, Inc.,
an information technology consulting firm specializing in strategic planning and
systems reengineering.
Alan J. Andreini. Mr. Andreini joined InterWorld in April 1997 and serves
as its President and Chief Executive Officer and as a director. He served as
President and Chief Operating Officer of the Company from April 1997 to June
1998. Prior to joining InterWorld, Mr. Andreini was Executive Vice President and
a member of the Office of the President of Comdisco, Inc. Mr. Andreini joined
Comdisco in 1978, and was named Senior Vice President in 1986 and Executive Vice
President in 1994. He also serves as a director of Comdisco, Inc., Youth
Services International, Inc. and Heartland Technology, Inc.
Jerry Lyons. Mr. Lyons joined InterWorld in August 1996 and serves as its
Chief Financial Officer. Prior to joining InterWorld, Mr. Lyons served as the
Chief Financial Officer of MCI/ NewsCorp Internet Ventures from December 1994 to
August 1996. From 1991 through November 1994, Mr. Lyons served as the Chief
Financial Officer of OCP America, a pharmaceutical distribution company. Mr.
Lyons has committed to accept an executive operating position with ActionWorld.
Accordingly, InterWorld is actively seeking to hire a new Chief Financial
Officer.
Daniel Turano. Mr. Turano joined InterWorld in October 1997 and serves as
its Vice President, Worldwide Field Operations. Prior to joining InterWorld, Mr.
Turano was Vice President, North American Field Operations for Scopus
Technology, Inc., from January 1997 to October 1997. From September 1995 to
December 1996, he served as Senior Vice President of Worldwide Field Operations
for Siebel Systems, Inc. From September 1991 to September 1995, Mr. Turano
served in various senior sales capacities at Oracle Corporation, including Group
Vice President of Eastern U.S. Sales.
Susan Fairty. Ms. Fairty joined InterWorld in November 1997 as Vice
President, Marketing. Prior to joining InterWorld, Ms. Fairty was employed by
Perot Systems Corporation from
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<PAGE> 39
April 1996 to August 1997 as Chief Technology Officer and Senior Vice President
of Marketing. From 1991 to 1996, she was employed by IBM in various sales,
marketing and product development capacities, including most recently as Vice
President Sales and Marketing, Internet Division from October 1995 to April 1996
and Vice President Business Development, Personal Systems and Software from
February 1995 to October 1995.
Daniel R. Santell. Mr. Santell joined InterWorld in July 1996 as Vice
President, Field Operations. In November 1997, he was named Vice President,
Worldwide Services. From December 1995 to July 1996, he served as Director of
the North American Client Services Division for SSA Corporation, Inc., a
software services company. From November 1992 to October 1995, Mr. Santell
served in various technical and sales executive capacities for Platinum Software
Corporation.
Stephen Law. Mr. Law joined InterWorld in May 1998 as its Vice President,
Engineering. Prior to joining InterWorld, Mr. Law was the Chief Technology
Officer of Global Financial Services at Perot Systems Corporation from February
1997 to May 1998. Prior to joining Perot Systems, Mr. Law was the Vice President
of Global Derivatives Systems Development at Citibank Corporation from December
1992 to February 1997.
Steven Rabin. Mr. Rabin joined InterWorld in May 1997 as Vice President,
Development. From 1987 to May 1997, Mr. Rabin was the Chief Technologist for
American Software, Inc.
Amy Aguilar-Brown. Ms. Aguilar-Brown joined InterWorld in September 1997
as Vice President, Legal Affairs. Ms. Brown was also appointed Secretary of
InterWorld in May 1998. Prior to joining InterWorld, Ms. Aguilar-Brown served as
Director of Field Operations and Legal Affairs for Sybase, Inc. from April 1994
to September 1997. From January 1992 to April 1994, she served as Director of
Operations for MicroDecisionware, Inc., which was acquired by Sybase, Inc.
Kenneth G. Langone. Mr. Langone has been a director of the Company since
1996. Mr. Langone has been Chairman and President of Invemed Associates, Inc.,
which he founded, since 1974, and chairman and chief executive officer of Salem
Nationalease Corp. since 1975. Mr. Langone has also served as a director of The
Home Depot, Inc. since 1978. He also serves as a director for Unifi, Inc., DBT
On-line, Inc. and Tricon Global Restaurants, Inc.
Joseph C. Robinson. Mr. Robinson has been a director of the Company since
1995. Mr. Robinson co-founded InterWorld in March 1995 and served as its
Executive Vice President until May 1998. Since April 1997, Mr. Robinson has
served as Chief Executive Officer and President of ActionWorld, Inc. and
currently serves as a director of ActionWorld, Inc. Prior to joining InterWorld,
from 1989 to 1994, Mr. Robinson was employed by Douglas, Elliman, Gibbons and
Ives, a real estate brokerage firm.
Yves Sisteron. Mr. Sisteron has been a director of the Company since 1996.
Mr. Sisteron has been a Principal of Global Retail Partners, L.P., an investment
fund, since January 1996 and a Manager of U.S. Investments at Carrefour S.A.
since 1993. Mr. Sisteron serves as a director of CitySearch, Inc. and P.F.
Chang's China Bistro, Inc.
Jack Slevin. Mr. Slevin has been a director of the Company since 1997. Mr.
Slevin is the Chairman and Chief Executive Officer and a director of Comdisco,
Inc. Prior to his present position, from October 1994 to June 1995 Mr. Slevin
was Chief Operating Officer at Comdisco, Inc. and from January 1993 to October
1994, he was Executive Vice President of North American Sales at Comdisco, Inc.
He became a member of the Office of the President when it was created in 1992
and has been a member of Comdisco's board of directors since 1979. Mr. Slevin is
also currently a director of U.S. West, Inc. and Telehub Network Services
Corporation.
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<PAGE> 40
Russell West. Mr. West has been a director of the Company since 1996. Mr.
West is an Executive Vice President and Chief Technology Officer for Comdisco,
Inc., where he has been employed since 1977.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Board of Directors does not have an Executive or
Nominating Committee. The selection of nominees to the Board of Directors will
be made by the entire Board of Directors.
The Audit Committee is comprised of Messrs. Langone and Slevin. The Audit
Committee is responsible for reviewing with management the financial controls
and accounting and reporting activities of the Company. The Audit Committee
reviews the qualifications of the Company's independent auditors, makes
recommendations to the Board of Directors regarding the selection of independent
auditors, reviews the scope, fees and results of any audit and reviews non-audit
services and related fees.
The Compensation Committee is comprised of Messrs. Sisteron and Slevin. The
Compensation Committee is responsible for the administration of all salary and
incentive compensation plans for the officers and key employees of the Company,
including bonuses. The Compensation Committee also administers the Company's
stock option and purchase plans and establishes the terms and conditions of all
stock options granted thereunder.
DIRECTOR COMPENSATION
Directors do not receive any cash remuneration for serving as directors.
All directors are eligible to participate in the Company's stock option plan.
Each of Messrs. Langone, Slevin, Sisteron and West were granted options to
purchase 40,000 shares of Common Stock at an exercise price of $2.00 per share
upon their appointment to the Board. See "-- Stock Plans."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid by the Company to the Company's current Chief Executive
Officer and the four other most highly compensated executive officers of the
Company and the Company's former Chief Executive Officer (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company in 1997.
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<PAGE> 41
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ----------------------- -------
SECURITIES
OTHER RESTRICTED UNDERLYING ALL
ANNUAL STOCK OPTIONS/ LTIP OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION AWARDS SAR(#) PAYOUTS COMPENSATION
- ----------------- ---- -------- -------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael J. Donahue......... 1997 $240,000 -- -- -- -- -- --
Chairman
Alan J. Andreini........... 1997 $146,666 -- -- -- 892,849 -- $28,715(1)
President and Chief
Executive Officer
Jerry Lyons................ 1997 $150,000 -- -- -- 10,000 -- --
Chief Financial Officer
Daniel Turano.............. 1997 $ 30,000 $100,000 -- -- 195,000 -- --
Vice President, Worldwide
Field Operations
Daniel R. Santell.......... 1997 $150,000 -- -- -- -- -- --
Vice President, Worldwide
Services
Robert L. Zangrillo(2)..... 1997 $240,000 -- $36,000(3) -- -- -- --
Former Chief Executive
Officer
</TABLE>
- ------------------------------------
(1) Represents relocation expense reimbursement.
(2) Mr. Zangrillo resigned in June 1998.
(3) Represents amounts paid to a corporation controlled by Mr. Zangrillo for
rent in connection with a home office.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all individual grants of stock options
during the year ended December 31, 1997 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME (#)(1) FISCAL YEAR ($/SH) DATE VALUE(2)
- ---- ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Michael J. Donahue..... -- -- -- -- --
Alan J. Andreini(3).... 892,849 49.0% $2.00 7/28/04 $2,171,400
Jerry Lyons(4)......... 10,000 0.5 2.00 7/28/04 24,320
Daniel Turano(5)....... 195,000 10.7 2.00 7/28/04 474,420
Daniel R. Santell...... -- -- -- -- --
Robert L. Zangrillo.... -- -- -- -- --
</TABLE>
- ------------------------------------
(1) All options were granted pursuant to the Stock Option Plan.
(2) Grant date value was determined on the date of grant using the Black-Scholes
option-pricing model based on the following assumptions: volatility -- 75%;
expected life -- five years; risk-free interest rate -- 5.9%; and no
dividend yield.
(3) Options to purchase 267,855 shares of Common Stock granted to Mr. Andreini
vested on May 1, 1997, of which he exercised options to purchase 250,000
shares. The remaining options held by Mr. Andreini vest (i) as to 178,570
shares of Common Stock, upon the consummation of the Offering, and (ii) as
to 446,424 shares of Common Stock, in sixteen equal quarterly installments
commencing June 30, 1998.
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<PAGE> 42
(4) Mr. Lyons' options vest 20% on April 1, 1998 and 5% on the first day
following each completed quarter thereafter.
(5) Mr. Turano's options vest in the following manner: (i) 45,000 options vest
on August 15, 1998 and (ii) the remaining 150,000 options vest 20% on
November 1, 1998 and 5% on the first day following each completed quarter
thereafter.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the number and
value of the outstanding options held by the Named Executive Officers at
December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END(#): OPTIONS AT FISCAL YEAR-END($):
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- ------------------------------- -------------------------------
<S> <C> <C>
Michael J. Donahue............. 0/0 0/0
Alan J. Andreini(2)............ 267,855/624,994
Jerry Lyons.................... 13,750/51,250
Daniel Turano.................. 0/195,000 0/
Daniel R. Santell.............. 41,250/123,750
Robert L. Zangrillo............ 0/0 0/0
</TABLE>
- ------------------------------------
(1) Based on the initial public offering price per share of the Common Stock
(assumed to be $ ).
(2) On March 30, 1998, Mr. Andreini exercised 250,000 options at a price of
$2.00 per share. The value realized upon such exercise is $ , based on
an assumed initial public offering price of $ .
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Board of Directors of the Company, including
Messrs. Andreini and Donahue who are executive officers of the Company and
Messrs. Robinson and Zangrillo who were executive officers of the Company,
determined the compensation of the Company's executive officers and administered
the Company's stock option plan.
STOCK PLANS
Stock Option Plan. The Company has adopted the Amended and Restated 1996
Stock Option Plan (the "Stock Option Plan"). The Stock Option Plan permits the
grant of (i) options to purchase shares of Common Stock intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") ("Incentive Stock Options"), and (ii) options that do
not so qualify ("Non-Qualified Options"). No award may be granted under the
Stock Option Plan after 2006. The Stock Option Plan is administered by the
Compensation Committee.
6,600,000 shares of Common Stock have been reserved for issuance under the
Stock Option Plan. The number of shares reserved for issuance under the Stock
Option Plan is subject to adjustment for stock splits, stock dividends,
recapitalizations, reclassifications and similar events. If an option granted
under the Stock Option Plan expires unexercised or is terminated or cancelled
for any reason, the shares of Common Stock previously reserved for issuance
thereunder will be available for future option grants under the Stock Option
Plan.
Options may be granted to persons who are, at the time of grant, employees,
officers or directors of or consultants to the Company, except that Incentive
Stock Options may only be granted to individuals who are employees of the
Company.
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<PAGE> 43
Options granted under the Stock Option Plan must be exercised within no
more than seven years of the grant date, except that an Incentive Stock Option
granted to a person owning more than 10% of the total combined voting power of
all classes of stock of the Company (a "Ten Percent Stockholder") must be
exercised within no more that five years of the grant date. No options may be
assigned or transferred by the optionee other than by will or the laws of
descent or distribution. Each option may be exercised only by the optionee
during his or her lifetime.
The exercise price for each option granted will be determined by the
Compensation Committee at the time of grant. Options may not be granted at an
exercise price less than the fair market value per share of Common Stock. For
Incentive Stock Options granted to a Ten Percent Stockholder, the exercise price
shall not be less than 110% of the fair market value per share of Common Stock.
Options may be made exercisable in installments, and the exercisability of
Options may be accelerated by the Compensation Committee. Options granted under
the Stock Option Plan typically vest 20% on the first anniversary of the date of
grant and 5% each quarter thereafter.
As of the date of this Prospectus, an aggregate of 3,537,457 options were
outstanding under the Stock Option Plan at a weighted average exercise price of
$2.87 per share, options to purchase 342,386 shares had been exercised and an
aggregate of 2,720,157 shares were available for future options grants. Each
director who is not an employee of the Company receives Non-Qualified Options to
purchase 40,000 shares of Common Stock when such director is elected to the
Board.
Employee Stock Purchase Plan. The Company has adopted, effective upon the
date of this Prospectus, an employee stock purchase plan (the "Stock Purchase
Plan"). Under the Stock Purchase Plan, eligible employees will be granted
options (exercisable by electing to participate in the Plan) to purchase shares
of Common Stock generally through regular payroll deductions. The Stock Purchase
Plan is intended to qualify as an "employee stock purchase plan" under Section
423 of the Code. The total number of shares of Common Stock that are authorized
for issuance under the Stock Purchase Plan is 1,000,000. All full-time employees
of the Company will be eligible to participate in the Stock Purchase Plan,
subject to certain limited exceptions. Options will be granted generally every
six months to eligible employees and, if not exercised, will expire on the last
day of the sixth-month period in which granted. Employees electing to
participate for any semi-annual period will authorize payroll deductions at a
stated whole percentage ranging from 2% to 10% of compensation, as determined by
the participant. Options will be nontransferable other than by will or by
operation of the laws of descent and distribution. The purchase price for shares
offered under the Stock Purchase Plan each year will be equal to a percentage
designated by the Compensation Committee (not less than 85%) of the fair market
value of the Common Stock at the semi-annual date of exercise as evidenced by
the closing price of the Common Stock on such date as reported on the Nasdaq
National Market. The Stock Purchase Plan will expire on the tenth anniversary of
the date of this Prospectus, unless sooner terminated by the Board of Directors.
The Board of Directors of the Company may amend, suspend or terminate the Stock
Purchase Plan at any time and from time to time, subject to certain limitations.
The Stock Purchase Plan will be administered by the Compensation Committee.
401(K) PLAN
The Company has a defined contribution savings plan (the "401(k) Plan"),
which qualifies under Section 401(k) of the Code. Participants may contribute up
to 15% of their gross wages not to exceed, in any given year, a limitation set
by Internal Revenue Service regulations. The 401(k) Plan provides for
discretionary contributions to be made by the Company as determined by the
Company's Board of Directors. The Company has not made any contributions to the
401(k) Plan.
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<PAGE> 44
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation and Bylaws provide that the
liability of the directors for monetary damages will be limited to the fullest
extent permissible under Delaware law. This limitation of liability does not
affect the availability of injunctive relief or other equitable remedies.
The Company's Bylaws provide that the Company will indemnify its directors
and officers to the fullest extent permissible under Delaware law. These
indemnification provisions require the Company to indemnify such persons against
certain liabilities and expenses to which they may become subject by reason of
their service as a director or officer of the Company or any of its affiliated
enterprises. In addition, prior to the consummation of the Offering, the Company
will enter into indemnification agreements with each of its directors providing
indemnification to the fullest extent permitted by applicable law and also
setting forth certain procedures, including the advancement of expenses, that
apply in the event of a claim for indemnification.
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CERTAIN TRANSACTIONS
ISSUANCES OF CAPITAL STOCK
In March 1996, in connection with a round of private equity financing, the
Company issued 7,500 shares of Common Stock to Yves Sisteron, a director of the
Company, 250,000 shares of Common Stock to Wight Investment Partners, a
partnership in which Robert Zangrillo, a principal stockholder of the Company,
has a pecuniary interest and 500,000 shares of Common Stock to Comdisco, Inc., a
company of which Jack Slevin, a director of the Company, serves as Chairman and
Chief Executive Officer and Alan J. Andreini, the President and Chief Executive
Officer of the Company, serves as a director, for a purchase price of $2.00 per
share.
In July 1996, in connection with a round of private equity financing, the
Company issued 156,382 shares of Common Stock to Kenneth Langone, a director of
the Company and Chairman and President of Invemed Associates, Inc., an aggregate
of 49,661 shares of Common Stock to certain stockholders of the corporate parent
of, and officers and employees of, Invemed Associates, Inc., an aggregate of
422,651 shares of Common Stock to Global Retail Partners, L.P. and its
affiliates, an investment fund of which Mr. Sisteron is a Principal and an
aggregate of 158,494 shares of Common Stock to George Soros, a principal
stockholder of the Company, for himself and for certain trusts for the benefit
of his children, for a purchase price of $4.732 per share.
In December 1996, in connection with a round of private equity financing,
the Company issued 40,000 shares of Common Stock to Mr. Andreini, an aggregate
of 32,000 shares of Common Stock to Global Retail Partners, L.P. and its
affiliates, 40,000 shares of Common Stock to Mr. Langone, 4,000 shares of Common
Stock to Jerry Lyons, the Chief Financial Officer of the Company, 17,600 shares
of Common Stock to Daniel Santell, an officer of the Company, and an aggregate
of 681,600 shares of Common Stock to Mr. Soros, for himself and for certain
trusts for the benefit of his children, for a purchase price of $6.25 per share.
In May 1997, in connection with a round of private equity financing, the
Company issued 33,333 shares of Common Stock to Mr. Andreini, 81,500 shares of
Common Stock to Mr. Langone, 33,333 shares of Common Stock to Mr. Slevin,
501,333 shares of Common Stock to Mr. Soros, 133,333 shares of Common Stock to
Comdisco, Inc. and an aggregate of 18,500 shares of Common Stock to certain
stockholders of the corporate parent of, and officers and employees of, Invemed
Associates, Inc., for a purchase price of $7.50 per share.
In November 1997, in connection with a round of private equity financing,
the Company issued 29,412 shares of Common Stock to Comdisco, Inc. and 428,000
shares of Common Stock to Mr. Soros for a purchase price of $8.50 per share.
In March 1998, in connection with a round of private equity financing, the
Company issued 1,000 shares of Common Stock to Invemed Fund, L.P., a fund
affiliated with Invemed Associates, Inc. and whose limited partners are entities
affiliated with Credit Suisse First Boston Corporation, and an aggregate of
23,528 shares of Common Stock to an officer and a Managing Director of Credit
Suisse First Boston Corporation, for a purchase price of $8.50 per share.
ISSUANCES OF WARRANTS
In connection with a round of private equity financing, in March 1996 the
Company issued warrants to Comdisco, Inc. to purchase 103,420 shares of Common
Stock at an exercise price of $2.00 per share.
In connection with an equipment lease financing, in March 1996, the Company
issued warrants to Comdisco, Inc. to purchase 37,500 shares of Common Stock at
an exercise price of $2.00 per share.
41
<PAGE> 46
In connection with a letter of credit in support of a facility deposit, in
January 1997, the Company issued warrants to purchase 25,260 shares of Common
Stock at an exercise price of $6.25 per share to Comdisco, Inc.
In February 1997, in connection with an equipment lease financing, the
Company issued warrants to purchase 39,200 shares of Common Stock at an exercise
price of $6.25 per share to Comdisco, Inc.
In April 1997, the Company issued warrants to purchase an aggregate of
75,000 shares of Common Stock at an exercise price of $7.50 per share to Global
Retail Partners, L.P. and its affiliates as consideration for certain financial
advisory services.
In connection with two rounds of private equity financing in November 1997
and March 1998, the Company issued warrants to purchase an aggregate of 110,294
and 39,864 shares of Common Stock, respectively, at an exercise price of
$ per share to certain stockholders of the corporate parent of, and
officers of, Invemed Associates, Inc., including warrants to purchase 103,129
shares of Common Stock to Mr. Langone, in consideration for assistance provided
by Invemed Associates, Inc. in connection with the financings.
In connection with a loan and security agreement, in June 1998 the Company
issued warrants to Comdisco, Inc. as described below under "-- Leases and
Licenses with Comdisco, Inc.; Secured Loan from Comdisco, Inc."
LOANS
In May 1996, the Company made loans to Messrs. Donahue, Robinson and
Zangrillo in the principal amounts of $72,118.66, $22,296.23 and $98,169.64,
respectively. The loans bear interest at a rate of 6% per annum. The principal
and interest on the loans to Messrs. Donahue and Robinson will be forgiven in
equal annual installments starting in 1999, except that if either of them
voluntarily terminates his employment or service as a director prior to May
2001, his loan, including interest, will become due and payable in May 2001. In
May 1998, Mr. Zangrillo repaid $23,169.64 of the principal amount of his loan,
reducing the principal amount thereof to $75,000. The balance of Mr. Zangrillo's
loan was forgiven in June 1998.
LEASES AND LICENSES WITH COMDISCO, INC.; SECURED LOAN FROM COMDISCO, INC.
During 1997, the Company completed a sale-leaseback transaction with
Comdisco, Inc., selling computer equipment, office equipment and furniture and
fixtures having a fair market value of approximately $878,000, net of
accumulated depreciation, for approximately $819,000, realizing a loss of
approximately $59,000. The lease has been accounted for as a capital lease.
During 1997, the Company acquired computer equipment, office equipment and
furniture and fixtures pursuant to capital lease agreements with Comdisco. The
leases had an aggregate initial principal amount of approximately $3,181,000. In
connection with the leases, in March 1996 and February 1997, the Company issued
warrants to purchase 37,500 and 39,200 shares of Common Stock at exercise prices
of $2.00 and $6.25 per share, respectively, to Comdisco, Inc.
During 1996 and 1997, the Company recognized product license and service
revenues from Comdisco of approximately $156,000 and $12,000, respectively.
Effective June 1998, the Company entered into a secured loan agreement with
Comdisco, Inc. under which the Company may borrow up to $3.0 million. The loan
accrues interest, which is payable monthly, at a rate of 10% per annum and is
secured by the accounts receivable of the Company. The Company may borrow
amounts under the line for a period of twelve months subsequent to its initial
borrowing under the loan agreement or until completion of the Offering by the
Company. The loan principal is due and payable at the later of 12 months from
the initial borrowing or 18 months from the date of the agreement. In connection
with the loan agreement, Comdisco was issued a warrant to purchase 14,118 shares
of Common Stock at an exercise price of
42
<PAGE> 47
$9.775 per share. If the Company borrows amounts under the loan agreement,
Comdisco will be issued a warrant to purchase up to an additional 14,118 shares
of Common Stock at a price of $9.775 per share. As of the date of this
Prospectus, the Company has not borrowed any amounts under the loan agreement.
RECENT SALES OF SECURITIES BY THE SELLING STOCKHOLDERS
In January 1998, Mr. Zangrillo sold an aggregate of 1,000,000 shares of
Common Stock to certain other stockholders of the Company for an aggregate
purchase price of $6,000,000, or $6.00 per share, including an aggregate of
921,168 shares sold to George Soros, for himself and for certain trusts for the
benefit of his children.
In February 1998, Mr. Donahue sold 33,000 shares of Common Stock to Mr.
Andreini for an aggregate purchase price of $198,000, or $6.00 per share.
In March 1998, Mr. Donahue sold an aggregate of 214,285 shares of Common
Stock to certain stockholders of the Company for an aggregate purchase price of
$1,500,000, or approximately $7.00 per share, including 39,322 shares to Mr.
Langone, 8,928 shares to a Managing Director of Credit Suisse First Boston
Corporation, 142,250 shares of Common Stock to Invemed Fund, L.P. and an
aggregate of 14,285 shares to an officer and an employee of Invemed Associates,
Inc.
In March 1998, Mr. Robinson sold an aggregate of 214,286 shares of Common
Stock to certain stockholders of the Company for an aggregate purchase price of
$1,500,000, or approximately $7.00 per share, including 39,322 shares to Mr.
Langone, 8,929 shares to a Managing Director of Credit Suisse First Boston
Corporation, 142,250 shares of Common Stock to Invemed Fund, L.P. and an
aggregate of 14,286 shares to an officer and an employee of Invemed Associates,
Inc.
In March 1998, Mr. Zangrillo sold 37,500 shares of Common Stock, Mr.
Donahue sold 175,571 shares of Common Stock and Mr. Robinson sold 71,429 shares
of Common Stock for an aggregate purchase price of $1,991,500, or $7.00 per
share, to one stockholder of the Company.
In March 1998, Mr. Donahue and Mr. Zangrillo each sold 37,294 shares of
Common Stock for an aggregate purchase price of $633,998, or $8.50 per share, to
one stockholder of the Company.
43
<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus and as adjusted to reflect the sale by the Company of the shares
offered hereby with respect to: (i) each of the Named Executive Officers; (ii)
each director of the Company; (iii) each stockholder known by the Company to be
the beneficial owner of more than 5% of the Company's Common Stock; (iv) each
Selling Stockholder; and (v) all executive officers and directors as a group.
Except as otherwise noted, the persons or entities named in the table have sole
voting and investment power with respect to all the shares of Common Stock
beneficially owned by them, subject to community property laws where applicable.
Except as otherwise indicated, the address of each beneficial owner of more than
5% of the Company's Common Stock is c/o InterWorld Corporation, 395 Hudson
Street, 6th Floor, New York, New York 10014.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) NUMBER OF SHARES AFTER OFFERING(1)
-------------------------- OF COMMON STOCK TO -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BE SOLD IN OFFERING NUMBER PERCENT
- ------------------------ ------------ ---------- ------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Michael J. Donahue(2).... 5,187,350 24.3% 100,000(15) 5,087,350
Alan J. Andreini(3)...... 1,462,902 6.7 -- 1,462,902
Jerry Lyons(4)........... 28,500 * -- 28,500
Daniel Turano(5)......... 45,000 * -- 45,000
Daniel R. Santell(6)..... 83,600 * -- 83,600
Kenneth G. Langone(7).... 759,155 3.5 -- 759,155
Joseph C. Robinson(8).... 1,736,285 8.1 100,000(15) 1,636,285
Yves Sisteron(9)......... 555,151 2.6 125,000(14) 435,151
Jack Slevin(10).......... 925,576 4.3 -- 925,576
Russell West(11)......... 900,243 4.2 -- 900,243
George Soros(12)......... 2,690,595 12.6 -- 2,690,595
c/o Soros Fund
Management LLC
888 7th Avenue,
Suite 3300
New York, New York
10106
Robert L.
Zangrillo(13).......... 4,882,706 22.8 1,000,000 3,882,706
1419 Crystal Lake Road
Aspen, Colorado 81611
Global Retail Partners,
L.P. and its
affiliates............. 529,651 2.5 125,000 404,651
2121 Avenue of the
Stars
Los Angeles, California
90067(14)
All executive officers
and directors as a
group (14 persons)..... 9,994,276 44.9% 325,000(16) 9,669,276
</TABLE>
- ------------------------------------
* Less than one percent.
(1) Applicable percentage of ownership is based on 21,382,385 shares of Common
Stock outstanding as of the date of this Prospectus and shares
upon consummation of the Offering, together with applicable options for
each stockholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities, subject to community
property laws, where applicable. Shares of Common Stock subject to options
that are presently exercisable or exercisable within 60 days are deemed to
be beneficially owned by the person holding such options for the purpose of
computing the percentage of
44
<PAGE> 49
ownership of such person but are not treated as outstanding for the purpose of
computing the percentage of any other person.
(2) Includes 20,000 shares owned by Mr. Donahue's wife.
(3) Includes 45,756 shares subject to stock options that are currently
exercisable, 178,570 shares subject to stock options that become
exercisable upon consummation of the Offering, and 662,745 shares and
warrants to purchase 219,498 shares owned by Comdisco, Inc. Mr. Andreini is
a director of Comdisco, Inc.
(4) Includes 24,500 shares subject to stock options that are currently
exercisable.
(5) Consists of 45,000 shares subject to stock options that become exercisable
on August 15, 1998.
(6) Includes 66,000 shares subject to stock options that are currently
exercisable.
(7) Includes warrants to purchase 103,129 shares of Common Stock owned by Mr.
Langone, 14,000 shares subject to stock options that are currently
exercisable and 285,500 shares owned by Invemed Fund, L.P., a limited
partnership of which Invemed Associates, Inc. is the General Partner. Mr.
Langone is the President, Chief Executive Officer and Chairman of the Board
of Invemed Associates, Inc.
(8) Includes 30,000 shares held in trust for the benefit of Mr. Robinson's
child and 3,000 shares held in a trust of which Mr. Robinson is the
trustee.
(9) Includes 18,000 shares subject to stock options that are currently
exercisable. Also includes 454,651 shares of Common Stock and warrants to
purchase 75,000 shares of Common Stock owned by Global Retail Partners,
L.P. and its affiliates, as to which Mr. Sisteron disclaims beneficial
ownership. Mr. Sisteron is a Principal of Global Retail Partners, L.P. See
Footnote (14).
(10) Includes 10,000 shares subject to stock options that are currently
exercisable, and 662,745 shares and warrants to purchase 219,498 shares
owned by Comdisco, Inc. Mr. Slevin is a director of Comdisco, Inc.
(11) Includes 18,000 shares subject to stock options that are currently
exercisable, and 662,745 shares and warrants to purchase 219,498 shares
owned by Comdisco, Inc. Mr. West is an Executive Vice President and Chief
Technology Officer of Comdisco, Inc.
(12) Includes 352,330 shares owned by members of Mr. Soros' family.
(13) Includes 4,612,706 shares owned of record by Strategic Global Partners,
LLC, an entity wholly owned and controlled by Mr. Zangrillo, 10,000 shares
owned by Mr. Zangrillo's wife, 10,000 shares held in trust for the benefit
of Mr. Zangrillo's child and 250,000 shares owned by Wight Investment
Partners, a partnership in which Mr. Zangrillo has a pecuniary interest.
(14) Includes 454,651 shares of Common Stock and warrants to purchase 75,000
shares of Common Stock owned by Global Retail Partners, L.P. and certain of
its affiliates. The 125,000 shares being sold in the Offering are held of
record by the following stockholders: Global Retail Partners,
L.P. -- 99,164 shares; Global Retail Partners Funding, Inc. -- 8,089
shares; GRP Partners, L.P. -- 7,262 shares; DLJ Diversified Partners,
L.P. -- 6,171 shares; DLJ Diversified Partners -- A, L.P. -- 2,292 shares;
and DLJ First ESC L.P. -- 2,022 shares.
(15) An aggregate of 200,000 if the Underwriter's over-allotment option is
exercised in full.
(16) An aggregate of 525,000 if the Underwriter's over-allotment option is
exercised in full.
45
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 115,000,000 shares,
including: (i) 100,000,000 shares of Common Stock, par value $.01 per share, and
(ii) 15,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"). As of June 15, 1998, the Company had issued and outstanding 21,382,385
shares of Common Stock, options to purchase 3,537,457 shares of Common Stock at
a weighted average exercise price of $2.87 per share and warrants to purchase
444,656 shares of Common Stock at a weighted average exercise price of $6.42 per
share. In addition, the Company has agreed to issue warrants to purchase up to
14,118 shares of Common Stock at an exercise price of $9.775 per share in the
event that the Company borrows under a line of credit. The following description
of the capital stock of the Company is a summary and is qualified in its
entirety by the provisions of the Company's Certificate of Incorporation and the
Bylaws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. Information in this Prospectus
gives effect to the automatic conversion of all outstanding shares of
InterWorld's mandatorily redeemable preferred stock into Common Stock upon the
consummation of the Offering and an amendment to InterWorld's Certificate of
Incorporation to be effected prior to the Offering.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. The holders of Common Stock are not
entitled to cumulative voting rights. Generally, all matters to be voted on by
stockholders must be approved by a majority (or, in the case of election of
directors, by a plurality) of the votes entitled to be cast by all shares of
Common Stock present in person or represented by proxy, voting together as a
single class, subject to any voting rights granted to holders of any Preferred
Stock. Subject to the rights of any Preferred Stock, the holders of the Common
Stock are entitled to such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of shares of Common Stock would be entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights and payment of any distributions owing to holders of shares of Preferred
Stock then outstanding, if any. Holders of the shares of Common Stock have no
preemptive rights. There are no redemption or sinking fund provisions applicable
to the shares of Common Stock. The outstanding shares of Common Stock are, and
the shares of Common Stock offered by the Company in the Offering will be, duly
authorized, fully paid, validly issued and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
Preferred Stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the
Company's Board of Directors is empowered, without stockholder approval, to
issue preferred stock with dividends, liquidation, voting or other rights that
could adversely affect the voting power or other rights of the holders of Common
Stock. In the event of issuance, the preferred stock could be used, under
certain circumstances, as a method of preventing a change in control of the
Company. No shares of preferred stock are issued or outstanding and the Company
has no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
The holders of 7,414,999 shares of Common Stock outstanding immediately
after the Offering are entitled to certain rights with respect to the
registration of shares under the Securities Act. Under the terms of the
agreement between the Company and the holders of such shares, if the Company
proposes to register any of its securities under the Securities Act after the
Offering, either for its own account or for the account of other security
holders exercising registration
46
<PAGE> 51
rights, such holders are entitled to notice of such registration and are
entitled to include shares therein. The stockholders benefiting from these
rights may also require the Company to file a registration statement under the
Securities Act at its expense with respect to their shares of Common Stock on
two occasions after the 180th day after the date of this Prospectus, and the
Company is required to use its best efforts to effect such registrations. All of
these rights are subject to certain conditions and limitations, including the
right of the underwriters of an offering to limit the number of shares included
in any registration.
WARRANTS
The Company has issued warrants to purchase 444,656 shares of Common Stock
at a weighted average exercise price of $6.42 per share, which are presently
exercisable. In addition, the Company has agreed to issue warrants to purchase
up to 14,118 shares of Common Stock at an exercise price of $9.775 per share
which will be issued and exercisable only in the event that the Company borrows
under a line of credit. See "Certain Transactions." All warrants will expire
after a period of ten years from issuance or five years from the effective date
of the Offering, whichever is longer.
CERTAIN PROVISIONS OF DELAWARE LAW
Section 203 of the Delaware General Corporation Law prohibits, with certain
exceptions, a Delaware corporation from engaging in any of a broad range of
business combinations, such as mergers, consolidations and sales of assets, with
an "interested stockholder" for a period of three years from the date that such
person became an interested stockholder. This makes a takeover of a company more
difficult and may have the effect of diminishing the possibility of certain
types of "front-end loaded" acquisitions of a company or other unsolicited
attempts to acquire a company. This may further have the effect of preventing
changes in the board of directors of a company, and it is possible that such
provisions could make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interests.
LISTING
The Company has applied to have the Common Stock approved for quotation on
the Nasdaq National Market under the trading symbol "INTW."
TRANSFER AGENT
The transfer agent for the Company's Common Stock is Chase Mellon
Shareholder Services.
47
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the Common Stock.
Upon consummation of the Offering, the Company will have outstanding
shares of Common Stock. Of these shares, the
shares sold in the Offering will be freely tradable without restriction or
further registration under the Securities Act, unless they are purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act (which sales would be subject to certain restrictions under Rule
144). The remaining 20,057,385 outstanding shares of Common Stock will be
"restricted securities," as that term is defined in Rule 144, and may be sold
only if registered or pursuant to an exemption from registration such as are
available by compliance with the conditions of Rule 144 under the Securities
Act. Certain holders of the Common Stock will also have registration rights
allowing them to cause InterWorld to register their shares under the Securities
Act. See "Description of Capital Stock -- Registration Rights." In connection
with the Offering, InterWorld, its executive officers and directors and certain
of its stockholders, including the selling stockholders, who will hold a total
of shares of Common Stock outstanding after the Offering, have
agreed that, subject to certain exceptions relating to transfers that will not
occur in market transactions, they will not sell, offer or contract to sell any
shares of Common Stock without the prior written consent of Credit Suisse First
Boston Corporation for a period of one year after the date of this Prospectus.
In addition, certain other stockholders, who will hold a total of
shares outstanding after the Offering, have agreed that, with
certain exceptions relating to transfers that will not occur in market
transactions, they will not sell any shares of Common Stock for a period of 180
days after the date of this Prospectus, or more than a total of
shares during the period from 181 days to 270 days after the date of this
Prospectus, or more than a total of shares during the period from
271 days to one year after the date of this Prospectus (plus any unsold shares
that could have been sold in the period from 181 to 270 days after the date of
this Prospectus), in any case, without the consent of Credit Suisse First Boston
Corporation. After giving effect to the lock-up agreements, the
shares that will be restricted securities will be eligible for sale as follows:
shares as of the date of this Prospectus, shares
beginning 90 days after the date of this Prospectus, shares
beginning 180 days after the date of this Prospectus, shares
beginning 270 days after the date of this Prospectus and the remaining
shares beginning one year after the date of this Prospectus. The
foregoing discussion does not give effect to the exercise of stock options that
may occur.
After the completion of the Offering, the Company intends to file
Registration Statements on Form S-8 under the Securities Act to register
6,257,614 shares of Common Stock reserved for issuance under the Stock Option
Plan and 1,000,000 shares of Common Stock reserved for issuance under the Stock
Purchase Plan.
48
<PAGE> 53
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1998 (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation, Invemed Associates, Inc. and Hambrecht & Quist LLC are
acting as representatives (the "Representatives"), have severally but not
jointly agreed to purchase from the Company and the Selling Stockholders the
following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Invemed Associates, Inc. ...................................
Hambrecht & Quist LLC.......................................
--------
Total.............................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company and certain Selling Stockholders have granted to the
Underwriters an option, expiring at the close of business on the 30th day after
the date of this Prospectus, to purchase up to additional shares
from the Company and an aggregate of 200,000 additional shares from such Selling
Stockholders at the initial public offering price less the underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. Such option may be exercised only to cover over-allotments in the
sale of the shares of Common Stock. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
it was obligated to purchase pursuant to the Underwriting Agreement.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public initially at the public offering price set forth on the
cover page of this Prospectus and, through the Representatives, to certain
dealers at such price less a concession of $ per share, and that the
Underwriters and such dealers may allow a discount of $ per share on sales
to certain other dealers. After the
49
<PAGE> 54
initial public offering, the public offering price and concession and discount
to dealers may be changed by the Representatives.
The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the number of shares of
Common Stock offered hereby.
The Company, its directors, executive officers and certain of its
stockholders, including the Selling Stockholders, who will hold a total of
shares of Common Stock outstanding after the Offering, have
agreed that, for a period of one year after the date of this Prospectus, and
certain other stockholders, who will hold a total of shares
outstanding after the Offering have agreed that, for a period of from 180 days
to one year after the date of this Prospectus as more fully described under
"Shares Eligible for Future Sale," they will not (i) offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, or, in the case of
the Company, file with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of Common Stock or
securities or other rights convertible into or exchangeable or exercisable for
any shares of Common Stock, or publicly disclose the intention to make any such
offer, sale, contract to sell, pledge, disposition or, in the case of the
Company, filing, or (ii) enter into any swap or other agreement that transfers,
in whole or in part, any of the economic consequences of ownership of such
shares of Common Stock, in each case without the prior written consent of Credit
Suisse First Boston Corporation, except, in the case of the Company, issuances
of Common Stock pursuant to the conversion or exchange of convertible or
exchangeable securities or the exercise of warrants or options, in each case
outstanding on the date of this Prospectus, grants of employee stock options
pursuant to the Stock Option Plan or the Stock Purchase Plan and issuances of
Common Stock pursuant to the exercise of such options, and except in the case of
an individual, bona fide gifts to or for the benefit, directly or indirectly, of
members of such individual's family for estate planning purposes, provided that
such gifts are made other than on any securities exchange or in the
over-the-counter market and that such donees agree to terms substantially
similar to the foregoing for the benefit of the Company and the Underwriters.
See "Shares Eligible for Future Sale."
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the shares of Common Stock offered for employees, directors
and certain other persons associated with the Company who have expressed an
interest in purchasing such shares of Common Stock in the Offering. The number
of shares of Common Stock available for sale to the general public in the
Offering will be reduced to the extent such persons purchase the reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same terms as the other shares offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.
Application has been made to list the Common Stock on the Nasdaq National
Market.
Invemed Associates, Inc. has provided assistance to the Company in
connection with certain of its private equity financings in the past, for which
officers of Invemed Associates, Inc. and stockholders of its parent received as
compensation warrants to purchase an aggregate of 150,158 shares of Common Stock
at an exercise price of $ per share. As of June 15, 1998, officers and
employees of Invemed Associates, Inc., shareholders of its parent and officers
and affiliates of Credit Suisse First Boston Corporation owned an aggregate of
780,143 shares of Common Stock, of which 434,100 shares were purchased within
twelve months of the date of this Prospectus. The holders of the 434,100 shares
have agreed that, for a period of five years after the date of this Prospectus,
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, such shares of Common Stock. Kenneth Langone, a director
and stockholder of the Company, is Chairman of the Board, Chief Executive
Officer and President of Invemed
50
<PAGE> 55
Associates, Inc. and is the principal stockholder of Invemed's parent. See
"Certain Transactions" and "Principal and Selling Stockholders."
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiations among the Company, the Selling Stockholders and Credit Suisse
First Boston Corporation on behalf of the Underwriters and does not necessarily
reflect the market price of the Common Stock following the Offering. Among the
principal factors to be considered in determining the initial public offering
price will be market conditions for initial public offerings, the history of and
prospects for the Company's business, the Company's past and present operations,
its past and present earnings and current financial position, an assessment of
the Company's management, the market of securities of companies in businesses
similar to those of the Company, the general condition of the securities markets
and other relevant factors. There can be no assurance that the initial public
offering price will correspond to the market price after the Offering.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when Common Stock originally sold by such syndicate member is
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Common Stock in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Common
Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
51
<PAGE> 56
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the Selling Stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result it may not be possible to satisfy a judgment against the
issuer or such persons in Canada or to enforce a judgment obtained in Canadian
courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
Legislation.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by O'Sullivan Graev & Karabell, LLP, New York, New York.
The O'Sullivan Graev & Karabell Profit Sharing Plan owns 22,500 shares of Common
Stock, and Robert Seber, a member of the firm, owns 5,000 shares of Common
Stock. Certain legal matters in connection with the Offering will be passed upon
for the Underwriters by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of InterWorld Corporation as of
December 31, 1996 and 1997 and for the period from inception (March 28, 1995) to
December 31, 1995 and for the years ended December 31, 1996 and 1997 included in
this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
52
<PAGE> 57
CHANGE IN INDEPENDENT ACCOUNTANTS
In November 1996, InterWorld retained KPMG Peat Marwick LLP as its
independent accountants. In July 1997, KPMG Peat Marwick LLP resigned as
InterWorld's independent accountants because KPMG Peat Marwick LLP and
InterWorld intended to enter into a strategic partnership agreement. No audits
were conducted by KPMG Peat Marwick LLP on InterWorld's financial statements,
and no reports were issued. There were no disagreements between InterWorld and
KPMG Peat Marwick LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
ADDITIONAL INFORMATION
InterWorld has filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information included in the
Registration Statement. Certain information is omitted and you should refer to
the Registration Statement and its exhibits. With respect to references made in
this Prospectus to any contract or other document of InterWorld, such references
are not necessarily complete and you should refer to the exhibits attached to
the Registration Statement for copies of the actual contract or document. You
may review a copy of the Registration Statement at the Securities and Exchange
Commission's public reference room in Washington, D.C., and at the Securities
and Exchange Commission's regional offices in Chicago, Illinois and New York,
New York. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the operation of the public reference rooms.
InterWorld's Securities and Exchange Commission filings and the Registration
Statement can also be reviewed by accessing the Securities and Commission's
Internet site at http://www.sec.gov.
53
<PAGE> 58
INTERWORLD CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants...........................
F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997
and March 31, 1998 (unaudited)............................
F-3
Consolidated Statements of Operations for the period from
inception (March 28, 1995) through December 31, 1995 and
for the years ended December 31, 1996 and 1997 and for the
three months ended March 31, 1997 (unaudited) and 1998
(unaudited)...............................................
F-4
Consolidated Statements of Stockholders' Equity for the
period from Inception (March 28, 1995) through December
31, 1995 and for the years ended December 31, 1996 and
1997 and for the three months ended March 31, 1998
(unaudited)...............................................
F-5
Consolidated Statements of Cash Flows for the period from
inception (March 28, 1995) through December 31, 1995 and
for the years ended December 31, 1996 and 1997 and for the
three months ended March 31, 1997 (unaudited) and 1998
(unaudited)...............................................
F-6
Notes to Consolidated Financial Statements..................
F-7
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of InterWorld Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
InterWorld Corporation and its subsidiaries at December 31, 1995, 1996 and 1997,
and the results of their operations and their cash flows for the period from
inception (March 28, 1995) through December 31, 1995 and for the years ended
December 31, 1996 and 1997 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
June 29, 1998
F-2
<PAGE> 60
INTERWORLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------ MARCH 31, MARCH 31,
1996 1997 1998 1998
------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 14)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 6,111 $ 6,081 $ 12,952
Accounts receivable (including $156 in 1996 from a
related party), net of allowance for doubtful
accounts of $269, $622, and $568,
respectively.................................... 768 4,162 5,355
Prepayments and other current assets.............. 327 78 229
------- -------- --------
TOTAL CURRENT ASSETS....................... 7,206 10,321 18,536
------- -------- --------
Property and equipment, net......................... 1,330 6,648 6,425
Other assets including amounts from related parties
of $193, $211 and $228, respectively.............. 329 462 640
------- -------- --------
TOTAL ASSETS............................... $ 8,865 $ 17,431 $ 25,601
======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses............. $ 1,657 $ 3,447 $ 4,134
Capital lease obligations to related
party -- current................................ -- 1,258 1,258
Deferred revenue and customer deposits............ 896 490 935
Deposits on preferred stock subscriptions......... -- 225 --
Net liabilities of discontinued operations........ -- 1,099 --
------- -------- --------
TOTAL CURRENT LIABILITIES.................. 2,553 6,519 6,327
------- -------- --------
Capital lease obligations to related party -- long
term.............................................. -- 1,861 1,454
Deferred rent....................................... -- 527 703
------- -------- --------
TOTAL LIABILITIES.......................... 2,553 8,907 8,484
------- -------- --------
Commitments (Note 12)
Mandatorily redeemable Series A Convertible
Preferred Stock ($0.01 par value; 8,200,000 shares
authorized, 3,300,131, 6,351,767 and 7,539,999,
issued and outstanding respectively, none issued
and outstanding pro forma) (Liquidating preference
of $13,550, $37,997 and $48,097, respectively).... 13,431 37,319 47,199
Stockholders' equity (deficit):
Preferred stock ($0.01 par value, 15,000,000 shares
authorized pro forma)............................. -- -- --
Common stock ($0.01 par value, 27,000,000 shares
authorized, 100,000,000 shares authorized pro
forma, 13,500,000, 13,505,650 and 13,829,820
shares issued and outstanding, respectively,
21,369,819 shares issued and outstanding pro
forma)............................................ 135 135 138 214
Receivables on stock option exercises............... -- -- (6) (6)
Additional paid-in capital.......................... 267 2,203 4,635 51,758
Accumulated deficit................................. (7,521) (31,133) (34,849) (34,849)
------- -------- -------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)................ (7,119) (28,795) (30,082) 17,117
------- -------- -------- --------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)........... $ 8,865 $ 17,431 $ 25,601 $ 17,117
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 61
INTERWORLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INCEPTION YEAR ENDED DECEMBER THREE MONTHS ENDED
(MARCH 28, 1995) 31, MARCH 31,
TO DECEMBER 31, ------------------- --------------------------
1995 1996 1997 1997 1998
---------------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net:
Product licenses (Note 8)....... $ 25 $ 779 $ 4,883 $ 491 $ 2,159
Services (Note 8)............... 331 1,241 3,073 583 1,102
Other........................... 3 408 100 100 --
------ ------- -------- ------- -------
TOTAL REVENUES, NET...... 359 2,428 8,056 1,174 3,261
------ ------- -------- ------- -------
Cost of revenues:
Product licenses................ 1 82 278 43 42
Services........................ 130 1,735 6,744 2,069 1,159
Other........................... -- 322 107 107 --
------ ------- -------- ------- -------
TOTAL COST OF REVENUES... 131 2,139 7,129 2,219 1,201
------ ------- -------- ------- -------
Gross profit (loss)......... 228 289 927 (1,045) 2,060
Operating expenses:
Research and development........ 234 2,362 6,863 1,263 2,003
Sales and marketing............. -- 2,435 8,487 1,729 2,192
General and administrative...... 258 2,730 6,405 1,469 1,181
Noncash employee compensation... -- 71 752 25 377
------ ------- -------- ------- -------
TOTAL OPERATING
EXPENSES............... 492 7,598 22,507 4,486 5,753
------ ------- -------- ------- -------
Loss from operations........ (264) (7,309) (21,580) (5,531) (3,693)
Other income (expense):
Interest income................. -- 112 218 43 63
Interest expense................ -- -- (313) (32) (86)
------ ------- -------- ------- -------
TOTAL OTHER INCOME
(EXPENSE).............. -- 112 (95) 11 (23)
------ ------- -------- ------- -------
Loss from continuing operations... (264) (7,197) (21,675) (5,520) (3,716)
------ ------- -------- ------- -------
Discontinued operations (Note 13):
Expenses from discontinued
operations of ActionWorld,
Inc........................... -- -- (1,310) (128) --
Provision for operating losses
to date of disposition........ -- -- (627) -- --
------ ------- -------- ------- -------
Net loss.......................... $ (264) $(7,197) $(23,612) $(5,648) $(3,716)
====== ======= ======== ======= =======
Basic loss per share and diluted
loss per share.................. $(0.02) $ (0.53) $ (1.75) $ (0.42) $ (0.28)
====== ======= ======== ======= =======
Basic loss per share and diluted
loss per share from continuing
operations...................... $(0.02) $ (0.53) $ (1.61) $ (0.41) $ (0.28)
====== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 62
INTERWORLD CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RECEIVABLES TOTAL
COMMON STOCK ON STOCK ADDITIONAL STOCKHOLDERS'
------------------- OPTION PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT EXERCISES CAPITAL DEFICIT (DEFICIT)
---------- ------ ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
inception....................... 13,500,000 $135 $ -- $ -- $ -- $ 135
Adjustment to accumulated deficit
for stock split without change
in par value.................... -- -- -- -- (60) (60)
Net loss.......................... (264) (264)
---------- ---- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1995...... 13,500,000 135 -- -- (324) (189)
Issuance of Series A preferred
stock warrants in connection
with sale of Series A
convertible preferred stock..... -- -- -- 135 -- 135
Issuance of Series A preferred
stock warrants in connection
with equipment leases........... -- -- -- 49 -- 49
Accretion of mandatorily
redeemable convertible preferred
stock to redemption value....... -- -- -- (16) -- (16)
Compensatory stock options issued
to employees and consultants.... -- -- -- 99 -- 99
Net loss.......................... -- -- -- -- (7,197) (7,197)
---------- ---- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1996...... 13,500,000 135 -- 267 (7,521) (7,119)
Issuance of Series A preferred
stock warrants in connection
with equipment lease............ -- -- -- 161 -- 161
Issuance of Series A preferred
stock warrants in connection
with security agreement......... -- -- -- 104 -- 104
Issuance of Series A preferred
stock warrants for consulting
services........................ -- -- -- 371 -- 371
Issuance of Series A preferred
stock warrants in connection
with sale of Series A preferred
stock........................... -- -- -- 587 -- 587
Issuance of common stock upon
exercise of stock options....... 5,650 -- -- 7 -- 7
Compensatory stock options issued
to employees and consultants.... -- -- -- 788 -- 788
Expenses related to issuance of
Series A preferred stock........ -- -- -- (54) -- (54)
Accretion of mandatorily
redeemable convertible preferred
stock to redemption value....... -- -- -- (28) -- (28)
Net loss.......................... -- -- -- -- (23,612) (23,612)
---------- ---- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1997...... 13,505,650 135 -- 2,203 (31,133) (28,795)
Issuance of common stock upon
exercise of stock options....... 324,170 3 (6) 603 -- 600
Compensatory stock options issued
to employees and consultants.... -- -- -- 424 -- 424
Issuance of Series A preferred
stock warrants in connection
with sale of Series A preferred
stock........................... -- -- -- 252 -- 252
Expenses related to issuance of
Series A preferred stock........ -- -- -- (20) -- (20)
Accretion of mandatorily
redeemable convertible preferred
stock to redemption value....... -- -- -- (32) -- (32)
Distribution of net liabilities of
ActionWorld, Inc................ -- -- -- 1,205 -- 1,205
Net loss.......................... -- -- -- -- (3,716) (3,716)
---------- ---- ------ ------ -------- --------
BALANCE AT MARCH 31, 1998
(UNAUDITED)..................... 13,829,820 $138 $ (6) $4,635 $(34,849) $(30,082)
========== ==== ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 63
INTERWORLD CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(MARCH 28, 1995) YEAR ENDED THREE MONTHS ENDED
TO DECEMBER 31, DECEMBER 31, MARCH 31,
---------------- ------------------ -------------------------
1995 1996 1997 1997 1998
---------------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss............................... $(264) $(7,197) $(23,612) $(5,520) $(3,716)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Provision for operating
losses -- discontinued
operations......................... -- -- 627 -- --
Depreciation and amortization........ 5 282 1,393 137 575
Noncash consulting expense........... -- 28 407 -- 75
Noncash employee compensation........ -- 71 752 25 377
Noncash interest expense............. -- -- 157 -- 17
Changes in discontinued operations... -- -- (561) -- (50)
Changes in assets and liabilities:
Accounts receivable................ -- (768) (3,394) (161) (1,193)
Prepaid expenses and other current
assets........................... (29) (298) 249 211 (151)
Accounts payable and accrued
expenses......................... -- 1,657 1,790 1,961 687
Deferred revenues and deposits from
customers........................ 315 581 (406) (764) 445
Other assets and liabilities....... -- (280) (182) 454 (20)
Deferred rent...................... -- -- 527 -- 176
----- ------- -------- ------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES........ 27 (5,924) (22,253) (3,657) (2,778)
----- ------- -------- ------- -------
Cash flows used in investing
activities:
Capital expenditures................. (101) (1,516) (3,530) (2,199) (352)
Capital expenditures of ActionWorld,
Inc................................ -- -- (117) -- --
----- ------- -------- ------- -------
NET CASH USED IN INVESTING
ACTIVITIES.................. (101) (1,516) (3,647) (2,199) (352)
----- ------- -------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common
stock to founders.................. 75 -- -- -- --
Proceeds from issuance of notes by
ActionWorld, Inc................... -- -- 1,150 -- --
Principal payments on capital lease
obligations........................ -- -- (724) -- (424)
Proceeds from sale and leaseback of
equipment to related party......... -- -- 819 501 --
Net proceeds from issuance of Series
A preferred stock.................. -- 13,550 24,393 721 10,080
Deposits on preferred stock
subscriptions...................... -- -- 225 -- (225)
Proceeds from exercise of common
stock options...................... -- -- 7 -- 570
Notes payable to stockholders........ 49 (49) -- -- --
----- ------- -------- ------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.................. 124 13,501 25,870 1,222 10,001
----- ------- -------- ------- -------
Net increase (decrease) in cash and
cash equivalents..................... 50 6,061 (30) (4,634) 6,871
Cash and cash equivalents, beginning of
period............................... -- 50 6,111 6,111 6,081
----- ------- -------- ------- -------
Cash and cash equivalents, end of
period............................... $ 50 $ 6,111 $ 6,081 $ 1,477 $12,952
===== ======= ======== ======= =======
Cash paid for:
Interest............................... $ -- $ -- $ 154 $ -- $ 67
===== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 64
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND BUSINESS
Organization
InterWorld Corporation ("InterWorld" or the "Company") was incorporated in
March 1995 under the laws of the State of Delaware. The consolidated financial
statements of the Company at December 31, 1996 and 1997 and March 31, 1998
include the accounts of the Company and its wholly owned subsidiaries,
InterWorld Technology Ventures Pty, Ltd. an Australian corporation and
InterWorld Technology Ventures Canada, Ltd., a Canadian corporation, both
incorporated in November 1996. In April 1997, the Company formed ActionWorld,
Inc., ("ActionWorld") under the laws of the State of Delaware. Until March 30,
1998 the Company was the majority owner of ActionWorld and ActionWorld is
included in the consolidated financial statements of the Company at December 31,
1997. On March 30, 1998, the Company completed a spin-off distribution of
ActionWorld (Note 13).
Business
InterWorld is a leading provider of enterprise-class, Internet commerce
software for business-to-business and business-to-consumer applications.
InterWorld's Internet commerce products, consisting of its Commerce Exchange
platform, application modules, tools and business adapters, provide a software
solution designed to enable businesses to conduct commerce over the Internet and
to more efficiently manage their selling chain processes. The Company derives
its revenues from the following products and services: (i) licensing fees from
its Internet commerce software, and (ii) professional services including custom
software development, installation, integration, customer support and education.
2. LIQUIDITY
The Company has incurred significant operating losses since inception. At
December 31, 1997 and March 31, 1998, the Company had an accumulated deficit of
$31,133 and $34,849, respectively, and working capital of $3,802 and $12,209,
respectively. Such losses have resulted principally from product development
costs, sales and marketing costs and general and administrative costs associated
with the Company developing its products and expanding its level of operations.
In order to fund these efforts, the Company completed private placements of its
mandatorily redeemable Series A Convertible Preferred Stock ("Series A
Preferred") during 1996 and 1997 (Note 7). The Company utilized the net proceeds
from these issuances to fund operations and for working capital requirements.
The Company also completed a private placement of its Series A Preferred in
March 1998 providing gross proceeds of approximately $10,100 (Note 13). In June
1998, the Company entered into a secured loan agreement with a holder of Series
A Preferred under which the Company may borrow up to $3,000 to fund its future
cash requirements (Note 13).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
F-7
<PAGE> 65
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assets and liabilities of the Company's foreign subsidiaries are translated
to U.S. dollars based on exchange rates at the end of the respective reporting
period. Income and expense items are translated at average exchange rates during
the period. Transaction gains and losses are included in the determination of
operating expenses. Cumulative translation adjustments are insignificant at
December 31, 1997 and March 31, 1998.
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash equivalents
Cash equivalents, which are stated at cost, consist of short-term, highly
liquid investments, with original maturities of less than three months when
purchased. Interest is accrued as earned.
Equipment
Equipment is stated at cost. Depreciation is provided on a straight-line
basis over the estimated useful lives of the respective assets as follows:
<TABLE>
<S> <C>
Computer equipment and software..... 3 years
Shorter of lease term or estimated
Leasehold improvements.............. useful life
Furniture and fixtures.............. 5 years
Office equipment.................... 3 years
</TABLE>
Revenue recognition
Product licenses
Revenue from the licensing of the Company's software products is recognized
upon shipment to the customer, pursuant to an executed software licensing
agreement when no significant vendor obligations exist and collection is
probable. If acceptance by the customer is required, revenue is recognized upon
customer acceptance. Amounts received from customers in advance of product
shipment are classified as deposits from customers. The Company enters into
reseller arrangements for its products that typically provide for license fees
payable to the Company based on a percentage of the Company's list price.
License revenues from the Company's reseller arrangements are recognized upon
shipment to the reseller when collection is probable.
Services revenue
Revenue from professional services, such as custom development,
installation and integration support, is recognized as the services are
rendered. Contracts for professional services requiring significant production,
modification or customization to the Company's software products are recognized
on a percentage of completion basis.
Revenue from maintenance and customer support services, such as telephone
support and product enhancements is recognized ratably over the period of the
agreement under which the services are provided, typically one year.
F-8
<PAGE> 66
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred revenue consists principally of billings in advance for services
not yet provided.
Advertising costs
Advertising costs included in sales and marketing expenses are expensed as
incurred and approximated $204, $455 and $61 for the years ended December 31,
1996 and 1997, and the three months ended March 31, 1998, respectively.
Research and development
The Company charges all costs incurred to establish the technological
feasibility of a product or product enhancement to research and development
expense as incurred.
Fair value of financial instruments
The carrying values of accounts receivable, accounts payable and accrued
expenses approximates their fair values due to the relatively short maturity of
these instruments.
Interim financial data
The unaudited financial data at March 31, 1998 and for the three months
ended March 31, 1997 and 1998 have been prepared by management and include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the results of operations and cash flows. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the operating results to be expected for the entire year ending
December 31, 1998.
Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recorded for temporary differences between financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities reflect the tax rates expected to be in effect for
the years in which the differences are expected to reverse. A valuation
allowance is provided if it is more likely than not that some or all of the
deferred tax asset will not be realized.
New accounting pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("FAS 130"), which requires the
presentation of the components of comprehensive income in a company's financial
statements for reporting periods beginning subsequent to December 15, 1997.
Comprehensive income is defined as the change in a company's equity during a
financial reporting period from transactions and other events and circumstances
from nonowner sources (including cumulative translation adjustments, minimum
pension liabilities and unrealized gains/losses on available-for-sale
securities). Effective January 1, 1998 the Company adopted FAS 130. The Company
has no significant changes (in any period presented) in its equity from nonowner
sources.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure About Segments of an Enterprise and Related Information"
("FAS 131"), which requires that public business enterprises report certain
information about operating segments. It also requires that public business
enterprises report certain information about their products and services,
geographic areas in which they operate and major customers. FAS 131 is effective
for fiscal years beginning after December 15, 1997. In the initial year of
application, comparative
F-9
<PAGE> 67
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
information for earlier years must be restated. The adoption of FAS 131 is not
expected to have a material impact on the Company's existing disclosures.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31, 1996,
1997 and March 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------ ------- ---------
<S> <C> <C> <C>
Computer equipment........................... $1,463 $ 4,196 $ 4,545
Office equipment............................. 113 1,330 1,333
Leasehold improvements....................... 33 1,967 1,967
Furniture and fixtures....................... 8 835 835
------ ------- -------
1,617 8,328 8,680
Less -- Accumulated depreciation and
amortization .............................. (287) (1,680) (2,255)
------ ------- -------
Equipment, net............................... $1,330 $ 6,648 $ 6,425
====== ======= =======
</TABLE>
At December 31, 1997 and March 31, 1998, computer equipment, office
equipment, and furniture and fixtures include approximately $2,024, $1,149 and
$827, respectively, of fixed assets acquired under capital leases. Accumulated
depreciation related to these assets approximated $566 at December 31, 1997 and
$870 at March 31, 1998.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following at
December 31, 1996 and 1997 and March 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------ ------ ---------
<S> <C> <C> <C>
Trade accounts payable........................ $ 593 $ 607 $ 871
Accrued commissions........................... -- 509 644
Accrued incentive compensation................ 446 856 1,142
Other accrued expenses........................ 618 1,475 1,477
------ ------ ------
$1,657 $3,447 $4,134
====== ====== ======
</TABLE>
6. LOSS PER COMMON SHARE
Effective December 31, 1997 the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128") which requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings per
share ("Diluted EPS") by all entities that have publicly traded common stock or
potential common stock (options, warrants, convertible securities or contingent
stock arrangements). FAS 128 also requires presentation of earnings per share by
an entity that has made a filing or is in the process of filing with a
regulatory agency in preparation for the sale of those securities in a public
market. Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period. The computation of Diluted EPS does not assume
F-10
<PAGE> 68
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
conversion, exercise or contingent exercise of securities that would have an
antidilutive effect on earnings.
All prior periods presented have been restated for the adoption of FAS 128.
The computations of basic loss per share and diluted loss per share for the
years ended December 31, 1995, 1996 and 1997 and for the three months ended
March 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss................ $ (264) $ (7,197) $ (23,612) $ (5,648) $ (3,716)
----------- ----------- ----------- ----------- -----------
Loss from continuing
operations............ (264) (7,197) (21,675) (5,520) (3,716)
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding used for
basic loss and diluted
loss per share........ 13,500,000 13,500,000 13,500,709 13,500,000 13,511,337
Basic loss and diluted
loss per share........ $ (0.02) $ (0.53) $ (1.75) $ (0.42) $ (0.28)
=========== =========== =========== =========== ===========
Basic loss and diluted
loss per share from
continuing
operations............ $ (0.02) $ (0.53) $ (1.61) $ (0.41) $ (0.28)
=========== =========== =========== =========== ===========
</TABLE>
At December 31, 1997, outstanding options to purchase 2,904,737 shares of
common stock, with exercise prices ranging from $1.25 to $2.00 per share, and at
March 31, 1998 options to purchase 3,132,770 shares of common stock with
exercise prices ranging from $1.25 to $4.25, have been excluded from the
computation of diluted loss per share as they are antidilutive. Outstanding
warrants to purchase 390,674 and 430,538 shares of common stock with exercise
prices ranging from $2.00 to $9.775 per share were also antidilutive and
excluded from the computation of diluted loss per share at December 31, 1997 and
March 31, 1998, respectively. Common shares issuable upon conversion of Series A
Preferred have also been excluded from the computation of diluted loss per share
at December 31, 1997 and March 31, 1998 as they are antidilutive.
7. COMMON STOCK AND CONVERTIBLE PREFERRED STOCK
Common and preferred stock splits
Effective March 5, 1996, the Company implemented a 5,400-for-1 stock split,
effected in the form of a stock dividend, applicable to all issued and
outstanding shares of the Company's common stock.
On July 12, 1996, the Company implemented a 2.5-for-1 stock split
applicable to all issued and outstanding shares of the Company's common and
preferred stock (without changing the par value thereof).
All common and preferred shares and related per share data reflected in the
accompanying financial statements and notes thereto, have been presented as if
the stock splits had occurred on March 28, 1995 (date of inception).
F-11
<PAGE> 69
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mandatorily redeemable Series A Convertible Preferred Stock
At December 31, 1997, the Company had authorized the issuance of 8,200,000
shares of preferred stock, $.01 par value. Such preferred shares have been
designated as Series A Preferred. The holders of Series A Preferred are entitled
to (i) share in dividends on a pro-rata basis with common stockholders on an
as-converted basis; (ii) a liquidation preference equal to the sum of the price
paid per share and all declared and unpaid dividends (the "Preference Amount");
(iii) demand redemption of the Preference Amount in the event of a merger where
the shareholders of the Company do not control the surviving entity or a sale of
all or substantially all of the Company's assets; (iv) mandatory redemption of
the Preference Amount in cash at any date on or after March 2003 by a majority
vote of the Series A preferred holders; (v) vote on all matters on an as
converted basis; and (vi) convert to common stock at the Preference Amount
multiplied by the shares to be converted divided by the conversion price (the
"Conversion Price") per share. The initial Conversion Price is equal to the
issuance price per share of Series A Preferred, and is subject to adjustment in
the event shares of common stock are issued without consideration or for
consideration per share less than the conversion price.
During 1996 and 1997, the Company sold and issued in five private
placements an aggregate of 6,351,767 shares of Series A Preferred. A summary of
the issuances are as follows:
<TABLE>
<CAPTION>
CARRYING VALUE
ISSUANCE DECEMBER 31,
PRICE GROSS ----------------- REDEMPTION
DATE SHARES PER SHARE PROCEEDS 1996 1997 VALUE
- ---- --------- --------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
March 1996........... 1,287,500 $2.00 $ 2,575 $ 2,456 $ 2,475 $ 2,575
July 1996............ 1,056,631 4.732 5,000 5,000 5,000 5,000
December 1996,....... 956,000 6.25 5,975 5,975 5,975 5,975
January - June
1997............... 164,000 6.25 1,025 -- 1,025 1,025
August 1997.......... 1,122,931 7.50 8,422 -- 8,422 8,422
September 1997....... 1,764,705 8.50 15,000 -- 14,422 15,000
--------- ------- ------- ------- -------
Total...... 6,351,767 $37,997 $13,431 $37,319 $37,997
========= ======= ======= ======= =======
</TABLE>
The Series A Preferred shares are subject to automatic conversion upon
consummation of an underwritten public offering of the Company's common stock
providing aggregate proceeds, net of underwriting discounts and commissions, of
greater than $10,000.
In connection with the March 1996 Series A Preferred issuance, the Company
issued warrants to an investor to purchase 103,420 shares of Series A Preferred,
at an exercise price of $2.00 per share. The fair value of the warrants in the
amount of $135 has been recorded to additional paid-in capital. The warrants may
be exercised at any time and expire ten years from issuance or five years from
the effective date of the Company's initial public offering, whichever is later.
In connection with the September 1997 Series A Preferred issuance, the
Company issued warrants to purchase an aggregate of 110,294 shares of the
Company's Series A Preferred, at an exercise price of $9.775 per share as a
placement fee. The fair value of the warrants in the amount of $587 has been
recorded to additional paid-in-capital.
The Company incurred cash expenses of $54 during 1997 in connection with
the Series A Preferred issuances.
F-12
<PAGE> 70
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1997, the Company authorized the issuance of 1,188,235 shares
of Series A Preferred at $8.50 per share. As of December 31, 1997, the Company
had received deposits in the amount of $225 for subscriptions to purchase 26,471
shares.
During 1997, the Company issued warrants to purchase 75,000 shares of
Series A Preferred at $7.50 per share to a financial advisor. The fair value of
the warrants in the amount of $371 was expensed during 1997.
The excess of the redemption value over the carrying value of Series A
Preferred is being recorded by periodic charges to stockholders' equity through
March 2003, the earliest date at which the Series A Preferred holders may
require redemption of their shares.
8. TRANSACTIONS WITH RELATED PARTIES
During 1996 and 1997, the Company recognized product license and service
revenues from sales to a holder of Series A preferred of $156 and $12,
respectively. At December 31, 1996, the Company had accounts receivable from the
preferred stockholder in the amount of $156.
In May 1996, the Company made loans in the aggregate amount of $193 to its
three co-founders. The loans bear interest at a rate of 6% per annum and will be
forgiven in equal annual installments starting in 1999. In the event a
co-founder voluntarily terminates his employment prior to the fifth anniversary
of the loan, the loan will become due and payable on the fifth anniversary of
the loan. Interest income from such loans amounted to $7, $12 and $3 for the
years ended December 31, 1996 and 1997 and for the three months ended March 31,
1998, respectively.
9. STOCK OPTION, DEFINED CONTRIBUTION AND PROFIT SHARING PLANS
Stock option plans
In March 1996, the Company implemented its 1996 Stock Option Plan (the
"Plan") whereby incentive and nonqualified options to purchase up to 3,000,000
shares of the Company's stock may be granted to directors and employees of the
Company and its subsidiaries. The exercise and vesting periods and the exercise
price for options granted under the Plan are determined by the Board of
Directors or a Committee of the Board of Directors. The Plan stipulates that no
option may be exercisable after seven years from the date of grant. The fair
market value of the Company's common stock is determined by the Board of
Directors. Options granted under the Plan generally vest over a period of five
years, 20% on the first anniversary of the date of grant and 5% each quarter
thereafter.
F-13
<PAGE> 71
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes activity regarding stock options for the
years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER EXERCISE
OPTION PRICE
--------- --------
<S> <C> <C>
Options outstanding, December 31, 1995................ -- --
Options granted at $1.25.............................. 1,271,750 $1.25
Options forfeited..................................... (2,000) 1.25
--------- -----
Options outstanding at December 31, 1996.............. 1,269,750 1.25
Options granted at $2.00.............................. 1,821,749 2.00
Exercised at $1.25.................................... (5,650) 1.25
Options forfeited at $1.25............................ (149,012) 1.25
Options forfeited at $2.00............................ (32,100) 2.00
--------- -----
Options outstanding at December 31, 1997 at $1.25..... 1,115,088 1.25
Options outstanding at December 31, 1997 at $2.00..... 1,789,649 2.00
Options exercisable at December 31, 1997.............. 861,801
Options available for grant at December 31, 1997...... 95,263
Weighted average remaining contractual life for
options at $1.25.................................... 5.9 years
Weighted average remaining contractual life for
options at $2.00.................................... 6.6 years
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its Plan and other stock-based compensation issued to employees and directors.
During 1996 and 1997, the Company has recognized compensation expense for
options granted to employees of $71 and $752, respectively. The Company
estimates that it will recognize compensation expense in an aggregate amount of
$1,955 in future years as options vest for grants made during 1996 and 1997.
During 1996 and 1997, the Company issued 20,000 and 15,000 options,
respectively to third party consultants in exchange for services. The Company
has recognized noncash expense of $28 in 1996 and $36 in 1997 based on the fair
value of such options at the date of grant.
Had compensation cost for options grants to employees been determined based
upon the fair value at the date of grant for awards under the Plan consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," ("FAS 123"), the
Company's net loss and loss per share for the years ended December 31, 1996 and
1997 would have increased by approximately $115, or $0.01 per share and $677 or
$0.05 per share, respectively.
F-14
<PAGE> 72
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair values of options granted to employees during the years ended
December 31, 1996 and 1997 have been determined on the date of the respective
grant using the Black-Scholes option-pricing model based on the following
weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Dividend yield.................................. None None
Weighted average risk-free interest rate on date
of grant...................................... 6.21% 5.90%
Forfeitures..................................... None None
Expected life................................... 5 years 5 years
Volatility...................................... 75% 75%
</TABLE>
Defined contribution plan
The Company has a defined contribution savings plan (the "Plan"), which
qualifies under Section 401(k) of the Internal Revenue Code. Participants may
contribute up to 15% of their gross wages not to exceed, in any given year, a
limitation set by Internal Revenue Service regulations. The Plan provides for
discretionary contributions to be made by the Company as determined by the
Company's Board of Directors. The Company has not made any contributions to the
Plan.
10. CONCENTRATIONS OF RISK AND CUSTOMER INFORMATION
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash, accounts receivable, and
accounts payable. The Company generally does not require collateral and the
majority of its trade receivables are unsecured. The Company sells its products
to a wide range of commercial enterprises and governmental authorities. During
1996 and 1997 and the three months ended March 31, 1998, the Company had no
significant foreign revenue.
For the period ended December 31, 1995, a single customer accounted for
100% of net revenues. For the year ended December 31, 1996, one customer
accounted for 31% of net revenues and a second customer accounted for 17% of net
revenues. In 1997, one customer amounted to 11% of net revenues and a second
customer accounted for 10% of net revenues. A single customer accounted for 15%
of net revenues and a second customer accounted for 11% of net revenues during
the three months ended March 31, 1998.
11. INCOME TAXES
The Company has incurred losses since inception which have generated net
operating loss carryforwards of approximately $24,000 and $26,000 at December
31, 1997 and March 31, 1998, respectively, for federal and state income tax
purposes. These carryforwards are available to offset future taxable income and
expire in 2010 through 2013. At December 31, 1997 and March 31, 1998, the
Company also had research and development tax credit carryforwards in the amount
of $481 and $600, which expire in 2000 through 2003. The Company has
historically filed its corporate income tax returns using a fiscal year end of
March 31, which the Company intends to change to December 31 effective December
31, 1998.
Section 382 of the Internal Revenue Code of 1986, as amended (the "IRC"),
places a limitation on the utilization of federal net operating loss
carryforwards upon the occurrence of an ownership change. In general, a change
in ownership occurs when a greater than 50 percent change in ownership takes
place over a three year testing period. The annual utilization of net
F-15
<PAGE> 73
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating loss carryforwards generated prior to such change is limited, in any
one year, to a percentage of the entity's fair value at the time of the change
in ownership. As a result of certain equity transactions consummated by the
Company, a change in ownership, as defined by Section 382 of the IRC, has
occurred during the three month period ended March 31, 1998.
The net operating loss carryforwards and temporary differences between
carrying amounts of assets and liabilities for financial reporting and income
tax purposes result in a net deferred tax benefit of $14,274 and $15,008 at
December 31, 1997 and March 31, 1998, respectively. The Company's operating
plans anticipate taxable income in future periods; however, such plans make
significant assumptions which cannot be reasonably assured, including market
acceptance of the Company's products and services by customers. Therefore, in
consideration of the Company's accumulated losses and the uncertainty of its
ability to utilize this deferred tax benefit in the future, the Company has
recorded a valuation allowance in the amount of $14,274 and $15,008 at December
31, 1997 and March 31, 1998, respectively to offset the deferred tax benefit
amount.
Significant components of the noncurrent deferred tax asset at December 31,
1996, 1997 and March 31, 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
------- -------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss............................... $ 3,101 $ 10,690 $ 12,149
Net operating loss of discontinued operations.... -- 616 --
Provision for losses of discontinued operations
to date of disposition........................ -- 295 --
Foreign operating loss carryforward.............. 151 792 880
Accruals, reserves and other..................... 128 1,273 1,227
Research and development credits................. 134 481 600
Nonqualified stock options and warrants.......... 13 204 180
------- -------- --------
TOTAL DEFERRED TAX ASSETS................ 3,527 14,351 15,036
------- -------- --------
Deferred tax liabilities:
Depreciation..................................... (26) (77) (28)
------- -------- --------
TOTAL DEFERRED TAX LIABILITIES........... (26) (77) (28)
------- -------- --------
Net deferred tax asset............................. 3,501 14,274 15,008
Less: valuation allowance.......................... (3,501) (14,274) (15,008)
------- -------- --------
Deferred tax asset, net............................ $ -- $ -- $ --
======= ======== ========
</TABLE>
F-16
<PAGE> 74
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. income tax rate to income (loss)
before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
INCEPTION DECEMBER 31, ENDED
TO DECEMBER 31, ------------- MARCH 31,
1995 1996 1997 1998
--------------- ---- ---- ------------
<S> <C> <C> <C> <C>
Federal income tax statutory rate..... (35)% (35)% (35)% (35)%
State income taxes, net of federal tax
benefit............................. (12) (12) (12) (12)
Research and development credits...... (9) (2) (2) (3)
Adjustment for discontinued
operations.......................... -- -- -- 24
Other nondeductible items............. 4 2 3 6
Increase in valuation allowance....... 52 47 46 20
--- --- --- ---
Income tax rate as recorded........... -- -- -- --
=== === === ===
</TABLE>
12. COMMITMENTS
Leases
The Company has entered into noncancelable operating leases primarily for
office space with initial or remaining terms of one year or more. Rent expense
amounted to $25, $120 and $715 for the period from inception through December
31, 1995 and for the years ended December 31, 1996 and 1997, respectively.
During 1997, the Company completed a sale-leaseback transaction with a
holder of Series A Preferred, selling computer equipment, office equipment, and
furniture and fixtures of $878, net of accumulated depreciation, for $819, and
realizing a loss of $59. The lease has been accounted for as a capital lease.
During 1997 the Company acquired computer equipment, office equipment, and
furniture and fixtures pursuant to capital lease agreements with the Series A
Preferred holder. The leases had an aggregate initial principal amount of
$3,181. In connection with the leases the Company issued the lessor in March
1996 and February 1997 warrants to purchase 37,500, and 39,200 shares of Series
A Preferred, at exercise prices of $2.00 and $6.25 per share, respectively. The
aggregate fair value of the warrants in the amount of $210 has been recorded as
debt discount on the related capital lease obligation and is being amortized to
interest expense over the term of the lease. During 1997 and the three months
ended March 31, 1998 the Company recognized interest expense of $52 and $17
related to the warrants.
F-17
<PAGE> 75
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments by year under operating and capital leases
with initial or remaining terms of one year or more consisted of the following
at December 31, 1997:
<TABLE>
<CAPTION>
YEAR OPERATING CAPITAL
- ---- --------- -------
<S> <C> <C>
1998.................................................... $ 239 $1,505
1999.................................................... 565 1,505
2000.................................................... 831 627
2001.................................................... 829 --
2002.................................................... 815 --
2003 and thereafter..................................... 4,649 --
------ ------
Total minimum lease payments.......................... $7,928 3,637
------ ------
Less: Amounts representing interest..................... (361)
------
Present value of future minimum lease payments.......... 3,276
Less: Current maturities................................ 1,275
------
CAPITAL LEASE OBLIGATIONS -- LONG TERM............. $2,001
======
</TABLE>
A Series A Preferred stockholder in January 1997 issued an irrevocable
letter of credit with a term of one year, in the amount of $1,579 as security
for performance under an office space lease. As consideration for the issuance,
the Company has issued the Series A Preferred stockholder warrants to purchase
25,260 shares of Series A Preferred, at an exercise price of $6.25. The fair
value of such warrants in the amount of $104 has been recorded as interest
expense during 1997.
13. SUBSEQUENT EVENTS
Amendment to stock option plan and stock option grants
In February and June 1998, the Board of Directors approved amendments to
the 1996 Stock Option Plan whereby the aggregate number of shares of common
stock for which options may be granted under the plan was increased to 4,500,000
and 6,600,000, respectively.
In February 1998, the Company granted to employees and consultants options
to purchase 875,068 shares of common stock all with an exercise price of $4.25
per share of which the granting of options to purchase 183,000 common shares are
contingent upon the commencement of employment. The Company estimates it will
recognize approximately $3,165 of compensation expense over the vesting period
of the options.
Convertible preferred stock
In March 1998, the Company completed the sale and issuance of an additional
1,188,232 shares of Series A Preferred at $8.50 per share, providing gross
proceeds of $10,100. These shares provide the same rights and preferences as
those of prior Series A Preferred issuances (Note 7). In connection with the
sale the Company issued warrants to purchase an aggregate of 39,864 shares of
the Company's Series A Preferred, at an exercise price of $9.775 per share as a
placement fee. The fair value of the warrants in the amount of $252 has been
recorded to additional paid-in-capital.
Discontinued operations
On March 30, 1998, the Company completed a spin-off distribution of its
subsidiary ActionWorld, reducing its majority ownership to a minority interest
of approximately 18%. Since
F-18
<PAGE> 76
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 30, 1998, the Company's minority interest in ActionWorld has decreased to
approximately 15% as a result of private equity financings by ActionWorld.
Common shares of ActionWorld were distributed to the Company's common and
preferred stockholders of record as of March 30, 1998 on the basis of 0.18 a
common share of ActionWorld for each common and preferred share (on an as
converted basis) of the Company. ActionWorld is an online retailer of game and
entertainment software.
The Company has presented ActionWorld as a discontinued operation in the
Consolidated Statement of Operations for the year ended December 31, 1997. A
provision of $627 for estimated operating losses through the disposal date has
been recorded at December 31, 1997. The costs of disposal are not expected to be
significant.
A summary of the net liabilities distributed is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Cash........................................ $ 596 $ 96
Equipment, net.............................. 92 315
Other current assets........................ 20 53
Notes payable............................... (1,150) (1,400)
Accounts payable and accrued expenses....... (30) (113)
------- -------
$ (472) $(1,049)
======= =======
</TABLE>
During 1997 ActionWorld had no revenues and incurred net losses of $1,310.
The basic loss per share and diluted loss per share for the year ended December
31, 1997 attributable to discontinuance of the operations of ActionWorld was
approximately $0.14 per share.
Secured loan agreement
Effective June 1998, the Company entered into a secured loan agreement with
a holder of Series A Preferred under which the Company may borrow up to $3,000.
The loan accrues interest, which is payable monthly, at a rate of 10% per annum
and is secured by the accounts receivable of the Company. The Company may borrow
amounts under the line for a period of twelve months subsequent to its initial
borrowing under the loan agreement or until completion of an initial public
offering by the Company. The loan principal is due and payable the later of 12
months from the initial borrowing or 18 months from the date of the agreement.
In connection with the loan agreement the lender was issued a warrant to
purchase 14,118 shares of Series A Preferred at an exercise price of $9.775 per
share. If the Company borrows amounts under the loan agreement, the lender will
be issued a warrant to purchase an additional 14,118 shares of Series A
Preferred at a price of $9.775 per share. At June 29, 1998 the Company had not
borrowed any amounts under the loan agreement.
14. INITIAL PUBLIC OFFERING AND PRO FORMA PRESENTATION (UNAUDITED)
In June 1998, the Board of Directors of the Company authorized management
to pursue an underwritten sale of shares of the Company's common stock in an
initial public offering (the "IPO") pursuant to the Securities Act of 1933.
In connection with the IPO, in June 1998, the Board of Directors, subject
to stockholder approval, authorized an increase in the number of authorized
shares of the Company's common stock from 27,000,000 shares to 100,000,000
shares. In addition, the Board of Directors also
F-19
<PAGE> 77
INTERWORLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approved, subject to stockholder approval, the authorization of an additional
15,000,000 shares of preferred stock, $.01 par value.
Upon completion of the IPO, the Company will adopt an employee stock
purchase plan. Under the plan, eligible employees will be granted options to
purchase shares of the Company's common stock through regular payroll
deductions. The total number of shares of common stock that are authorized for
issuance under the plan is 1,000,000. Options will be granted every six months
to participating employees, and if not exercised expire on the six month
anniversary of the date of grant. The purchase price for shares offered under
the Plan each year will be equal to a percentage designated by a committee of
the Board of Directors (not less than 85%) of the fair market value of the
Company's common stock at the semi-annual date of exercise. The plan will expire
on the tenth anniversary of the effective date of the plan.
Upon the closing of the IPO, all outstanding shares of Series A Preferred
will automatically convert into an aggregate of 7,539,999 shares of common
stock. The pro forma effects of this conversion have been reflected in unaudited
pro forma stockholder's equity at March 31, 1998.
For the periods ended December 31, 1997 and March 31, 1998, the pro forma
basic and diluted loss per share from continuing operations reflecting the
effects of the conversion of Series A Preferred would have been ($1.20) and
($0.19), respectively. Pro forma basic and diluted loss per share for the
periods ended December 31, 1997 and March 31, 1998 would have been ($1.31) and
($0.19), respectively. The proforma weighted average shares outstanding at
December 31, 1997 and March 31, 1998 would have been 18,086,163 and 19,915,914,
respectively.
Also upon completion of the IPO 178,570 previously unvested options to
purchase 178,570 shares of common stock will automatically vest. The Company
will recognize approximately $654 of noncash compensation expense upon the
vesting of such options.
F-20
<PAGE> 78
[INSIDE BACK COVER ART]
<PAGE> 79
- ---------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER INTERWORLD CORPORATION NOR ANY UNDERWRITER HAS AUTHORIZED
ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT
A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE IN THAT JURISDICTION.
DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1998, ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THE OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------
- ---------------------------------------------------
[LOGO]
INTERWORLD CORPORATION
SHARES
COMMON STOCK
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
INVEMED ASSOCIATES
HAMBRECHT & QUIST
- ---------------------------------------------------
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 17,608
National Association of Securities Dealers, Inc. filing
fee....................................................... 6,469
Nasdaq National Market listing fee.......................... *
Accountants' fees and expenses.............................. *
Legal fees and expenses..................................... *
Blue Sky fees and expenses.................................. *
Transfer Agent's fees and expenses.......................... *
Printing and engraving expenses............................. *
Miscellaneous............................................... *
-----------
Total Expenses.................................... $ *
===========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and the Company's Certificate of
Incorporation and Bylaws limit the monetary liability of directors to the
Company and to its stockholders and provide for indemnification of the Company's
officers and directors for liabilities and expenses that they may incur in such
capacities. In general, officers and directors are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, and with respect to any criminal
action or proceeding, actions that the indemnitee had no reasonable cause to
believe were unlawful. The Company also has indemnification agreements with
directors and officers that provide for the maximum indemnification allowed by
law. Reference is made to the Company's Certificate of Incorporation, Bylaws and
form of Indemnification Agreement for Officers and Directors filed as Exhibits
3.1, 3.2 and 10.3 hereto, respectively.
The Company has an insurance policy which insures the directors and
officers of the Company against certain liabilities which might be incurred in
connection with the performance of their duties.
The Underwriting Agreement filed as Exhibit 1.1 hereto contains certain
provisions pursuant to which certain officers, directors and controlling persons
of the Company may be entitled to be indemnified by the underwriters named
therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued the securities set
forth below which were not registered under the Securities Act of 1933:
1. On March 1, 1996, the Company issued two warrants to purchase an
aggregate of 140,920 shares of Preferred Stock to an accredited investor
with an exercise price of $2.00 per share.
II-1
<PAGE> 81
2. Pursuant to a Subscription Agreement dated March 7, 1996, the
Company sold an aggregate of 1,287,500 shares of Preferred Stock to 23
accredited investors, including one director and one investment fund of
which an officer of the company manages, for a per share purchase price of
$2.00 and an aggregate purchase price of $2,575,000. Such investment was
evidenced by various stock certificates issued to the accredited investors
dated March 7, March 8, March 11, March 15, March 18, March 20, March 28,
March 29, April 4, April 8, April 9, April 12, April 24, June 10, June 21,
June 26, and June 27, 1996.
3. Pursuant to a Subscription Agreement dated July 12, 1996, the
Company sold an aggregate of 1,056,631 shares of Preferred Stock to 28
accredited investors, including one director, for a per share purchase
price of $4.732 and an aggregate purchase price of $4,999,978. Such
investment was evidenced by various stock certificates issued to the
accredited investors dated July 12, and August 1, 1996.
4. Pursuant to a Subscription Agreement dated December 12, 1996, the
Company sold an aggregate of 1,120,000 shares of Preferred Stock to 47
accredited investors, including one director and three officers, for a per
share purchase price of $6.25 and an aggregate purchase price of
$7,000,000. Such investment was evidenced by various stock certificates
issued to the accredited investors dated December 12, December 18, December
20, December 23, December 26, December 29, 1996, January 6, January 7,
January 9, January 10, January 13, January 27, January 31, February 5,
February 14, February 19, February 25, February 28, and March 7, 1997.
5. On December 18, 1996, the Company granted options to purchase an
aggregate of 1,271,750 shares of Common Stock to certain employees and one
consultant with an exercise price of $1.25 per share.
6. On April 22, 1997, the Company issued a warrant to purchase an
aggregate of 75,000 shares of Preferred Stock to certain accredited
investors with an exercise price of $7.50 per share.
7. On July 28, 1997, the Company granted options to purchase an
aggregate of 1,821,749 shares of Common Stock to certain employees
including one director and one consultant of the Company at an exercise
price of $2.00 per share.
8. Pursuant to a Subscription Agreement dated August 4, 1997, the
Company sold an aggregate of 1,122,931 shares of Preferred Stock to 23
accredited investors, including two directors and one officer, for a per
share purchase price of $7.50 and an aggregate purchase price of
$8,421,983. Such investment was evidenced by various stock certificates
issued to the accredited investors dated April 7, April 8, April 10, April
15, April 25, May 19, May 21, June 6, and August 4, 1997.
9. Pursuant to a Subscription Agreement dated September 19, 1997, the
Company sold an aggregate of 1,764,705 shares of Preferred Stock to 24
accredited investors for a per share purchase price of $8.50 and an
aggregate purchase price of $14,999,993. Such investment was evidenced by
various stock certificates issued to the accredited investors dated August
8, August 12, September 19, October 7, October 22, October 24, November 3,
November 7, November 14, and November 21, 1997.
10. On October 18, 1997, the Company issued 1,500 shares of Common
Stock to an employee pursuant to an option exercise for an aggregate
purchase price of $1,875.
11. On November 1, 1997, the Company issued an aggregate of 4,150
shares of Common Stock to three employees pursuant to option exercises for
an aggregate purchase price of $5,253.
II-2
<PAGE> 82
12. On November 26, 1997, the Company issued a warrant to purchase an
aggregate of 110,294 shares of Preferred Stock to an accredited investor
with an exercise price of $9.775 per share.
13. On January 23, 1998, the Company issued 10,000 shares of Common
Stock to an employee pursuant to an option exercise for an aggregate
purchase price of $12,500.
14. On February 4, 1998, the Company issued 10,000 shares of Common
Stock to a consultant to the Company pursuant to an option exercise for an
aggregate purchase price of $12,500.
15. On February 10, 1998, the Company issued 250 shares of Common Stock
to an employee pursuant to an option exercise for an aggregate purchase
price of $312.50.
16. On February 18, 1998, the Company issued 2,000 shares of Common
Stock to an employee pursuant to an option exercise for an aggregate
purchase price of $2,500.
17. On February 20, 1998, the Company granted options to purchase an
aggregate of 875,068 shares of Common Stock to certain employees of the
Company with an exercise price of $4.25 per share. An aggregate of 183,000
of such options were conditioned upon commencement of employment.
18. On February 25, 1998, the Company issued 250 shares of Common Stock
to an employee pursuant to an option exercise for an aggregate purchase
price of $312.50.
19. On March 1, 1998, the Company issued 1,000 shares of Common Stock
to an employee pursuant to an option exercise for an aggregate purchase
price of $2,000.
20. On March 12, 1998, the Company issued 500 shares of Common Stock to
an employee pursuant to an option exercise for an aggregate purchase price
of $625.
21. On March 16, 1998, the Company issued 2,500 shares of Common Stock
to an employee pursuant to an option exercise for an aggregate purchase
price of $3,125.
22. On March 24, 1998, the Company issued an aggregate of 2,000 shares
of Common Stock to two employees pursuant to option exercises for an
aggregate purchase price of $3,250.
23. On March 26, 1998, the Company issued 320 shares of Common Stock to
an employee pursuant to an option exercise for an aggregate purchase price
of $640.
24. On March 27, 1998, the Company issued 250 shares of Common Stock to
an employee pursuant to an option exercise for an aggregate purchase price
of $312.50.
25. Pursuant to a Subscription Agreement dated March 27, 1998, the
Company sold an aggregate of 1,188,232 shares of Preferred Stock to 18
accredited investors for a per share purchase price of $8.50 and an
aggregate purchase price of $10,099,972. Such investment was evidenced by
various stock certificates issued to the accredited investors dated
November 20, November 26, 1997, January 29, February 17, March 2, March 3,
March 23, March 26, and March 27, 1998.
26. On March 27, 1998, the Company issued a warrant to purchase an
aggregate of 39,864 shares of Preferred Stock to accredited investors with
an exercise price of $9.775 per share.
27. On March 30, 1998, the Company issued an aggregate of 293,200
shares of Common Stock to 20 employees and one officer and director of the
Company pursuant to option exercises for an aggregate purchase price of
$566,187.50.
28. On April 3, 1998, the Company issued 600 shares of Common Stock to
an employee pursuant to an option exercise for an aggregate purchase price
of $750.
II-3
<PAGE> 83
29. On April 14, 1998, the Company issued 600 shares of Common Stock to
an employee pursuant to an option exercise for an aggregate purchase price
of $750.
30. On April 29, 1998, the Company issued an aggregate of 250 shares of
Common stock to two employees pursuant to option exercises for an aggregate
purchase price of $312.50.
31. On May 12, 1998 through May 29, 1998, the Company issued an
aggregate of 10,766 shares of Common Stock to three employees and one
consultant pursuant to option exercises for an aggregate purchase price of
$40,433.
32. On June 9, 1998, the Company issued 350 shares of Common Stock to
an employee pursuant to an option exercise for an aggregate purchase price
of $437.50.
33. On June 12, 1998, the Company granted options to purchase an
aggregate of 291,050 shares of Common Stock to certain employees of the
Company with an exercise price of $8.50 per share, including 25,000 options
granted to one executive officer.
34. On June 29, 1998, the Company issued warrants to purchase 14,118
shares of Common Stock for a purchase price of $9.775 per share in
connection with a Loan and Security Agreement.
The sales and issuances of the shares of Common Stock and options and
warrants to purchase Common Stock discussed above were made by the Company in
reliance upon the exemptions from registration provided under Sections 3(b) and
4(2) of the Securities Act of 1933 and Rule 701 promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Bylaws of the Registrant
5.1* Opinion of O'Sullivan Graev & Karabell, LLP, Counsel to the
Registrant, as to the legality of the shares being
registered
10.1 Amended and Restated 1996 Stock Option Plan
10.2 Employee Stock Purchase Plan
10.3 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers
10.4 Lease dated as of January 12, 1997 between the Registrant as
Tenant and New York City District Council of Carpenters
Pension Fund, as Landlord.
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of O'Sullivan Graev & Karabell, LLP (to be included
in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
II-4
<PAGE> 84
Schedule II -- Valuation and Qualifying Accounts
INTERWORLD CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Period ended December 31, 1995... $ -- $ -- $ -- $-- $ --
Year ended December 31, 1996..... -- 269 -- -- 269
Year ended December 31, 1997..... 269 353 -- -- 622
Three months ended March 31,
1998.......................... 622 -- (54) -- 568
Valuation Reserve -- Deferred Tax
Assets
Period ended December 31, 1995... $ -- $ 136 $ -- $-- $ 136
Year ended December 31, 1996..... 136 3,365 -- -- 3,501
Year ended December 31, 1997..... 3,501 10,773 -- -- 14,274
Three months ended March 31,
1998.......................... 14,274 734 -- -- 15,008
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) 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 Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant hereby undertakes that:
(i) 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 the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(ii) For purposes 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 this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on this 22nd day of July, 1998.
INTERWORLD CORPORATION
By: /s/ MICHAEL J. DONAHUE
-----------------------------------
Michael J. Donahue
Chairman
POWER OF ATTORNEY
We, the undersigned directors and officers of InterWorld Corporation, do
hereby constitute and appoint Michael J. Donahue, Alan J. Andreini and Jerry
Lyons and each of them acting alone, our true and lawful attorneys and agents,
with full power of substitution, to do any and all acts and things in our names
and on our behalf in our capacities as directors and officers and to execute any
and all instruments for us and in our names in the capacities indicated below,
which said attorneys and agents, and each of them acting alone, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933 and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names in the capacities indicated below and to file with the
Securities and Exchange Commission, any and all amendments (including
post-effective amendments) hereto, including exhibits thereto and other
documents in connection herewith, including, without limitation, any
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933; and we do hereby
ratify and confirm all that said attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on this 22nd day of July, 1998 by the
persons and in the capacities indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ALAN J. ANDREINI President and Chief Executive Officer
- ------------------------------------------------ (principal executive officer) and
Alan J. Andreini Director
/s/ JERRY LYONS Chief Financial Officer (principal
- ------------------------------------------------ financial and accounting officer)
Jerry Lyons
/s/ MICHAEL J. DONAHUE Chairman
- ------------------------------------------------
Michael J. Donahue
/s/ KENNETH G. LANGONE Director
- ------------------------------------------------
Kenneth G. Langone
</TABLE>
II-6
<PAGE> 86
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JOSEPH C. ROBINSON Director
- ------------------------------------------------
Joseph C. Robinson
/s/ YVES SISTERON Director
- ------------------------------------------------
Yves Sisteron
/s/ JACK SLEVIN Director
- ------------------------------------------------
Jack Slevin
/s/ RUSSELL WEST Director
- ------------------------------------------------
Russell West
</TABLE>
II-7
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1 Amended and Restated Certificate of Incorporation of the
Registrant................................................
3.2 Bylaws of the Registrant....................................
5.1* Opinion of O'Sullivan Graev & Karabell, LLP, Counsel to the
Registrant, as to the legality of the shares being
registered................................................
10.1 Amended and Restated 1996 Stock Option Plan.................
10.2 Employee Stock Purchase Plan................................
10.3 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers..............
10.4 Lease dated as of January 12, 1997 between the Registrant as
Tenant and New York City District Council of Carpenters
Pension Fund, as Landlord.................................
21.1 List of Subsidiaries........................................
23.1 Consent of PricewaterhouseCoopers LLP.......................
23.2* Consent of O'Sullivan Graev & Karabell, LLP (to be included
in Exhibit 5.1)...........................................
24.1 Powers of Attorney (included on signature page).............
27.1 Financial Data Schedule.....................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERWORLD CORPORATION
<PAGE> 2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERWORLD CORPORATION
-------------------------------------------------------------------
Pursuant to Section 103, Section 242 and Section 245 of the General
Corporation Law of the State of Delaware
-------------------------------------------------------------------
ARTICLE I
NAME
The name of the corporation is InterWorld Corporation (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the initial registered and principal office of this
corporation in this state is c/o National Registered Agents, Inc., 9 East
Loockerman Street, City of Dover, County of Kent, State of Delaware 19901 and
the name of the registered agent at said address is National Registered Agents,
Inc.
ARTICLE III
OBJECT AND PURPOSES
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the corporation laws of
the State of Delaware.
1
<PAGE> 3
ARTICLE IV
CAPITAL STOCK
The Corporation shall be authorized to issue 123,200,000 shares of
all classes, consisting of (i) 100,000,000 shares of Common Stock, $.01 par
value (the "Common Stock"), and (ii) 23,200,000 shares of Preferred Stock, $.01
par value (the "Preferred Stock"). Of the Preferred Stock, 8,200,000 shares
shall be designated as "Series A Preferred Stock."
Subject to the limitations and in the manner provided by law, shares
of the Preferred Stock may be issued from time to time in series, and the Board
of Directors of the Corporation or a duly-authorized committee of the Board of
Directors of the Corporation, in accordance with the laws of the State of
Delaware, is hereby authorized to determine or alter the relative rights, powers
(including voting powers), preferences, privileges and restrictions granted to
or imposed upon Preferred Stock or any wholly unissued series of shares of
Preferred Stock, and to increase or decrease (but not below the number of shares
of any series of Preferred Stock then outstanding) the number of shares of any
such series subsequent to the issue of shares of that series. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall upon the taking of any action required by applicable law resume
the status that they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
The Series A Preferred Stock shall have the following designations,
preferences, and other rights:
1. DIVIDENDS.
The holders of Series A Preferred Stock shall be entitled to share
in any dividends declared and paid upon or set aside for the Common Stock of the
Corporation, pro rata in accordance with the number of shares of Common Stock
into which such shares of Series A Preferred Stock are then convertible pursuant
to Section 6.
2. LIQUIDATION.
(a) Upon a Liquidation (as defined below), after payment or
provision for payment of the debts and other liabilities of the Corporation and
all amounts which the holders of any class of capital stock ranking senior to
the Series A Preferred Stock shall be entitled to receive upon such Liquidation,
the holders of Series A Preferred Stock shall be entitled to receive, out of the
remaining assets of the Corporation available for distribution to its
stockholders, with respect to each share of Series A Preferred Stock an amount
(the "Preference Amount") equal to the sum of (i)(A) $2 for shares
2
<PAGE> 4
issued prior to July 1, 1996 (or pursuant to the Warrant Agreements dated March
1, 1996 (the "First Comdisco Warrants"), between the Corporation and Comdisco,
Inc. ("Comdisco")), (B) $4.732 for shares issued on or after July 1, 1996, and
prior to December 2, 1996, (C) $6.25 for shares issued on or after December 2,
1996, and prior to May 21, 1997 (or pursuant to the Warrant Agreement dated
January 9, 1997, between the Corporation and Comdisco (the "Second Comdisco
Warrant") or the Warrant Agreement dated February 4th, 1997, between the
Corporation and Comdisco (the "Third Comdisco Warrant")), (D) $7.50 for shares
issued on or after May 21, 1997, and before August 4, 1997 (or pursuant to the
Warrant Agreements dated April 22, 1997, between the Corporation and Global
Retail Partners L.P. and their affiliates (the "Global Warrants"), (E) $8.50 for
shares issued on or after August 4, 1997 (except for shares issued pursuant to
the Warrants referred to in clause (F)), (F) $9.775 for up to 288,530 shares
issued pursuant to (1) the Warrant Agreements dated November 26, 1997, between
the Corporation and Invemed Corporation and its affiliates (the "Invemed
Warrants") and (2) Warrant Agreements to be entered into between the Corporation
and certain financial advisors (the "Advisor Warrants"), and (ii) all declared
but unpaid dividends payable with respect to such share under Section 1, before
any distribution shall be made to the holders of the Common Stock or any other
class of capital stock of the Corporation ranking junior to the Series A
Preferred Stock. If upon any Liquidation the assets of the Corporation available
for distribution to its stockholders shall be insufficient to pay the holders of
Series A Preferred Stock the full Preference Amounts to which they shall be
entitled, the holders of Series A Preferred Stock shall share pro rata in any
distribution of assets in accordance with such full Preference Amounts.
(b) Upon any Liquidation, after payment or provision for
payment in full of all Preference Amounts, the holders of Common Stock shall be
entitled to share pro rata in the distribution of the remaining assets of the
Corporation.
(c) "Liquidation" means any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, other
than any dissolution, liquidation or winding up in connection with any
reincorporation of the Corporation in another jurisdiction.
3. REDEMPTION UPON CORPORATE TRANSACTION.
(a) In connection with any Corporate Transaction (as defined
below), each holder of shares of Series A Preferred Stock may demand that the
Corporation redeem (out of funds legally available for that purpose) all or a
portion of all shares of Series A Preferred Stock then held by such holder for a
cash amount per share equal to its Preference Amount. The Corporation shall send
notice of any proposed Corporate Transaction by
3
<PAGE> 5
first-class certified mail, return receipt requested, postage prepaid, to the
holders of record of the shares of Series A Preferred Stock at their respective
addresses as they appear on the books of the Corporation. Such notice shall be
mailed prior to or at the same time as any notice of a stockholders meeting to
be held for the purpose of voting on such Corporate Transaction or as any
request for consent in lieu of such meeting. If no such notice or consent is
required, the notice of such proposed Corporate Transaction shall be mailed no
later than 20 days before the anticipated date of closing of the Corporate
Transaction. The right of each holder of Series A Preferred Stock under this
Section may be exercised by delivering to the Corporation, prior to the
consummation of such Corporate Transaction, a notice specifying the number of
shares of Series A Preferred Stock to be redeemed.
(b) At any time on or after the date of consummation of such
Corporate Transaction, each holder of record of shares of Series A Preferred
Stock to be redeemed on such date shall be entitled to receive the redemption
price upon actual delivery to the Corporation or its agents of the certificate
or certificates representing the shares to be redeemed. On any such date, all
rights in respect of the shares of Series A Preferred Stock to be redeemed,
except the right to receive the redemption price, shall cease and terminate
(unless default shall be made by the Corporation in the payment of the
applicable redemption price, in which event such rights shall be exercisable
until such default is cured), and such shares shall no longer be deemed to be
outstanding, whether or not the certificate or certificates representing such
share have been received by the Corporation.
(c) If the Corporation has insufficient funds legally
available to redeem any shares of Series A Preferred Stock required to be
redeemed in connection with any Corporate Transaction, those funds legally
available for such purpose shall be used to redeem the number of such shares
which may be redeemed. The holders of shares of Series A Preferred Stock shall
participate in any such partial redemption pro rata according to the number of
such shares then held by them. At any time and from time to time thereafter when
additional funds become legally available for the redemption of Series A
Preferred Stock, such funds shall be used promptly to redeem the balance of the
shares of Series A Preferred Stock to be redeemed.
(d) "Corporate Transaction" means (i) any consolidation or
merger of the Corporation, other than any merger or consolidation resulting in
the holders of the capital stock of the Corporation entitled to vote for the
election of directors holding a majority of the capital stock of the surviving
or resulting entity entitled to vote for the election of directors, and (ii) any
sale or other disposition by the Corporation of all or substantially all of its
assets.
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<PAGE> 6
4. MANDATORY REDEMPTION.
(a) At any time on or after the seventh anniversary of the
date of original issuance of the first share of Series A Preferred Stock (the
"Original Issuance Date"), the holders of a majority of all shares of Series A
Preferred Stock may demand (which demand shall be binding upon all holders of
Series A Preferred Stock) that the Corporation redeem (out of funds legally
available for that purpose) all, but not less than all, shares of Series A
Preferred Stock then outstanding for a cash amount per share equal to the
Preference Amount. Such right may be exercised by delivery to the Corporation of
a notice (a "Series A Mandatory Redemption Notice") requesting such redemption.
The Corporation shall redeem all shares of Series A Preferred Stock on a date
(the "Series A Mandatory Redemption Date") that is not more than 120 days after
the date of delivery of the Series A Mandatory Redemption Notice.
(b) If the Corporation has insufficient funds legally
available to redeem all shares of Series A Preferred Stock required to be
redeemed on the Series A Mandatory Redemption Date, those funds legally
available for such purpose shall be used to redeem the number of such shares
which may be redeemed. The holders of shares of Series A Preferred Stock shall
participate in any such partial redemption pro rata according to the number of
such shares then held by each such holder. At any time and from time to time
thereafter when additional funds become legally available for the redemption of
Series A Preferred Stock, such funds shall be used promptly to redeem the
balance of the shares of Series A Preferred Stock to be redeemed.
(c) At any time on or after the Series A Mandatory Redemption
Date each holder of record of shares of Series A Preferred Stock to be redeemed
on such date shall be entitled to receive the Series A Preference Amount upon
actual delivery to the Corporation or its agents of the certificate or
certificates representing the shares to be redeemed. On the Series A Mandatory
Redemption Date, all rights in respect of the shares of Series A Preferred Stock
to be redeemed, except the right to receive the applicable redemption price,
shall cease and terminate (unless default shall be made by the Corporation in
the payment of the applicable redemption price, in which event such rights shall
be exercisable until such default is cured), and such shares shall no longer be
deemed to be outstanding, whether or not the certificate or certificates
representing such shares have been received by the Corporation.
5. VOTING RIGHTS.
(a) In addition to the rights provided by law or in paragraph
(b) below, the holders of Series A Preferred Stock shall be entitled to vote on
all matters as to which holders of
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<PAGE> 7
Common Stock shall be entitled to vote, in the same manner and with the same
effect as such holders of Common Stock, voting together with the holders of
Common Stock as one class. Each share of Series A Preferred Stock shall entitle
the holder thereof to such number of votes as shall equal the number of whole
and fractional shares of Common Stock into which such share of Series A
Preferred Stock is then convertible pursuant to Section 6.
(b) The Corporation shall not, without the affirmative consent
or approval of the holders of a majority of the shares of Series A Preferred
Stock then outstanding, voting separately as a class:
(i) authorize any class or series of capital stock
ranking senior to or pari passu with the Series A Preferred Stock;
or
(ii) in any other manner alter or change the powers,
preferences, or rights, or qualifications, limitations or
restrictions thereof, of the shares of Series A Preferred Stock as
to affect them adversely.
6. OPTIONAL CONVERSION.
(a) Upon the terms set forth in this Section, each holder of
shares of Series A Preferred Stock shall have the right, at such holder's
option, at any time and from time to time, to convert any of such shares into
the number of fully paid and nonassessable shares of Common Stock equal to the
quotient obtained by dividing (i) the product of the Preference Amount and the
number of shares of Series A Preferred Stock being converted, by (ii) the
Conversion Price (as defined below), as last adjusted and then in effect, by
surrender of the certificates representing the shares of Series A Preferred
Stock to be converted. The conversion price per share at which shares of Common
Stock shall be issuable upon conversion of shares of Series A Preferred Stock
(the "Conversion Price") shall be (A) $2 upon conversion of shares of Series A
Preferred Stock issued before July 1, 1996, or pursuant to the First Comdisco
Warrants, (B) $4.732 upon conversion of shares of Series A Preferred Stock
issued on or after July 1, 1996, and before December 2, 1996, (C) $6.25 upon
conversion of shares of Series A Preferred Stock issued on or after December 2,
1996 and before May 21, 1997, or pursuant to the Second Comdisco Warrant or the
Third Comdisco Warrant, (D) $7.50 upon conversion of shares of Series A
Preferred Stock issued on or after May 21, 1997, and before August 4, 1997, or
pursuant to the Global Warrants, (E) $8.50 upon conversion of shares of Series A
Preferred Stock issued on or after August 4, 1997 (except for shares issued
pursuant to the Warrants referred to in clause (F)), and (F) $9.775 upon
conversion of shares of Series A Preferred Stock issued pursuant to the Invemed
Warrants
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<PAGE> 8
or the Advisor Warrants, in each case subject to adjustment as set forth in
paragraph (d) below.
(b) The holder of any shares of Series A Preferred Stock may
exercise the conversion right pursuant to paragraph (a) above by delivering to
the Corporation the certificate or certificates for the shares to be converted,
duly endorsed or assigned in blank or to the Corporation (if required by it),
accompanied by written notice stating that the holder elects to convert such
shares and stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued. Conversion shall
be deemed to have been effected on the date when such delivery is made (the
"Conversion Date"). As promptly as practicable thereafter, the Corporation shall
issue and deliver to or upon the written order of such holder, to the place
designated by such holder, a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled, and a cash amount in
respect of any fractional interest in a share of Common Stock as provided in
paragraph (c) below. The person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a stockholder
of record on the applicable Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event such person shall be deemed
to have become a stockholder of record on the next succeeding date on which the
transfer books are open, but the Conversion Price shall be that in effect on the
Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series A Preferred Stock
surrendered for conversion, the Corporation shall issue and deliver to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series A Preferred Stock representing the unconverted
portion of the certificate so surrendered.
(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series A Preferred Stock. The number of full
shares of Common Stock issuable upon conversion of Series A Preferred Stock
shall be computed on the basis of the aggregate number of shares of Series A
Preferred Stock to be converted. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of any shares of Series
A Preferred Stock, the Corporation shall pay a cash adjustment in respect of
such fractional interest in an amount equal to the product of (i) the price of
one share of Common Stock as determined in good faith by the Board and (ii) such
fractional interest. The holders of fractional interests shall not be entitled
to any rights as stockholders of the Corporation in respect of such fractional
interests.
(d) The Conversion Price shall be subject to adjustment from
time to time as follows:
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(i) If the Corporation shall at any time or from time to
time after the Original Issuance Date issue any shares of Common
Stock other than Excluded Stock (as defined below) without
consideration or for a consideration per share less than the
Conversion Price in effect immediately prior to the issuance of such
Common Stock, then the Conversion Price in effect immediately prior
to each such issuance shall forthwith be lowered to a price equal to
the quotient obtained by dividing:
(A) an amount equal to the sum of (x) the
total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have
been issued pursuant to subdivision (C) of clause (ii)
below) immediately prior to such issuance, multiplied by
the Conversion Price in effect immediately prior to such
issuance, and (y) the consideration received by the
Corporation upon such issuance; by
(B) the total number of shares of Common
Stock outstanding (including any shares of Common Stock
deemed to have been issued pursuant to subdivision (C)
of clause (ii) below) immediately after the issuance of
such Common Stock.
(ii) For the purposes of any adjustment of the
Conversion Price pursuant to clause (i) above, the following
provisions shall be applicable:
(A) In the case of the issuance of Common
Stock for cash in a public offering or private
placement, the consideration shall be deemed to be the
amount of cash paid therefor after deducting therefrom
any discounts, commissions or placement fees payable by
the Corporation to any underwriter or placement agent in
connection with the issuance and sale thereof.
(B) In the case of the issuance of Common
Stock for a consideration in whole or in part other than
cash, the consideration other than cash shall be deemed
to be the fair market value thereof as determined in
good faith by the Board of Directors of the Corporation,
irrespective of any accounting treatment.
(C) In the case of the issuance of options
to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable
securities:
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<PAGE> 10
(1) the aggregate maximum number
of shares of Common Stock deliverable upon
exercise of such options to purchase or
rights to subscribe for Common Stock shall
be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in
subdivisions (A) and (B) above), if any,
received by the Corporation upon the
issuance of such options or rights plus the
minimum purchase price provided in such
options or rights for the Common Stock
covered thereby;
(2) the aggregate maximum number
of shares of Common Stock deliverable upon
conversion of or in exchange for any such
convertible or exchangeable securities or
upon the exercise of options to purchase or
rights to subscribe for such convertible or
exchangeable securities and subsequent
conversion or exchange thereof shall be
deemed to have been issued at the time such
securities, options, or rights were issued
and for a consideration equal to the
consideration received by the Corporation
for any such securities and related options
or rights (excluding any cash received on
account of accrued interest or accrued
dividends), plus the additional
consideration, if any, to be received by the
Corporation upon the conversion or exchange
of such securities or the exercise of any
related options or rights (the consideration
in each case to be determined in the manner
provided in subdivisions (A) and (B) above);
(3) on any change in the number
of shares or exercise price of Common Stock
deliverable upon exercise of any such
options or rights or conversions of or
exchange for such securities, other than a
change resulting from the antidilution
provisions thereof, the Conversion Price
shall forthwith be readjusted to such
Conversion Price as would have obtained had
the adjustment made upon the issuance of
such options, rights or securities not
converted prior
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<PAGE> 11
to such change or options or rights related
to such securities not converted prior to
such change been made upon the basis of such
change; and
(4) on the expiration of any
such options or rights, the termination of
any such rights to convert or exchange or
the expiration of any options or rights
related to such convertible or exchangeable
securities, the Conversion Price shall
forthwith be readjusted to such Conversion
Price as would have obtained had the
adjustment made upon the issuance of such
options, rights, securities or options or
rights related to such securities been made
upon the basis of the issuance of only the
number of shares of Common Stock actually
issued upon the exercise of such options or
rights, upon the conversion or exchange of
such securities, or upon the exercise of the
options or rights related to such securities
and subsequent conversion or exchange
thereof.
(iii) "Excluded Stock" means (1) 4,500,000 shares of
Common Stock, and options therefor, reserved for issuance or grant
under the 1996 Stock Option Plan of the Corporation, as amended; (2)
shares of Common Stock issued upon conversion of shares of Series A
Preferred Stock; and (3) 568,910 shares of Series A Preferred Stock
reserved for issuance under the First Comdisco Warrants, the Second
Comdisco Warrant, the Third Comdisco Warrant, the Global Warrants,
the Invemed Warrants or the Advisor Warrants.
(iv) If, at any time after July 12, 1996, the number of
shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, following the record date for the
determination of holders of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Conversion Price shall
be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of Series A Preferred
Stock shall be increased in proportion to such increase in
outstanding shares.
(v) If, at any time after the Original Issuance Date,
the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock, then,
following the record date for such combination, the Conversion Price
shall be appropriately
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<PAGE> 12
increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares.
(vi) In the event of any capital reorganization of the
Corporation, any reclassification of the stock of the Corporation
(other than a change in par value or from no par value to par value
or from par value to no par value or as a result of a stock dividend
or subdivision, split-up or combination of shares), or any
consolidation or merger of the Corporation, each share of Series A
Preferred Stock shall after such reorganization, reclassification,
consolidation, or merger be convertible into the kind and number of
shares of stock or other securities or property of the Corporation
or of the corporation resulting from such consolidation or surviving
such merger to which the holder of the number of shares of Common
Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation or merger) upon
conversion of such share of Series A Preferred Stock would have been
entitled upon such reorganization, reclassification, consolidation
or merger. The provisions of this clause shall similarly apply to
successive reorganizations, reclassifications, consolidations or
mergers.
(vii) All calculations under this paragraph shall be
made to the nearest one hundredth (1/100) of a cent or the nearest
one tenth (1/10) of a share, as the case may be.
(viii) In any case in which the provisions of this
paragraph (d) shall require that an adjustment shall become
effective immediately after a record date of an event, the
Corporation may defer until the occurrence of such event (i) issuing
to the holder of any share of Series A Preferred Stock converted
after such record date and before the occurrence of such event the
shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event in addition to the shares of
capital stock issuable upon such conversion before giving effect to
such adjustments, and (ii) paying to such holder any amount in cash
in lieu of a fractional share of capital stock pursuant to paragraph
(c) above; provided, however, that the Corporation shall deliver to
such holder an appropriate instrument evidencing such holder's right
to receive such additional shares and such cash.
(e) Whenever the Conversion Price shall be adjusted as provided in
paragraph (d), the Corporation shall make available for inspection during
regular business hours, at its principal executive offices or at such other
place as may be designated by the Corporation, a statement, signed by its chief
executive officer, showing in detail the facts requiring such
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<PAGE> 13
adjustment and the Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be sent
by first class certified mail, return receipt requested and postage prepaid, to
each holder of Series A Preferred Stock at such holder's address appearing on
the Corporation's records. Where appropriate, such copy may be given in advance
and may be included as part of any notice required to be mailed under the
provisions of paragraph (f) below.
(f) If the Corporation shall propose to take any action of the types
described in clauses (v), (vi) or (vii) of paragraph (d) above, the Corporation
shall give notice to each holder of shares of Series A Preferred Stock, in the
manner set forth in paragraph (e) above, which notice shall specify the record
date, if any, with respect to any such action and the date on which such action
is to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such action
(to the extent such effect may be known at the date of such notice) on the
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series A Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least 20 days prior to the date so fixed, and in case
of all other action, such notice shall be given at least 30 days prior to the
taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
(g) The Corporation shall reserve, and at all times from and after
the date of Original Issuance Date keep reserved, free from preemptive rights,
out of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of Series A Preferred Stock,
sufficient shares of Common Stock to provide for the conversion of all
outstanding shares of Series A Preferred Stock.
(h) At any time the Corporation 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, provision shall be made so that each holder of shares of Series A
Preferred Stock shall receive upon conversion thereof, in addition to the shares
of Common Stock receivable thereupon, the number of securities of the
Corporation which it would have received had its shares of Series A Preferred
Stock been converted into shares of Common Stock on the date of such event and
had such holder thereafter, during the period from the date of such event to and
including the date of conversion, retained such securities receivable by it
pursuant to this paragraph during such period, subject to the sum of all other
adjustments
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called for during such period under this Section with respect to the rights of
such holder of shares of Series A Preferred Stock.
7. MANDATORY CONVERSION.
(a) Upon the consummation of the first underwritten public offering
for the account of the Corporation of Common Stock pursuant to a registration
statement filed under the Securities Act of 1933 with aggregate proceeds (net of
underwriting discounts and commissions) to the Corporation of not less than
$10,000,000 (a "Qualified Public Offering"), each share of Series A Preferred
Stock then outstanding shall, by virtue of and simultaneously with such
Qualified Public Offering, be deemed automatically converted into the number of
fully paid and nonassessable shares of Common Stock equal to the quotient
obtained by dividing (i) the Preference Amount by (ii) the Conversion Price, as
last adjusted and then in effect.
(b) As promptly as practicable after the date of consummation of any
Qualified Public Offering and the delivery to the Corporation of the certificate
or certificates for the shares of Series A Preferred Stock which have been
converted, duly endorsed or assigned in blank to the Corporation (if required by
it), the Corporation shall issue and deliver to or upon the written order of
each holder of Series A Preferred Stock, to the place designated by such holder,
a certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled, and a cash amount in respect of any fractional
interest in a share of Common Stock as provided in paragraph (c) below. The
person in whose name the certificate or certificates for Common Stock are to be
issued shall be deemed to have become a stockholder of record on the date of
such Qualified Public Offering and on such date the shares of Series A Preferred
Stock shall cease to be outstanding, whether or not the certificates
representing such shares have been received by the Corporation.
(c) The provisions set forth in Section 6(c) shall apply to the
conversion of Series A Preferred Stock pursuant to this Section in the same
manner as they apply to the conversion of Series A Preferred Stock pursuant to
Section 6.
ARTICLE V
DIRECTORS
1. The number of directors of the corporation shall be such as from
time to time shall be fixed by, or in the manner provided in the By-Laws.
Election of directors need not be by ballot unless the By-Laws so provide.
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<PAGE> 15
2. The Board of Directors shall have power without the assent or
vote of the stockholders:
(a) To make, alter, amend, change, add to or repeal the
By-Laws of the corporation; to fix and vary the amount
to be reserved for any proper purpose; to authorize and
cause to be executed mortgages and liens upon all or any
part of the property of the corporation; to determine
the use and disposition of any surplus or net profits;
and to fix the times for the declaration and payment of
dividends.
(b) To determine from time to time whether, and to what
times and places, and under what conditions the accounts
and books of the corporation (other than the stock
ledger) or any of them, shall be open to the inspection
of the stockholders.
3. The directors in their discretion may submit any contract or act
for approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such act
or contract, and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the corporation which is
represented in person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in person or
by proxy) shall be as valid and as binding upon the corporation and upon all the
stockholders as though it had been approved or ratified by every stockholder of
the corporation, whether or not the contract or act would otherwise be open to
legal attack because of directors' interest, or for any other reason.
4. In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-laws from time to time
made by the stockholders; provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would have been valid if such
by-law had not been made.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS
No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary
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<PAGE> 16
duty as a director, except with respect to (1) a breach of the director's duty
of loyalty to the corporation or its stockholders, (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) liability under Section 174 of the Delaware General Corporation Law or
(4) a transaction from which the director derived an improper personal benefit,
it being the intention of the foregoing provision to eliminate the liability of
the corporation's directors to the corporation or its stockholders to the
fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law, as amended from time to time. The corporation shall indemnify
to the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware
General Corporation Law, as amended from time to time, each person that such
Sections grant the corporation the power to indemnify.
ARTICLE VII
COMPROMISE OR ARRANGEMENT WITH CREDITORS
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court or equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
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ARTICLE VIII
BY-LAW AMENDMENTS
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved power.
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Exhibit 3.2
INTERWORLD TECHNOLOGY VENTURES, INC.
Incorporated under the laws
of the State of Delaware
BY-LAWS
As adopted on March 29, 1995
<PAGE> 2
INTERWORLD TECHNOLOGY VENTURES, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.
The registered office of INTERWORLD TECHNOLOGY VENTURES, INC. (the
"Corporation"), in the State of Delaware shall be at 32 Loockerman Square, Suite
L-100, City of Dover, County of Kent, Delaware 19901, and the registered agent
in charge thereof shall be The Prentice-Hall Corporation System, Inc.
SECTION 2. OTHER OFFICES.
The Corporation may also have an office or offices at other place
or places within or outside the State of Delaware.
ARTICLE II
MEETING OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
SECTION 1. ANNUAL MEETINGS.
The annual meeting of the stockholders for the election of
directors, and for the transaction of such other business as may properly come
before the meeting, shall be held at such place, date and hour as shall be fixed
by the Board of Directors (the "Board") and designated in the notice or waiver
of notice thereof; except that no annual meeting need be held if all actions,
including the election of directors, required by the General Corporation Law of
the State of Delaware (the "Delaware Statute") to be taken at a stockholders'
annual meeting are taken by written consent in lieu of meeting pursuant to
Section 10 of this Article II.
SECTION 2. SPECIAL MEETINGS.
A special meeting of the stockholders for any purpose or purposes
may be called by the Board, the Chairman, the President, the record holders of
at least 45% of the issued and outstanding shares of Common Stock of the
Corporation, or the Secretary at the direction of any of the foregoing to be
held at such place, date and hour as shall be designated in the notice or waiver
of notice thereof.
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SECTION 3. NOTICE OF MEETINGS.
Except as otherwise required by statute, the Certificate of
Incorporation of the Corporation (the "Certificate") or these By-laws, notice of
each annual or special meeting of the stockholders shall be given to each
stockholder of record entitled to vote at such meeting not less than 10 nor more
than 60 days before the day on which the meeting is to be held, by delivering
written notice thereof to him personally, or by mailing a copy of such notice,
postage prepaid, directly to him at his address as it appears in the records of
the Corporation, or by transmitting such notice thereof to him at such address
by telegraph, cable or other telephonic transmission. Every such notice shall
state the place, the date and hour of the meeting, and, in case of a special
meeting, the purpose or purposes for which the meeting is called. Notice of any
meeting of stockholders shall not be required to be given to any stockholder who
shall attend such meeting in person or by proxy, or who shall, in person or by
attorney thereunto authorized, waive such notice in writing, either before or
after such meeting. Except as otherwise provided in these By-laws, neither the
business to be transacted at, nor the purpose of, any meeting of the
stockholders need be specified in any such notice or waiver of notice. Notice of
any adjourned meeting of stockholders shall not be required to be given, except
when expressly required by law.
SECTION 4. QUORUM.
At each meeting of the stockholders, except where otherwise
provided by the Certificate or these By-laws, the holders of a majority of the
issued and outstanding shares of Common Stock of the Corporation entitled to
vote at such meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business. In the absence of a quorum,
a majority in interest of the stockholders present in person or represented by
proxy and entitled to vote, or, in the absence of all the stockholders entitled
to vote, any officer entitled to preside at, or act as secretary of, such
meeting, shall have the power to adjourn the meeting from time to time, until
stockholders holding the requisite amount of stock shall be present or
represented. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called.
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SECTION 5. ORGANIZATION.
At each meeting of the stockholders, one of the following shall
act as chairman of the meeting and preside thereat, in the following order of
precedence:
(a) the Chairman;
(b) the President;
(c) any officer of the Corporation designated by the Board to act
as chairman of such meeting and to preside thereat; or
(d) a stockholder of record who shall be chosen chairman of such
meeting by a majority in voting interest of the stockholders present in person
or by proxy and entitled to vote thereat.
The Secretary or, if he shall be presiding over such meeting in
accordance with the provisions of this Section 5 or if he shall be absent from
such meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary has been appointed and is present) whom the chairman of such meeting
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
SECTION 6. ORDER OF BUSINESS.
The order of business at each meeting of the stockholders shall
be determined by the chairman of such meeting, but such order of business may be
changed by a majority in voting interest of those present in person or by proxy
at such meeting and entitled to vote thereat.
SECTION 7. VOTING.
Except as otherwise provided by law or by the Certificate or these
By-laws, at each meeting of the stockholders, every stockholder of the
Corporation shall be entitled to one vote in person or by proxy for each share
of Common Stock of the Corporation held by him and registered in his name on the
books of the Corporation on the date fixed pursuant to Section 7 of Article VI
as the record date for the determination of stockholders entitled to vote at
such meeting. Persons holding stock in a fiduciary capacity shall be entitled to
vote the shares so held. A person whose stock is pledged shall be entitled to
vote, unless, in the transfer by the pledgor on the books of the Corporation, he
has expressly empowered the pledgee to vote thereon, in which case only the
pledgee or his proxy may represent such stock and vote thereon. If shares or
other
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securities having voting power stand in the record of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise, or if two or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary shall be
given written notice to the contrary and furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect:
(a) if only one votes, his act binds all;
(b) if more than one votes, the act of the majority so voting
binds all; and
(c) if more than one votes, but the vote is evenly split on any
particular matter, such shares shall be voted in the manner provided by law.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this Section 7 shall be
a majority or even-split in interest. The Corporation shall not vote directly or
indirectly any share of its own capital stock. Any vote of stock may be given by
the stockholder entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized, delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted after three years from its date, unless
said proxy provides for a longer period. At all meetings of the stockholders,
all matters (except where other provision is made by law, the Certificate or
these By-laws) shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy at such meeting and entitled to vote
thereon, a quorum being present. Unless demanded by a stockholder present in
person or by proxy at any meeting and entitled to vote thereon, the vote on any
question need not be by ballot. Upon a demand by any such stockholder for a vote
by ballot upon any question, such vote by ballot shall be taken. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
SECTION 8. INSPECTION.
The chairman of the meeting may at any time appoint two or more
inspectors to serve at any meeting of the stockholders. Any inspector may be
removed, and a new inspector or inspectors appointed, by the Board at any time.
Such inspectors shall decide upon the qualifications of voters, accept and count
votes, declare the results of such vote, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of
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shares of stock issued and outstanding and entitled to vote thereon and the
number of shares voted for and against the question, respectively. The
inspectors need not be stockholders of the Corporation, and any director or
officer of the Corporation may be an inspector on any question other than a vote
for or against his election to any position with the Corporation or on any other
matter in which he may be directly interested. Before acting as herein provided,
each inspector shall subscribe an oath faithfully to execute the duties of an
inspector with strict impartiality and according to the best of his ability.
SECTION 9. LIST OF STOCKHOLDERS.
It shall be the duty of the Secretary or other officer of the
Corporation who shall have charge of its stock ledger to prepare and make, at
least 10 days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to any such meeting, during ordinary
business hours, for a period of at least 10 days prior to such meeting, either
at a place within the city where such meeting is to be held, which place shall
be specified in the notice of the meeting or, if not so specified, at the place
where the meeting is to be held. Such list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 10. STOCKHOLDERS' CONSENT IN LIEU OF MEETING.
Any action required by the Delaware Statute to be taken at any
annual or special meeting of the stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, by a consent
in writing, as permitted by the Delaware Statute.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS.
The business, property and affairs of the Corporation shall be
managed by or under the direction of the Board, which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
law or by the Certificate
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directed or required to be exercised or done by the stockholders.
SECTION 2. NUMBER AND TERM OF OFFICE.
The number of directors shall be fixed from time to time by the
Board. Directors need not be stockholders. Each director shall hold office until
his successor is elected and qualified, or until his earlier death or
resignation or removal in the manner hereinafter provided.
SECTION 3. ELECTION OF DIRECTORS.
At each meeting of the stockholders for the election of directors
at which a quorum is present, the persons receiving the greatest number of
votes, up to the number of directors to be elected, of the stockholders present
in person or by proxy and entitled to vote thereon, shall be the directors;
provided that for purposes of such vote no stockholder shall be allowed to
cumulate his votes. Unless an election by ballot shall be demanded as provided
in Section 7 of Article II, election of directors may be conducted in any manner
approved at such meeting.
SECTION 4. RESIGNATION, REMOVAL AND VACANCIES.
Any director may resign at any time by giving written notice to
the Board, the Chairman, the President, or the Secretary. Such resignation shall
take effect at the time specified therein or, if the time be not specified, upon
receipt thereof; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Any director or the entire Board may be removed, with or without
cause, at any time by vote of the holders of a majority of the shares then
entitled to vote at an election of directors or by written consent of the
stockholders pursuant to Section 10 of Article II.
Vacancies occurring in the Board for any reason may be filled by
vote of the stockholders or by the stockholders' written consent pursuant to
Section 10 of Article II, or by vote of the Board or by the directors' written
consent pursuant to Section 6 of this Article III. If the number of directors
then in office is less than a quorum, such vacancies may be filled by a vote of
a majority of the directors then in office.
SECTION 5. MEETINGS.
(a) ANNUAL MEETINGS. As soon as practicable after each annual
election of directors, the Board shall meet for the
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purpose of organization and the transaction of other business, unless it shall
have transacted all such business by written consent pursuant to Section 6 of
this Article III.
(b) OTHER MEETINGS. Other meetings of the Board shall be held at
such times and places as the Board, the Chairman, the President or any two
directors shall from time to time determine.
(c) NOTICE OF MEETINGS. Notice shall be given to each director of
each meeting, including the time, place and purpose of such meeting. Notice of
each such meeting shall be mailed to each director, addressed to him at his
residence or usual place of business, at least two days before the date on which
such meeting is to be held, or shall be sent to him at such place by telegraph,
cable, wireless or other form of recorded communication, or be delivered
personally or by telephone not later than the day before the day on which such
meeting is to be held, but notice need not be given to any director who shall
attend such meeting. A written waiver of notice, signed by the person entitled
thereto, whether before or after the time of the meeting stated therein, shall
be deemed equivalent to notice.
(d) PLACE OF MEETINGS. The Board may hold its meetings at such
place or places within or outside the State of Delaware as the Board may from
time to time determine, or as shall be designated in the respective notices or
waivers of notice thereof.
(e) QUORUM AND MANNER OF ACTING. A majority of the total number of
directors then in office shall be present in person at any meeting of the Board
in order to constitute a quorum for the transaction of business at such meeting,
and the vote of a majority of those directors present at any such meeting at
which a quorum is present shall be necessary for the passage of any resolution
or act of the Board, except as otherwise expressly required by law or these
By-laws. In the absence of a quorum for any such meeting, a majority of the
directors present thereat may adjourn such meeting from time to time until a
quorum shall be present.
(f) ORGANIZATION. At each meeting of the Board, one of the
following shall act as chairman of the meeting and preside thereat, in the
following order of precedence:
(i) the Chairman;
(ii) the President (if a director); or
(iii) a person designated by the Board.
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The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary has been appointed and is
present) whom the chairman of the meeting shall appoint shall act as secretary
of such meeting and keep the minutes thereof.
SECTION 6. DIRECTORS' CONSENT IN LIEU OF MEETING.
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting, without prior notice and without a vote,
if a consent in writing, setting forth the action so taken, shall be signed by
all the directors and such consent is filed with the minutes of the proceedings
of the Board.
SECTION 7. ACTION BY MEANS OF CONFERENCE TELEPHONE OR SIMILAR
COMMUNICATIONS EQUIPMENT.
Any one or more members of the Board may participate in a meeting
of the Board by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting by such means shall constitute
presence in person at such meeting.
SECTION 8. COMMITTEES.
The Board may, by resolution or resolutions passed by a majority
of the whole Board, designate one or more committees, each such committee to
consist of one or more directors of the Corporation, which to the extent
provided in said resolution or resolutions shall have and may exercise the
powers of the Board in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers which may require it, such committee or committees to have such name or
names as may be determined from time to time by resolution adopted by the Board.
A majority of all the members of any such committee may determine its action and
fix the time and place of its meetings, unless the Board shall otherwise
provide. The Board shall have power to change the members of any such committee
at any time, to fill vacancies and to discharge any such committee, either with
or without cause, at any time.
ARTICLE IV
OFFICERS
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SECTION 1. EXECUTIVE OFFICERS.
The principal officers of the Corporation shall be a Chairman, a
President, a Secretary, and a Treasurer, and may include such other officers as
the Board may appoint pursuant to Section 3 of this Article IV. Any two or more
offices may be held by the same person.
SECTION 2. AUTHORITY AND DUTIES.
All officers, as between themselves and the Corporation, shall
have such authority and perform such duties in the management of the Corporation
as may be provided in these By-laws or, to the extent so provided, by the Board.
SECTION 3. OTHER OFFICERS.
The Corporation may have such other officers, agents and employees
as the Board may deem necessary, including one or more Assistant Secretaries,
one or more Assistant Treasurers and one or more Vice Presidents, each of whom
shall hold office for such period, have such authority, and perform such duties
as the Board, the Chairman, or the President may from time to time determine.
The Board may delegate to any principal officer the power to appoint and define
the authority and duties of, or remove, any such officers, agents, or employees.
SECTION 4. TERM OF OFFICE, RESIGNATION AND REMOVAL.
All officers shall be elected or appointed by the Board and shall
hold office for such term as may be prescribed by the Board. Each officer shall
hold office until his successor has been elected or appointed and qualified or
until his earlier death or resignation or removal in the manner hereinafter
provided. The Board may require any officer to give security for the faithful
performance of his duties.
Any officer may resign at any time by giving written notice to the
Board, the Chairman, the President, or the Secretary. Such resignation shall
take effect at the time specified therein or, if the time be not specified, at
the time it is accepted by action of the Board. Except as aforesaid, the
acceptance of such resignation shall not be necessary to make it effective.
All officers and agents elected or appointed by the Board shall be
subject to removal at any time by the Board or by the stockholders of the
Corporation with or without cause.
SECTION 5. VACANCIES.
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If the office of Chairman, President, Secretary or Treasurer
becomes vacant for any reason, the Board shall fill such vacancy, and if any
other office becomes vacant, the Board may fill such vacancy. Any officer so
appointed or elected by the Board shall serve only until such time as the
unexpired term of his predecessor shall have expired, unless reelected or
reappointed by the Board.
SECTION 6. THE CHAIRMAN.
The Chairman shall see that all orders and resolutions of the
Board are carried into effect. He shall preside at meetings of the Board and of
the stockholders at which he is present, and shall perform such other duties as
the Board may from time to time determine.
SECTION 7. THE PRESIDENT.
The President shall be the chief executive officer of the
Corporation. The President shall have general and active management and control
of the business and affairs of the Corporation subject to the control of the
Board. He shall from time to time make such reports of the affairs of the
Corporation as the Board of Directors may require and shall perform such other
duties as the Board may from time to time determine.
SECTION 8. THE SECRETARY.
The Secretary shall, to the extent practicable, attend all
meetings of the Board and all meetings of the stockholders and shall record all
votes and the minutes of all proceedings in a book to be kept for that purpose.
He may give, or cause to be given, notice of all meetings of the stockholders
and of the Board, and shall perform such other duties as may be prescribed by
the Board, the Chairman, or the President, under whose supervision he shall act.
He shall keep in safe custody the seal of the Corporation and affix the same to
any duly authorized instrument requiring it and, when so affixed, it shall be
attested by his signature or by the signature of the Treasurer or, if appointed,
an Assistant Secretary or an Assistant Treasurer. He shall keep in safe custody
the certificate books and stockholder records and such other books and records
as the Board may direct, and shall perform all other duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the Board, the Chairman, or the President.
SECTION 9. THE TREASURER.
The Treasurer shall have the care and custody of the corporate
funds and other valuable effects, including securities,
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and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation, and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the Chairman, President and directors, at the
regular meetings of the Board, or whenever they may require it, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation, and shall perform all other duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board, the Chairman or the President.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. EXECUTION OF DOCUMENTS.
The Board shall designate, by either specific or general
resolution, the officers, employees and agents of the Corporation who shall have
the power to execute and deliver deeds, contracts, mortgages, bonds, debentures,
checks, drafts and other orders for the payment of money and other documents for
and in the name of the Corporation, and may authorize such officers, employees
and agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation; and,
unless so designated or expressly authorized by these By-laws, no officer,
employee or agent shall have any power or authority to bind the Corporation by
any contract or engagement, to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
SECTION 2. DEPOSITS.
All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation or otherwise as the
Board or Treasurer, or any other officer of the Corporation to whom power in
this respect shall have been given by the Board, shall select.
SECTION 3. PROXIES IN RESPECT OF STOCK OR OTHER SECURITIES OF
OTHER CORPORATIONS.
The Board shall designate the officers of the Corporation who
shall have authority from time to time to appoint an agent or agents of the
Corporation to exercise in the name and on behalf
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of the Corporation the powers and rights which the Corporation may have as the
holder of stock or other securities in any other corporation, and to vote or
consent in respect of such stock or securities. Such designated officers may
instruct the person or persons so appointed as to the manner of exercising such
powers and rights, and such designated officers may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal or otherwise, such written proxies, powers of attorney or other instruments
as they may deem necessary or proper in order that the Corporation may exercise
its said powers and rights.
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ARTICLE VI
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
SECTION 1. CERTIFICATES FOR SHARES.
Every owner of stock of the Corporation shall be entitled to have
a certificate certifying the number and class of shares owned by him in the
Corporation, which shall be in such form as shall be prescribed by the Board.
Certificates shall be numbered and issued in consecutive order and shall be
signed by, or in the name of, the Corporation by the Chairman, the President or
any Vice President, and by the Treasurer (or an Assistant Treasurer, if
appointed) or the Secretary (or an Assistant Secretary, if appointed). In case
any officer or officers who shall have signed any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who assigned such certificate had not
ceased to be such officer or officers of the Corporation.
SECTION 2. RECORD.
A record in one or more counterparts shall be kept of the name of
the person, firm or corporation owning the shares represented by each
certificate for stock of the Corporation issued, the number of shares
represented by each such certificate, the date thereof and, in the case of
cancellation, the date of cancellation. Except as otherwise expressly required
by law, the person in whose name shares of stock stand on the stock record of
the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation.
SECTION 3. TRANSFER AND REGISTRATION OF STOCK.
(a) The transfer of stock and certificates of stock which
represent the stock of the Corporation shall be governed by Article 8 of
Subtitle 1 of Title 6 of the Delaware Code (the Uniform Commercial Code), as
amended from time to time.
(b) Registration of transfers of shares of the Corporation shall
be made only on the books of the Corporation upon request of the registered
holder thereof, or of his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, and upon the
surrender of the certificate or certificates for such shares properly endorsed
or accompanied by a stock power duly executed.
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SECTION 4. ADDRESSES OF STOCKHOLDERS.
Each stockholder shall designate to the Secretary an address at
which notices of meetings and all other corporate notices may be served or
mailed to him, and, if any stockholder shall fail to designate such address,
corporate notices may be served upon him by mail directed to him at his
post-office address, if any, as the same appears on the share record books of
the Corporation or at his last known post-office address.
SECTION 5. LOST, DESTROYED AND MUTILATED CERTIFICATES.
The holder of any shares of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of the certificate
therefor, and the Board may, in its discretion, cause to be issued to him a new
certificate or certificates for shares, upon the surrender of the mutilated
certificates or, in the case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction, and the Board may, in its
discretion, require the owner of the lost or destroyed certificate or his legal
representative to give the Corporation a bond in such sum and with such surety
or sureties as it may direct to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate.
SECTION 6. REGULATIONS.
The Board may make such rules and regulations as it may deem
expedient, not inconsistent with these By-laws, concerning the issue, transfer
and registration of certificates for stock of the Corporation.
SECTION 7. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date shall be not more than 60 nor less than 10
days before the date of such meeting. If no record date is fixed by the Board,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a
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meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which date
shall be not more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board. If no record date has been fixed by the
Board, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
is required by the Delaware Statute, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in this State,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board and prior action by the Board is required by the
Delaware Statute, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board adopts the resolution taking such
prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto.
ARTICLE VII
SEAL
The Board may provide a corporate seal, which shall be in the form
of a circle and shall bear the full name of the Corporation and the words and
figures "Corporate Seal - 1995 Delaware."
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ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year
unless otherwise determined by the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
SECTION 1. INDEMNIFICATION.
(a) As provided in the Certificate, to the fullest extent
permitted by the Delaware Statute as the same exists or may hereafter be
amended, a director of this Corporation shall not be liable to the Corporation
or its stockholders for breach of fiduciary duty as a director.
(b) Without limitation of any right conferred by paragraph (a) of
this Section 1, any person made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he, his
testator or intestate is or was a director, officer, employee or agent of the
Corporation, or is or was acting at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including, without limitation, as a
fiduciary of, or otherwise rendering services to, any employee benefit plan of
or relating to the Corporation, shall be indemnified by the Corporation against
expenses (including attorneys' fees), judgments, fines, excise taxes and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding, or in connection with any appeal therein;
provided, that such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Corporation, and
with respect to a criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful; except that no indemnification shall be made
in the case of an action, suit or proceeding by or in the right of the
Corporation in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such director, officer, employee or agent is
liable to the Corporation, unless a court having jurisdiction shall determine
that, despite such adjudication, such person is fairly and reasonably entitled
to indemnification.
(c) The foregoing rights of indemnification shall not be
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deemed exclusive of any other rights to which any director, officer, employee or
agent may be entitled or of any power of the Corporation apart from the
provisions of this Section 1.
SECTION 2. INSURANCE.
The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or any person who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, to the full extent and in
the manner permitted by the applicable laws of the United States and the State
of Delaware from time to time in effect, whether or not the Corporation would
have the power to indemnify such person under Section 1 of this Article IX.
ARTICLE X
AMENDMENT
Any by-law (including these By-laws) may be adopted, amended or
repealed by the vote of the holders of a majority of the shares then entitled to
vote or by the stockholders' written consent pursuant to Section 10 of Article
II, or by the vote of the Board or by the directors' written consent pursuant to
Section 6 of Article III.
* * * * *
* * *
*
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Exhibit 10.1
INTERWORLD CORPORATION
AMENDED AND RESTATED
1996 STOCK OPTION PLAN
1. PURPOSE
The purpose of the INTERWORLD CORPORATION 1996 STOCK OPTION PLAN
(the "Plan") is (i) to further the growth and success of InterWorld Corporation,
a Delaware corporation (the "Company"), and its Subsidiaries (as hereinafter
defined) by enabling directors, officers and other employees of and consultants
to the Company and any of its Subsidiaries to acquire shares of common stock,
$.01 par value (the "Common Stock"), of the Company, thereby increasing their
personal interest in such growth and success, and (ii) to provide a means of
rewarding outstanding performance by such persons to the Company and its
Subsidiaries. Options granted under the Plan may be either "incentive stock
options" ("ISOs"), intended to qualify as such under the provisions of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonqualified stock options ("NSOs"). For purposes of the Plan, the term
"Subsidiary" shall mean "Subsidiary Corporation" as such term is defined in
Section 424(f) of the Code. Unless the context otherwise requires, any ISO or
NSO shall be referred to as an "Option".
2. ADMINISTRATION OF THE PLAN.
(a) Committee.
The Plan shall be administered by the Board of Directors of the
Company (the "Board") or a committee (the "Committee") consisting of two or more
Non-Employee Directors (as such term is defined in Rule 16b-3 ("Rule 16b-3")
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) appointed to such Committee from time to time
by the Board. The term "Committee" shall, for all purposes of the Plan other
than Section 2.a. and b., be deemed to refer to the Board if the Board is
administering the Plan.
(b) Procedures.
If the Plan is administered by a Committee, the Committee shall from
time to time select a Chairman from among its members and shall adopt such rules
and regulations as it shall deem appropriate concerning the holding of meetings
and the administration of the Plan. A majority of the entire Committee shall
constitute a quorum and the actions of a majority of the members of the
Committee present at a meeting at which a quorum is present, or actions approved
in writing by all of the members of the Committee, shall be the actions of the
Committee; provided, however, that if the Committee consists of only two
<PAGE> 2
members, both shall be required to constitute a quorum and to act at a meeting
or to approve actions in writing.
(c) Interpretations.
Except as otherwise expressly provided in the Plan, the Committee
shall have all powers with respect to the administration of the Plan, including,
without limitation, full power and authority to interpret the provisions of the
Plan and any Option Agreement (as defined in Section 5.b.), and to resolve all
questions arising under the Plan. All decisions of the Committee shall be
conclusive and binding on all participants in the Plan.
3. SHARES OF STOCK SUBJECT TO THE PLAN.
(a) Number of Shares.
Subject to the provisions of Section 9 (relating to adjustments upon
changes in capital structure and other corporate transactions), the number of
shares of Common Stock subject at any one time to Options granted under the
Plan, plus the number of shares of Common Stock theretofore issued and delivered
pursuant to the exercise of Options granted under the Plan, shall not exceed
6,600,000 shares. If and to the extent that Options granted under the Plan
terminate, expire or are cancelled without having been fully exercised, new
Options may be granted under the Plan with respect to the shares of Common Stock
covered by the unexercised portion of such terminated, expired or cancelled
Options.
(b) Reservation of Shares
The number of shares of Common Stock reserved for issuance under the
Plan shall at no time be less than the maximum number of shares which may be
purchased at any time pursuant to outstanding Options.
4. ELIGIBILITY.
(a) General.
Options may be granted by the Committee under the Plan only to
persons who are directors or employees of or consultants to the Company or any
of its Subsidiaries. Options granted under the Plan shall be, in the discretion
of the Committee, either ISOs or NSOs. Notwithstanding the foregoing, Options
may be conditionally granted to persons who are prospective directors or
employees of or consultants to the Company or any of its Subsidiaries; provided,
however, that any such conditional grant of an ISO to a prospective employee
shall, by its terms, become effective no earlier than the date on which such
person actually becomes an employee.
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(b) Exceptions.
Notwithstanding anything contained in Section 4.a. to the contrary,
no ISO may be granted under the Plan to an employee who owns, directly or
indirectly (within the meaning of Sections 422(b)(6) and 424(d) of the Code),
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company, unless (A) the Option Price (as defined in Section
6.a.) of the shares of Common Stock subject to such ISO is fixed at not less
than 110% of the Fair Market Value on the date of grant (as determined in
accordance with Section 6.b.) of such shares and (B) such ISO by its terms is
not exercisable after the expiration of five years from the date it is granted.
5. GRANT OF OPTIONS.
(a) General.
Options may be granted under the Plan at any time and from time to
time after the Effective Date (as defined in Section 11) and on or prior to the
Expiration Date (as defined in Section 12). Subject to the provisions of the
Plan, the Committee shall have authority, in its sole discretion, to determine:
(i) the persons (from among the class of persons
eligible to receive Options under the Plan) to whom Options shall be
granted (the "Optionees");
(ii) the time or times at which Options shall be
granted;
(iii) the number of shares subject to each Option;
(iv) the Option Price of the shares subject to each
Option, which price shall be not less than the minimum specified in
Section 4.b.(i) or 6.a. (as applicable); and
(v) the time or times when each Option shall become
exercisable and the duration of the exercise period.
(b) Option Agreements.
Each Option granted under the Plan shall be designated as an ISO or
an NSO and shall be subject to the terms and conditions applicable to ISOs or
NSOs (as the case may be) set forth in the Plan; provided, however, that any
Option deemed by the Committee to be an ISO that for any reason does not qualify
as an incentive stock option under Section 622 of the Code shall be treated for
all purposes under the Plan as an NSO. In addition, each Option shall be
evidenced by a written agreement (an "Option Agreement"), containing such terms
and conditions and in such form, not inconsistent with the Plan, as the
Committee
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<PAGE> 4
shall, in its discretion, provide. Each Option Agreement shall be executed by
the Company and the Optionee.
(c) No Evidence of Employment or Service.
Nothing contained in the Plan or in any Option Agreement shall
confer upon any Optionee any right with respect to the continuation of his or
her employment by or service with the Company or any of its Subsidiaries or
interfere in any way with the right of the Company or any such Subsidiary
(subject to the terms of any separate agreement to the contrary), at any time to
terminate such employment or service or to increase or decrease the compensation
of the Optionee from the rate in existence at the time of the grant of an
Option.
(d) Date of Grant.
The date of grant of an Option under this Plan shall be the date as
of which the Committee approves the grant; provided, however, that in the case
of an ISO, the date of grant shall in no event be earlier than the date as of
which the Optionee becomes an employee of the Company or one of its
Subsidiaries.
6. OPTION PRICE.
(a) General.
Subject to Section 9, the price (the "Option Price") at which each
share of Common Stock subject to an Option granted under the Plan may be
purchased shall be determined by the Committee at the time the Option is
granted; provided, however, that subject to Section 4.b(i), such Option Price
shall in no event be less than 100% of the Fair Market Value (as determined in
accordance with Section 6.b.) of such share of Common Stock.
(b) Determination of Fair Market Value.
Subject to the requirements of Section 422 of the Code, for purposes
of the Plan, the "Fair Market Value" of shares of Common Stock shall be equal
to:
(i) if such shares are publicly traded, (x) the closing
price, if applicable, or the average of the last bid and asked
prices on the date of grant or, if lower, the average of the daily
closing prices (or the mean between the last bid and asked prices
for days on which no sales took place) of the 30 business days
immediately preceding the date of grant, in the over-the-counter
market as reported by NASDAQ, or (y) if the Common Stock is then
traded on a national securities exchange, the average of the high
and low prices on the date of grant or, if lower, the average of the
daily closing prices (or the mean between the last bid and asked
prices for days on which no sales took place) of
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<PAGE> 5
the 30 business days immediately preceding the date of grant, on the
principal national securities exchange on which it is so traded; or
(ii) if there is no public trading market for such
shares, the fair value of such shares on the date of grant as
determined by the Committee after taking into consideration all
factors which it deems appropriate, including, without limitation,
recent sale and offer prices of the Common Stock in private
transactions negotiated at arms' length.
Anything contained in the Plan to the contrary notwithstanding, all
determinations pursuant to Section 6.b.(ii) shall be made, without regard to any
restriction other than a restriction which, by its terms, will never lapse.
(c) Repricing of NSOs.
Subsequent to the date of grant of any NSO, the Committee may, at
its discretion and with the consent of the Optionee, establish a new Option
Price for such NSO so as to increase or decrease the Option Price of such NSO.
7. EXERCISE OF OPTIONS.
(a) Committee Determination.
Each Option granted under the Plan shall be exercisable at such time
or times, or upon the occurrence of such event or events, and for such number of
shares subject to the Option, as shall be determined by the Committee and set
forth in the Option Agreement evidencing such Option. Subject to the proviso of
the immediately preceding sentence, if an Option is not at the time of grant
immediately exercisable, the Committee may (i) in the Option Agreement
evidencing such Option, provide for the acceleration of the exercise date or
dates of the subject Option upon the occurrence of specified events or (ii) at
any time prior to the complete termination of such Option, accelerate the
exercise date or dates of such Option.
(b) Automatic Termination of Option.
Unless otherwise determined by the Committee at the time of grant
or, in the case of an NSO, thereafter, the unexercised portion of any Option
granted under the Plan shall automatically terminate and shall become null and
void and be of no further force or effect upon the first to occur of the
following:
(i) the seventh anniversary of the date on which such
Option is granted or, in the case of any ISO granted to
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<PAGE> 6
a person described in Section 4.b.(i), the fifth anniversary of the
date on which such ISO is granted;
(ii) the expiration of three months from the date that
the Optionee ceases to be a director, officer or employee of or
consultant to the Company or any of its Subsidiaries (other than as
a result of an Involuntary Termination (as defined in subparagraph
(iii) below) or a Termination For Cause (as defined in subparagraph
(iv) below)); provided, however, that if the Optionee shall die
during such three-month period, the time of termination of the
unexercised portion of such Option shall be determined in accordance
with subparagraph (iii) below;
(iii) the expiration of 12 months from the date that the
Optionee ceases to be a director, officer or employee of or
consultant to the Company or any of its Subsidiaries, if such
termination is due to such Optionee's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) (an
"Involuntary Termination");
(iv) immediately if the Optionee ceases to be a
director, officer or employee of or consultant to the Company or any
of its Subsidiaries, if such termination is for cause or is
otherwise attributable to a breach by the Optionee of an employment
or other similar agreement with the Company or any such Subsidiary
(a "Termination For Cause");
(v) the expiration of such period of time or the
occurrence of such event as the Committee in its discretion may
provide in the Option Agreement;
(vi) the effective date of a Corporate Transaction (as
defined in Section 9.b) to which Section 9.b.(ii) (relating to
assumptions and substitutions of Options) does not apply; provided,
however, that an Optionee's right to exercise any Option outstanding
prior to such effective date shall in all events be suspended during
the period commencing 10 days prior to the proposed effective date
of such Corporate Transaction and ending on either the actual
effective date of such Corporate Transaction or upon receipt of
notice from the Company that such Corporate Transaction will not in
fact occur; and
(vii) except to the extent permitted by Section
9.b.(ii), the date on which an Option or any part thereof or right
or privilege relating thereto is transferred (otherwise than by will
or the laws of descent and distribution), assigned, pledged,
hypothecated, attached or otherwise disposed of by the Optionee.
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<PAGE> 7
The Committee shall have the power to determine what constitutes a
Termination For Cause, and the date upon which such Termination For Cause shall
occur. All such determinations shall be final and conclusive and binding upon
the Optionee.
Anything contained in the Plan to the contrary notwithstanding,
unless otherwise provided in an Option Agreement, no Option granted under the
Plan shall be affected by any change of duties or position of the Optionee
(including a transfer to or from the Company or one of its Subsidiaries), so
long as such Optionee continues to be a director, officer or employee of the
Company or one of its Subsidiaries.
(c) Limitations on ISOs.
To the extent that, at the time any portion of an ISO granted under
the Plan is to become exercisable, the Option Price of such portion, when added
to the aggregate fair market value of all stock subject to incentive stock
options granted by the Company or its Subsidiaries before the date of grant of
such ISO that have become or will by their terms become exercisable during that
same calendar year, exceeds $100,000, such portion shall be deemed to be an NSO.
8. PROCEDURE FOR EXERCISE.
(a) Payment.
At the time an Option is granted under the Plan, the Committee
shall, in its discretion, specify one or more of the following forms of payment
which may be used by an Optionee upon exercise of his Option:
(i) cash or personal or certified check payable to the
Company in an amount equal to the aggregate Option Price of the
shares with respect to which the Option is being exercised;
(ii) stock certificates (in negotiable form)
representing shares of Common Stock having a Fair Market Value on
the date of exercise (as determined in accordance with Section 6.b.
as if the date of exercise were the date of grant) equal to the
aggregate Option Price of the shares with respect to which the
Option is being exercised;
(iii) compliance with any cashless exercise program
approved by the Committee; or
(iv) a combination of the methods set forth in clauses
(i), (ii) and (iii).
(b) Notice.
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<PAGE> 8
An Optionee (or other person, as provided in Section 10.b.) may
exercise an Option granted under the Plan in whole or in part (but for the
purchase of whole shares only), as provided in the Option Agreement evidencing
his or her Option, by delivering a written notice (the "Notice") to the
Secretary of the Company. The Notice shall:
(i) state that the Optionee elects to exercise the
Option;
(ii) state the number of shares with respect to which
the Option is being exercised (the "Optioned Shares");
(iii) state the method of payment of the Optioned Shares
(which method must be available to the Optionee under the terms of
his or her Option Agreement);
(iv) state the date upon which the Optionee desires to
consummate the purchase (which date must be prior to the termination
of such Option and no later than 30 days from the delivery of such
Notice);
(v) include any representations of the Optionee required
pursuant to Section 10.a.;
(vi) if the Option is exercised pursuant to Section
10.b. by any person other than the Optionee, include evidence to the
satisfaction of the Committee of the right of such person to
exercise the Option; and
(vii) include such further provisions consistent with
the Plan as the Committee may from time to time require.
The exercise date of an Option shall be the date on which the
Company receives the Notice from the Optionee.
Within 30 days of the exercise of the Option, the Optionee shall
deliver to the Company a copy of any election filed by the Optionee with the
Internal Revenue Service under Section 83(b) of the Code.
(c) Issuance of Certificates.
The Company shall cause the issuance of a stock certificate in the
name of the Optionee (or such other person exercising the Option in accordance
with the provisions of Section 10.b.) for the Optioned Shares as soon as
practicable after receipt of the Notice and payment of the aggregate Option
Price for such shares. Neither the Optionee nor any person exercising an Option
in accordance with the provisions of Section 10.b. shall have any privileges as
a stockholder of the Company with respect to any shares of stock subject to an
Option granted
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<PAGE> 9
under the Plan until the date of issuance of a stock certificate pursuant to
this Section 8.c.
9. ADJUSTMENTS.
(a) Changes in Capital Structure.
Subject to Section 9.b., if the Common Stock is changed by reason of
a stock split, reverse stock split, stock dividend or recapitalization, or
converted into or exchanged for other securities as a result of a merger,
consolidation or reorganization, the Committee shall make such adjustments in
the number and class of shares of stock with respect to which Options may be
granted under the Plan as shall be equitable and appropriate in order to make
such Options, as nearly as may be practicable, equivalent to such Options
immediately prior to such change. A corresponding adjustment changing the number
and class of shares allocated to, and the Option Price of, each Option or
portion thereof outstanding at the time of such change shall likewise be made.
Anything contained in the Plan to the contrary notwithstanding, in the case of
ISOs, no adjustment under this Section 9.a. shall be appropriate if such
adjustment (i) would constitute a modification, extension or renewal of such
ISOs within the meaning of Sections 422 and 424 of the Code, and the regulations
promulgated by the Treasury Department thereunder, or (ii) would, under Section
422 of the Code and the regulations promulgated by the Treasury Department
thereunder, be considered the adoption of a new plan requiring stockholder
approval.
(b) Corporate Transactions.
The following rules shall apply in connection with the dissolution
or liquidation of the Company, a reorganization, merger or consolidation in
which the Company is not the surviving corporation, or a sale of all or
substantially all of the assets of the Company to another person or entity (a
"Corporate Transaction"):
(i) each holder of an Option outstanding at such time
shall be given (A) written notice of such Corporate Transaction at
least 20 days prior to its proposed effective date (as specified in
such notice) and (B) an opportunity, during the period commencing
with delivery of such notice and ending 10 days prior to such
proposed effective date, to exercise the Option to the full extent
to which such Option would have been exercisable by the Optionee at
the expiration of such 20-day period; provided, however, that upon
the effective date of a Corporate Transaction, all Options granted
under the Plan not so exercised shall automatically terminate; and
(ii) anything contained in the Plan to the contrary
notwithstanding, Section 9.b.(i) shall not be applicable if
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<PAGE> 10
provision shall be made in connection with such Corporate
Transaction for the assumption of outstanding Options by, or the
substitution for such Options of new options covering the stock of,
the surviving, successor or purchasing corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number,
kind and option prices of shares subject to such options; provided,
however, that in the case of ISOs, the Committee shall, to the
extent not inconsistent with the best interests of the Company or
its Subsidiaries (such best interests to be determined in good faith
by the Committee in its sole discretion), use its best efforts to
ensure that any such assumption or substitution will not constitute
a modification, extension or renewal of the ISOs within the meaning
of Section 424(h) of the Code and the regulations promulgated by the
Treasury Department thereunder.
(c) Special Rules.
The following rules shall apply in connection with Section 9.a.
and b. above:
(i) no fractional shares shall be issued as a result of
any such adjustment, and any fractional shares resulting from the
computations pursuant to Section 9.a. or b. shall be eliminated
without consideration from the respective Options;
(ii) no adjustment shall be made for cash dividends or
the issuance to stockholders of rights to subscribe for additional
shares of Common Stock or other securities; and
(iii) any adjustments referred to in Section 9.a. or b.
shall be made by the Committee in its sole discretion and shall be
conclusive and binding on all persons holding Options granted under
the Plan.
10. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES.
(a) Compliance With Securities Laws.
No Options shall be granted under the Plan, and no shares of Common
Stock shall be issued and delivered upon the exercise of Options granted under
the Plan, unless and until the Company and the Optionee shall have complied with
all applicable Federal or state registration, listing and qualification
requirements and all other requirements of law or of any regulatory agencies
having jurisdiction.
(b) Nonassignability of Option Rights.
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No Option granted under this Plan shall be assignable or otherwise
transferable by the Optionee except by will or by the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee. If an Optionee dies, his or her Option shall thereafter be
exercisable, during the period specified in Section 7.b.(ii) or (iii) (as the
case may be), by his or her executors or administrators to the full extent to
which such Option was exercisable by the Optionee at the time of his or her
death.
11. EFFECTIVE DATE OF PLAN.
This Plan shall become effective on the date (the "Effective Date")
on which the stockholders of the Company shall have approved the Plan.
12. EXPIRATION AND TERMINATION OF THE PLAN.
Except with respect to Options then outstanding, the Plan shall
expire on the date (the "Expiration Date") which is the first to occur of (i)
the tenth anniversary of the date on which the Plan is adopted by the Board,
(ii) the tenth anniversary of the Effective Date, and (iii) the date as of which
the Board, in its sole discretion, determines that the Plan shall terminate. Any
Options outstanding as of the Expiration Date shall remain in effect until they
have been exercised or terminated or have expired by their respective terms.
13. AMENDMENT OF PLAN.
The Board may at any time prior to the Expiration Date modify and
amend the Plan in any respect; provided, however, that the approval of the
holders of a majority of the votes that may be cast by all of the holders of
shares of Common Stock and preferred stock of the Company, if any, entitled to
vote (voting as a single class) shall be obtained prior to any such amendment
becoming effective if and to the extent such approval is required by law or the
rules of any stock exchange or automated quotation system upon which the Common
Stock is listed or quoted, or to ensure that the Plan will continue to qualify
for exemptions under Rule 16b-3 and that ISOs will continue to qualify as
incentive stock options under Section 422 of the Code or the regulations
promulgated by the Treasury Department thereunder.
14. CAPTIONS.
The use of captions in this Plan is for convenience. The captions
are not intended to provide substantive rights.
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15. DISQUALIFYING DISPOSITIONS.
If Optioned Shares acquired by exercise of an ISO granted under this
Plan are disposed of within two years following the date of grant of the ISO or
one year following the transfer of the Optioned Shares to the Optionee (a
"Disqualifying Disposition"), the holder of the Optioned Shares shall,
immediately prior to such Disqualifying Disposition, notify the Company in
writing of the date and terms of such Disqualifying Disposition and provide such
other information regarding the Disqualifying Disposition as the Company may
reasonably require.
16. WITHHOLDING TAXES.
Whenever under the Plan shares of Common Stock are to be delivered
by an Optionee upon exercise of an NSO, the Company shall be entitled to require
as a condition of delivery that the Optionee remit or, in appropriate cases,
agree to remit when due, an amount sufficient to satisfy all current or
estimated future Federal, state and local withholding tax and employment tax
requirements relating thereto. At the time of a Disqualifying Disposition, the
Optionee shall remit to the Company in cash the amount of any applicable
Federal, state and local withholding taxes and employment taxes.
17. OTHER PROVISIONS.
Each Option granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Committee,
in its sole discretion. Notwithstanding the foregoing, each ISO granted under
the Plan shall include those terms and conditions which are necessary to qualify
the ISO as an "incentive stock option" within the meaning of Section 422 of the
Code and the regulations thereunder and shall not include any terms or
conditions which are inconsistent therewith.
18. NUMBER AND GENDER.
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine gender,
and vice-versa, as the context requires.
19. GOVERNING LAW.
The validity and construction of this Plan and the instruments
evidencing the Options granted hereunder shall be governed by the laws of the
State of New York.
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The Plan was originally approved by the Board and by the
stockholders of the Company on March 6, 1996, restated on July 12, 1996, to
reflect a 2.5-to-1 stock split, amended and affirmed on February 11, 1997, and
amended and restated on February 20, 1998 and on June 29, 1998.
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Exhibit 10.2
INTERWORLD CORPORATION
Employee Stock Purchase Plan
1. NATURE OF THE PLAN
The InterWorld Corporation Employee Stock Purchase Plan (the "Plan")
is intended to provide a method whereby employees of InterWorld Corporation, a
Delaware corporation (the "Company"), and its subsidiaries will have an
opportunity to acquire a proprietary interest in the Company through the
purchase of shares of the Common Stock, $.01 par value, of the Company. It is
the intention of the Company to have the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The provisions of the Plan shall be construed so as to
extend and limit participation in a manner consistent with the requirements of
that section of the Code. The Company is offering to sell shares of Common Stock
to eligible employees pursuant to the terms and conditions set forth in this
Plan. The maximum number of shares of Common Stock that may be issued under the
Plan is 1,000,000, subject to adjustments upon changes in the capitalization of
the Company as provided in Section 10(c).
2. DEFINITIONS
"Board of Directors" means the Board of Directors of the Company.
"Committee" means the Committee appointed by the Board of Directors
to administer the Plan as contemplated by Section 9.
"Common Stock" means the Common Stock, $.01 par value, issued by
the Company.
"Employee" means any person who is customarily employed on a
full-time or part-time basis by the Company or any of its subsidiaries and is
regularly scheduled to work more than 20 hours per week and five months or more
in a calendar year.
"Option Period" means each semi-annual period, commencing on March 1
and ending on August 31 and commencing on September 1 and ending on February 28
(or February 29 in a leap year), provided, however, that the first Option Period
under the Plan (the "Initial Option Period") shall commence on the date of the
execution of the Underwriting Agreement among the Company and the underwriters
named therein with respect to the initial public offering of the Common Stock
(the "Underwriting Agreement") and end on February 28, 1999. Each Option Period
includes only regular pay days falling within it.
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<PAGE> 2
"Purchase Price" has the meaning set forth in Section 5 (b).
3. ELIGIBILITY AND PARTICIPATION.
(a) Initial Eligibility. Each Employee shall be eligible to
participate in the Plan on the first day of the first Option Period after the
date of hire as an Employee with either the Company or any of its subsidiaries.
(b) Restrictions on Participation. Notwithstanding any provisions of
the Plan to the contrary, no Employee shall be granted rights or options to
purchase Common Stock under the plan if, immediately after the grant, such
Employee would own stock, and/or hold outstanding options or rights to purchase
stock, possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company. For purposes of this paragraph, the rules of
Section 424(d) of the Code shall apply in determining stock ownership of any
Employee.
(c) Commencement of Participation. An eligible Employee may commence
participation in the Plan by completing a payroll deduction authorization form
provided by the Company and filing it with the Company's payroll administrator
ten (10) working days before the start of an Option Period. Payroll deductions
for an Employee shall commence for the applicable Option Period when his or her
authorization for a payroll deduction becomes effective and shall remain
effective until all shares of Common Stock authorized for the Plan under Section
1 have been issued, unless sooner terminated by the Employee as provided in
Section 6. Payroll deductions may not be increased or decreased during any
Option Period, except to reflect changes in base pay during such Option Period.
Anything contained herein to the contrary notwithstanding, with respect to the
Initial Option Period only, all eligible Employees shall be deemed to have
elected to participate in the Plan as of the first day of such Option Period;
provided, however, that in order to continue such participation for any other
Option Period, each such Employee must complete and file a payroll deduction
authorization form as required by this Section 3 (c).
4. PAYMENT OF PURCHASE PRICE
(a) Payroll Deductions. At the time an Employee files his or her
payroll deduction authorization Form, he or she shall elect to have deductions
made from his or her pay on each payday during the time he or she participates
in the Plan at a fixed dollar amount chosen by such Employee, except that such
amount may not be less than 2% nor more than 10% of the amount of such
Employee's regular pay. An Employee may discontinue his or her participation in
the Plan as provided in Section 6, but no other change can be made during an
Option Period.
(b) Initial Option Period. With respect to the Initial Option Period
only, an Employee may pay for shares of Common Stock purchased pursuant to the
Plan by check or payroll deduction or a combination thereof or such other method
as shall be permitted by the Committee; provided, however, that the purchase
price for such shares for such Initial Option Period shall not be less than 2%
nor more than 10% of the amount of such Employee's regular pay during such
Initial Option Period.
-2-
<PAGE> 3
5. GRANTING OF RIGHT TO PURCHASE
(a) Number of Shares. On the first day of each Option Period, each
Employee participating in the Plan shall be deemed to be granted options to
purchase, and on the last day of each Option Period, each such Employee shall be
deemed to have exercised such options to purchase, that number of shares of
Common Stock equal to the quotient obtained by dividing (i) the aggregate dollar
amount that he or she has elected to have withheld for the Option Period by (ii)
the Purchase Price. Anything contained herein to the contrary notwithstanding,
but subject to the limitations set forth in Section 5(f) hereof, in the case of
the Initial Option Period only, on the first day of such Initial Option Period,
each eligible Employee shall be granted options to purchase that number of
shares of Common Stock equal to the quotient obtained by dividing (A) 10% of
such Employee's regular pay during such Initial Option Period by (B) the
Purchase Price, and on the last day of such Initial Option Period, each such
Employee shall be deemed to have exercised such options to purchase such number
of such shares of Common Stock for which such Employee shall have paid the
Purchase Price no later than the last day of such Initial Option Period.
(b) Purchase Price. The purchase price (the "Purchase Price") of
Common Stock for an Employee for any Option Period shall be equal to eighty-five
percent (85%) of the closing price of the Common Stock on the last day of such
Option Period (or, if such day shall not be a trading day, on the next preceding
business day on which trading occurred on the Nasdaq National Market).
(c) Purchase of Shares. Unless an Employee has given written notice
to the Company under Section 6(a), amounts withheld for or otherwise paid by him
or her shall be used on the last day of such Option Period to purchase the
number of whole shares of Common Stock that his or her accumulated payroll
deductions and other payments, if any, at that time will purchase at the
Purchase Price and any excess amount at that time will be retained by the
Company for him or her until the next purchase of shares under the Plan.
(d) Transferability of Rights. During an Employee's lifetime, rights
held by the Employee to purchase Common Stock under the Plan shall be
exercisable only by that Employee.
(e) Delivery of Stock. Following the end of each Option Period, the
Company will deliver, or cause the Company's transfer agent to deliver, to each
Employee certificates representing the Common Stock purchased by the Employee
hereunder during such Option Period.
(f) Annual Purchase Limit. No Employee shall be granted rights to
purchase Common Stock under the Plan that permit his or her rights to purchase
Common Stock under all plans of the Company intended to qualify under Section
423 of the Code to accrue at a rate which exceeds $25,000 in fair market value
of Common Stock (determined at the time such right is granted) for each calendar
year in which such right is outstanding. Any amounts received from an Employee
which cannot be used to purchase Common Stock as a result of this limitation
will be returned as soon as practicable to the Employee without interest.
-3-
<PAGE> 4
6. WITHDRAWAL
(a) In General. An Employee may revoke his or her payroll deduction
election under the Plan for an Option Period by giving written notice to the
Company (on any form prescribed by the Committee) at any time after the
commencement of such Option Period. Any of the Employee's payroll deductions
credited to him or her (attributable to unused amounts from the prior Option
Period related to fractional shares) will be paid to him or her without interest
promptly after receipt of his or her notice of withdrawal, and no further
payroll deductions will be made from his or her pay during such Option Period.
Anything contained herein to the contrary notwithstanding, an Employee may
revoke his or her participation in the Plan for the Initial Option Period by
giving written notice to the Company (on any form prescribed by the Committee)
at any time after the commencement of such Option Period.
(b) Effective on Subsequent Participation. An Employee's withdrawal
under Section 6(a) will have no effect upon his or her eligibility to
participate in the Plan for any succeeding Option Period or any similar plan
which may hereafter be adopted by the Company; provided, however, that pursuant
to Section 3(c), an Employee who withdraws from participation under Section 6(a)
may not again participate in the Plan until the next succeeding Option Period.
(c) Termination of Employment. Upon termination of the Employee's
employment with the Company and its subsidiaries, any outstanding rights of the
Employee to purchase Common Stock during the Option Period in which his or her
employment terminates shall be deemed to be terminated and any accumulated
payroll deductions or other payments at such time will be returned to the
Employee, without interest.
7. INTEREST
No interest will be paid or allowed on any money withheld or
received by the Company under Section 4 of the Plan.
8. STOCK
(a) Maximum Shares. If the total number of shares of Common Stock
for which rights are exercised on the last day of any Option Period in
accordance with Section 5(c) causes the aggregate number of shares of Common
Stock issued under the Plan since its effective date (as set forth in Section
10(d)) to exceed the maximum number of shares of Common Stock authorized under
Section 1, the Committee shall make a pro rata allocation of the shares
available for delivery and distribution in as uniform a manner as shall be
practicable and as it shall determine to be equitable, and the balance of
payroll deductions or other payments of each Employee under the Plan shall be
returned to him or her without interest as promptly as possible.
(b) Participant's Interest in Stock. An Employee will have no
interest in shares of Common Stock hereunder until such shares are purchased
under Section 5(c). Such shares shall not be transferable by the Employee until
certificates are delivered to him or her pursuant to Section 5(e).
-4-
<PAGE> 5
(c) Registration of Stock. Stock to be delivered to an Employee
under the Plan will be registered in the name of the Employee.
(d) Restrictions on Purchase. The Committee may, in its discretion,
require as a condition to the exercise of any rights to purchase hereunder, that
the shares of Common Stock reserved for issuance under the Plan shall have been
duly approved for quotation, upon official notice of issuance, on the Nasdaq
National Market and in a Registration Statement under the Securities Act of
1933, as amended, which with respect to said shares shall be effective.
9. ADMINISTRATION
(a) Appointment of Committee. The Board of Directors shall appoint a
committee (the "Committee") to administer the Plan, which shall consist of two
or more non-employee members of the Board of Directors. Members of the Committee
shall serve at the pleasure of the Board of Directors and will be subject to
removal by the Board of Directors at any time. No member of the Committee shall
be eligible to purchase Common Stock under the Plan.
(b) Authority of Committee. Subject to the express provisions of the
Plan, the Committee shall have the authority, in its discretion, to interpret
and construe any and all provisions of the Plan, to adopt rules and regulations
for administering the Plan, and to make all other determinations deemed
necessary or advisable for administering the Plan. The Committee's determination
on such matters shall be conclusive.
(c) Rules Governing the Administration of the Committee. The
Committee may select one of its members as its Chairman and shall hold its
meetings at such times and places as it shall deem advisable and may hold
telephonic meetings. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. The
Committee may correct any defect or omission or reconcile any inconsistency in
the Plan, in the manner and to the extent it shall deem desirable. Any decision
or determination reduced to writing and signed by a majority of the members of
the Committee shall be as fully effective as if it had been made by a majority
vote at a meeting duly called and held. The Committee may appoint a secretary
and shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
10. MISCELLANEOUS
(a) Transferability. Neither the payroll deductions or other
payments of an Employee nor any rights with regard to the purchase of stock
under the Plan may be assigned, transferred, pledged, or otherwise disposed of
in any way by the Employee other than by will or the laws of descent and
distribution. Any such attempted assignment, transfer, pledge or other
disposition shall be without effect.
(b) Use of Funds. All amounts withheld or received by the Company
under this Plan may be used by the Company for any corporate purpose and the
Company shall not be obligated to segregate such amounts.
-5-
<PAGE> 6
(c) Adjustment Upon Changes in Capitalization.
(i) If, while any rights to purchase shares are outstanding,
the outstanding shares of Common stock of the Company have increased, decreased,
changed into, or been exchanged for a different number or kind of shares or
securities of the Company or of another entity through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split or similar
transaction, appropriate and proportionate adjustments may be made by the
Committee in the number and/or kind of shares which are subject to purchase
under outstanding rights and in the purchase price or prices applicable thereto.
In addition, in any such event, the number and/or kind of shares which may be
offered hereunder shall also be proportionately adjusted.
(ii) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or stock of the Company to
another corporation, no further shares will be available for purchase by
Participants under the Plan, except that any payroll deductions or other
payments collected in that Option Period will be immediately applied to purchase
whole shares of Common Stock. The Board of Directors shall take such steps in
connection with such transactions as it shall deem necessary to assure that the
provisions of this Section 10(c)(ii) shall thereafter be applicable, as nearly
as reasonably may be determined.
(d) Amendment and Terminations. The Board of Directors shall have
complete power and authority to terminate or amend the Plan; provided, however,
that the approval of the holders of a majority of the votes that may be cast by
all of the holders of shares of Common Stock and preferred stock of the Company,
if any, entitled to vote (voting as a single class) shall be obtained prior to
any such amendment becoming effective if such approval is required by law or is
necessary to comply with the regulations promulgated by the Securities and
Exchange Commission under Section 16(b) of the Securities Exchange Act of 1934,
as amended, or with the Code or the regulations promulgated by the Treasury
Department thereunder. No termination, modification or amendment of the Plan
may, without the consent of an Employee then having an outstanding right under
the Plan to purchase stock, adversely affect such right.
(e) Effective Date. The Plan shall become effective on the later to
occur of (i) the date on which the Plan is approved by the stockholders of the
Company entitled to vote thereon and (ii) the date on which the Underwriting
Agreement is executed; provided, however, that the Plan will not be effective if
the stockholder vote occurs more than 12 months before or after the Plan is
adopted by the Board of Directors of the Company. The Plan will terminate on the
earlier of (A) the tenth anniversary of the effective date of the Plan and (B)
the date on which all shares of Common Stock available for issuance under the
Plan have been sold.
(f) No Employment Rights. The Plan does not, directly or indirectly,
create in any Employee or class of Employees any right with respect to
continuation of employment by the Company or any of its subsidiaries, and it
shall not be deemed to interfere in any way with the right of the Company or of
any of its subsidiaries to terminate, or otherwise modify, an Employee's
employment at any time.
-6-
<PAGE> 7
(g) Effect of Plan. The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all successors of
each Employee participating in the Plan, including, without limitation, such
Employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Employee.
(h) Governing Law. The laws of the state of Delaware will govern all
matters relating to this Plan except to the extent superseded by the laws of the
United States.
-7-
<PAGE> 1
Exhibit 10.3
[Draft 6/24/98]
INDEMNIFICATION AGREEMENT
dated as of _____ __ 1998, between
INTERWORLD CORPORATION, a Delaware
corporation (the "Company"), and[ ] (the
"Director/Executive Officer").
Section 145 of the Delaware General Corporation Law (the "DGCL")
empowers corporations to indemnify persons serving as a director, officer,
employee or agent of such corporation or persons who serve at the request of
such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and Section
145(f) of the DGCL further specifies that the indemnification set forth in said
Section shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
The Company desires to have the Director/Executive Officer serve or
continue to serve as an executive officer and/or director of the Company free
from undue concern for unpredictable, inappropriate or unreasonable claims for
damages by reason of his or her decisions or actions on its behalf; and the
Director/Executive Officer desires to serve, or to continue to serve, in such
capacity. Accordingly, in consideration of the Director/Executive Officer's
serving continuing to serve as an executive officer and/or director of the
Company, the parties agree as follows:
1. Indemnification. The Company shall indemnify, defend and hold harmless
the Director/Executive Officer against all expenses, losses, claims, damages and
liabilities, including, without limitation, attorneys' fees, judgments, fines
and amounts paid in settlement (all such expenses, collectively, "Costs"),
actually and reasonably incurred by him or her in connection with the
investigation, defense or appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which the Director/Executive Officer is a party or threatened to be made a party
(all such actions, collectively, "Proceedings") (i) by reason of the fact that
the Director/Executive Officer is or was a director, officer, employee or agent
of the Company or of any other corporation, partnership, joint venture, trust or
other enterprise (collectively, "Affiliates") of which he or she has been or is
serving at the request of, for the convenience of or to represent the interest
of the Company or (ii) by reason of
<PAGE> 2
anything done or not done by the Director/Executive Officer in any such
capacity referred to in the foregoing clause (i).
2. Culpable Action. (a) Notwithstanding the provisions of Section 1, the
Director/Executive Officer shall not be entitled to indemnification if (i) the
Company is prohibited from paying such indemnification under applicable law,
(ii) the Director/Executive Officer breached his or her duty of loyalty to the
Company or its stockholders or any Affiliate or its stockholders, (iii) the
Director/Executive Officer's actions or omissions were not in good faith or
involved intentional misconduct or a knowing violation of law or (iv) the
Director/Executive Officer derived an improper personal benefit from any
transaction which is a subject of the applicable Proceeding (any existence or
occurrence described in the foregoing clauses (i) - (iv), individually, a
"Culpable Action").
(b) The existence or occurrence of a Culpable Action shall be
conclusively determined by (i) a non-appealable, final decision of the court
having jurisdiction over the applicable Proceeding or (ii) a non-appealable,
final decision of the Court of Chancery of the State of Delaware (or if such a
decision is appealable, by the court in such State which has jurisdiction to
render a non-appealable, final decision). Such determination shall be final and
binding upon the parties hereto.
(c) The existence or occurrence of a Culpable Action may also be
determined by (i) the Board of Directors of the Company, by a majority vote of a
quorum consisting of directors who were not parties to the applicable Proceeding
(the "Disinterested Directors"), (ii) the stockholders of the Company, by a
majority vote of a quorum consisting of stockholders who were not parties to the
applicable Proceeding (the "Disinterested Stockholders"), or (iii) any other
entity to which the Disinterested Directors or the Disinterested Stockholders
shall have delegated the authority to make such a determination; provided,
however, that such determination shall be binding upon the parties hereto only
if a determination shall not have been made or shall not be subsequently made
pursuant to Subsection (b) above.
(d) If a Proceeding involves more than one claim, issue or matter,
the determination as to whether there exists or has occurred a Culpable Action
shall be severable as to each and every claim, issue and matter.
(e) The termination of any Proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, does not
change the presumption of Section 1 that the Director/Executive Officer is
entitled to indemnification hereunder and does not create a presumption that
there exists a Culpable Action.
2
<PAGE> 3
3. Payment of Costs. The Costs incurred by the Director/Executive Officer
in connection with any Proceeding, including any Proceeding brought pursuant to
Section (2)(b), shall be paid by the Company on an "as incurred" basis;
provided, however, that if it shall ultimately be determined that there exists
or has occurred a Culpable Action with respect to such Proceeding, the
Director/Executive Officer shall repay to the Company the amount (or the
appropriate portion thereof as contemplated by Section 2(d)) so advanced,
including the costs of obtaining a determination pursuant to Section 2(b).
4. Severability. If any provision of this Agreement shall be determined to
be illegal and unenforceable by any court of law, the remaining provisions shall
be severable and enforceable in accordance with their terms.
5. No Right to Employment or Directorship. This Agreement shall not
entitle the Director/Executive Officer to any right or claim to be retained as
an employee and/or director of the Company or limit the right of the Company to
terminate the employment and/or directorship of the Director/Executive Officer
or to change the terms of such employment and/or directorship.
6. Other Rights and Remedies. This Agreement shall not be deemed exclusive
as to any other non-contractual rights to indemnification to which the
Director/Executive Officer may be entitled under any provision of law, the
Restated Certificate of Incorporation of the Company, any By-law of the Company
or otherwise.
7. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8. Descriptive Headings. Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
9. Modification. This Agreement shall not be altered or otherwise amended
except pursuant to an instrument in writing signed by each of the parties.
10. Notice to the Company by the Director/Executive Officer. The
Director/Executive Officer, as a condition precedent to his or her right to be
indemnified under this Agreement, shall give to the Company notice in writing as
soon as practicable of any Proceeding for which indemnity will or could be
sought under this Agreement.
11. Notices. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in
3
<PAGE> 4
person or by facsimile transmission with electronic confirmation of receipt or
if sent by nationally recognized overnight courier or first class certified
mail, postage prepaid, return receipt requested, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by notice given pursuant to this Section 11:
(i) if to the Company, to:
InterWorld Corporation
395 Hudson Street, 6th Floor
New York, New York 10014
Attention: President and Chief Executive
Officer
Telecopier:__________; and
(ii) if to the Director/Executive Officer, to:
the Director/Executive Officer's name and
address as it appears in the records of the
Company.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and performed wholly therein.
13. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of the
Director/Executive Officer and his or her spouse, heirs, executors and
administrators.
4
<PAGE> 5
IN WITNESS WHEREOF, each of the undersigned have duly executed this
Indemnification Agreement as of the date first above written.
INTERWORLD CORPORATION
By:
-------------------------------------
Name: Alan J. Andreini
Title: President and Chief
Executive Officer
------------------------------------
Director/Executive Officer
<PAGE> 1
EXHIBIT 10.4
NEW YORK CITY DISTRICT COUNCIL
OF CARPENTERS PENSION FUND,
Landlord
TO
INTERWORLD TECHNOLOGY VENTURES, INC.,
Tenant
L E A S E
ENTIRE SIXTH FLOOR
395 HUDSON STREET
NEW YORK, NEW YORK
As of January 12, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
ARTICLE I DEMISE, PREMISES, TERM, RENTS...................................................1
ARTICLE II USE ............................................................................3
ARTICLE III PREPARATION OF THE DEMISED PREMISES; LAYOUT AND FINISH.........................4
ARTICLE IV ADJUSTMENTS OF RENT.............................................................7
ARTICLE V SUBORDINATION, NOTICE TO LESSORS AND MORTGAGEES.................................12
ARTICLE VI QUIET ENJOYMENT ................................................................14
ARTICLE VII ASSIGNMENT AND SUBLETTING.......................................................14
ARTICLE VIII COMPLIANCE WITH LAWS AND REQUIREMENTS OF PUBLIC AUTHORITIES....................19
ARTICLE IX INSURANCE ......................................................................21
ARTICLE X RULES AND REGULATIONS...........................................................23
ARTICLE XI TENANT'S CHANGES................................................................24
ARTICLE XII TENANT'S PROPERTY...............................................................26
ARTICLE XIII REPAIRS AND MAINTENANCE.........................................................27
ARTICLE XIV ELECTRICITY ....................................................................27
ARTICLE XV HEAT, VENTILATION AND AIR-CONDITIONING..........................................29
ARTICLE XVI LANDLORD'S OTHER SERVICES.......................................................30
ARTICLE XVII ACCESS, CHANGES IN BUILDING FACILITIES, NAME....................................32
ARTICLE XVIII NOTICE OF ACCIDENTS.............................................................34
ARTICLE XIX NON-LIABILITY AND INDEMNIFICATION...............................................34
ARTICLE XX DESTRUCTION OR DAMAGE...........................................................35
ARTICLE XXI EMINENT DOMAIN .................................................................37
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE XXII [INTENTIONALLY OMITTED]........................................................39
ARTICLE XXIII [INTENTIONALLY OMITTED]........................................................39
ARTICLE XXIV SURRENDER .....................................................................39
ARTICLE XXV CONDITIONS OF LIMITATION.......................................................39
ARTICLE XXVI RE-ENTRY BY LANDLORD...........................................................41
ARTICLE XXVII DAMAGES .......................................................................41
ARTICLE XXVIII WAIVERS .......................................................................43
ARTICLE XXIX NO OTHER WAIVER OR MODIFICATIONS...............................................43
ARTICLE XXX CURING TENANTS DEFAULTS, ADDITIONAL RENT.......................................44
ARTICLE XXXI BROKER ........................................................................45
ARTICLE XXXII NOTICES .......................................................................45
ARTICLE XXXIII ESTOPPEL CERTIFICATE, MEMORANDUM...............................................46
ARTICLE XXXIV ARBITRATION ...................................................................46
ARTICLE XXXV NO OTHER REPRESENTATIVES, CONSTRUCTION, GOVERNING LAW, CONSENTS...............48
ARTICLE XXXVI PARTIES BOUND..................................................................48
ARTICLE XXXVII CERTAIN DEFINITIONS AND CONSTRUCTION...........................................49
ARTICLE XXXVIII ADJACENT EXCAVATION - SHORING.................................................49
ARTICLE XXXIX AUTHORITY .....................................................................50
ARTICLE XL TENANT'S CREDIT ...............................................................50
ARTICLE XLI CANCELLATION OPTION............................................................50
ARTICLE XLII SECURITY DEPOSIT...............................................................51
ARTICLE XLIII ADDITIONAL SPACE...............................................................53
</TABLE>
-ii-
<PAGE> 4
EXHIBITS
Exhibit A - Description of Land
Exhibit B - Floor Plan of the Demised Premises
Exhibit C - Rules and Regulations
Exhibit D - Definitions
Exhibit E - Cleaning Specifications
Exhibit F - Holiday Schedule
Exhibit G - Building Security Specifications
Exhibit H - List of Approved Contractors and Subcontractors
Exhibit I - Improvements to the Demised Premises
Exhibit J - Building Standard
-iii-
<PAGE> 5
- ---------------------------------------------------------------------
NEW YORK CITY DISTRICT
COUNCIL OF CARPENTERS PENSION FUND,
Landlord
TO
INTERWORLD TECHNOLOGY VENTURES, INC.,
Tenant
L E A S E
ENTIRE SIXTH FLOOR
395 HUDSON STREET
NEW YORK, NEW YORK
As of , 19
--------------- --
- ---------------------------------------------------------------------
<PAGE> 6
INDEX
Article Caption Page
- ------- ------- ----
1. Demise, Premises, Term, Rents
2. Use
3. Preparation of the Demised Premises; Layout and Finish
4. Adjustments of Rent
5. Subordination, Notice to Lessors and Mortgagees
6. Quiet Enjoyment
7. Assignment and Subletting
8. Compliance with Laws and Requirements of Public Authorities
9. Insurance
10. Rules and Regulations
11. Tenant's Changes
12. Tenant's Property
13. Repairs and Maintenance
14. Electricity
15. Heat, Ventilation and Air-Conditioning
16. Landlord's Other Services
17. Access, Changes in Building Facilities, Name
18. Notice of Accidents
19. Non-Liability and Indemnification
20. Destruction or Damage
21. Eminent Domain
- i -
<PAGE> 7
INDEX
(continued)
22. [Intentionally Omitted]
23. [Intentionally Omitted]
24. Surrender
25. Conditions of Limitation
26. Re-Entry by Landlord
27. Damages
28. Waivers
29. No Other Waivers or Modifications
30. Curing Tenant's Defaults, Additional
Rent
31. Broker
32. Notices
33. Estoppel Certificate, Memorandum
34. Arbitration
35. No Other Representations, Construction,
Governing Law, Consents
36. Parties Bound
37. Certain Definitions and Construction
38. Adjacent Excavation - Shoring
39. Authority
40. Tenant's Credit
41. Cancellation Option
42. Security Deposit
Testimonium, Signatures and Seals
Acknowledgments
-ii-
<PAGE> 8
INDEX
(continued)
EXHIBITS
Exhibit A - Description of Land
Exhibit B - Floor Plan of the Demised Premises
Exhibit C - Rules and Regulations
Exhibit D - Definitions
Exhibit E - Cleaning Specifications
Exhibit F - Holiday Schedule
Exhibit G - Building Security Specifications
Exhibit H - List of Approved Contractors and Subcontractors
Exhibit I - Improvements to the Demised Premises
Exhibit J - Building Standard
- iii -
<PAGE> 9
LEASE, dated as of ___________ , 19__ , between NEW YORK CITY
DISTRICT COUNCIL OF CARPENTERS PENSION FUND, having an office at 395 Hudson
Street, New York, New York 10014 (hereinafter called "LANDLORD"), and INTERWORLD
TECHNOLOGY VENTURES, INC., a Delaware corporation, having an office at 114 Fifth
Avenue, 4th Floor, New York, New York 10011 (hereinafter called "TENANT").
W I T N E S S E T H :
ARTICLE I
DEMISE, PREMISES, TERM, RENTS
1.1 Landlord hereby leases to Tenant, and Tenant hereby hires
from Landlord, the premises hereinafter described, in the building located at
395 Hudson Street, in the Borough of Manhattan, City, County and State of New
York (the "BUILDING"), on the parcel of land more particularly described in
Exhibit A annexed hereto and made a part hereof (the "LAND"), together with the
right to the non-exclusive use of the Building's entrance(s), elevator(s),
corridor(s), lobby(ies), staircase(s) and other public areas, if any, as
hereinafter provided, for the term hereinafter stated, for the rents hereinafter
reserved and upon and subject to the conditions (including limitations,
restrictions and reservations) and covenants hereinafter provided. Each party
hereby expressly covenants and agrees to observe and perform all of the
conditions and covenants herein contained on its part to be observed and
performed.
1.2 The premises hereby leased to Tenant are the entire sixth
(6th) floor of the Building, as shown on the floor plan annexed hereto as
Exhibit B and made a part hereof. Said premises together with all fixtures and
equipment which at the commencement, or during the term, of this lease are
thereto attached (except items not deemed to be included therein and removable
by Tenant as provided in Article 12) constitute and are hereinafter called the
"DEMISED PREMISES." Landlord represents and covenants that the figures utilized
in calculating Tenant's Proportionate Share (as hereinafter defined) and the
rentable square footage of the Building and the Demised Premises were arrived at
by Landlord utilizing a consistent method of calculation and same shall apply
proportionately to any space hereafter included within the Demised Premises or
<PAGE> 10
otherwise leased to Tenant in the Building, however added, including, without
limitation, space to be included within the Demised Premises under this lease,
as hereinafter provided.
1.3 The term of this lease, for which the Demised Premises are
hereby leased, shall commence on a date (herein called the "COMMENCEMENT DATE")
which shall be the earlier of (i) ninety (90) days following the date set forth
above, or (ii) the day Tenant, or anyone claiming under or through Tenant, first
occupies all or any portion of the Demised Premises for the ordinary conduct of
its business, whichever occurs earlier, and shall end at noon of the last day of
the calendar month in which occurs the day preceding the eleventh (11th)
anniversary of the Commencement Date, which ending date is hereinafter called
the "EXPIRATION DATE", or shall end on such earlier date upon which said term
may expire or be cancelled or terminated pursuant to any of the conditions or
covenants of this lease or pursuant to law. Promptly following the Commencement
Date, upon the request by Landlord, the parties hereto (hereinafter sometimes
referred to as the "PARTIES") shall enter into a supplementary agreement in
recordable form fixing the dates of the Commencement Date and the Expiration
Date and if they cannot agree thereon within fifteen (15) days after Landlord's
request therefor, such dates shall be determined by arbitration in the manner
provided in Article 34.
1.4 The "RENTS" reserved under this lease, for the term
thereof, shall be and consist of:
(a) "FIXED RENT" as follows:
(i) Eight Hundred Twelve Thousand Six Hundred ($812,600)
Dollars per year commencing on the Commencement Date and ending on the
day preceding the seventh (7th) anniversary of the Commencement Date;
and
(ii) Nine Hundred Eight Thousand Two Hundred ($908,200)
Dollars per year commencing on the seventh (7th) anniversary of the
Commencement Date and ending on the Expiration Date.
(b) "ADDITIONAL RENT" consisting of all such other sums of
money as shall become due from and payable by Tenant to Landlord hereunder (for
default in payment of which Landlord shall have the same remedies as for a
default in payment of fixed rent), and shall be payable within
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twenty (20) days following Landlord's written demand, unless other payment dates
are hereinafter provided.
1.5 Tenant agrees to pay the fixed rent and additional rent in
lawful money of the United States of America. The fixed rent shall be paid in
equal monthly installments in advance on the first day of each calendar month
during the term of this lease, at the office of Landlord set forth above, or
such other place in the United States of America as Landlord may designate in
writing, without any setoff, abatement or deduction whatsoever.
1.6 The first month's installment of fixed rent due under this
lease shall be paid to Landlord by Tenant upon the execution of this lease.
1.7 Tenant shall pay the fixed rent and additional rent as
above and as hereinafter provided, respectively, by good and sufficient check
(subject to collection) drawn on a New York City bank which is a member of The
New York Clearinghouse Association or a successor thereto.
1.8 Notwithstanding anything to the contrary contained in
Section 1.4, the fixed rent payable in accordance with Clause (i) thereof shall
be abated and/or partially abated as follows:
(a) there shall be no fixed rent payable under this lease for
the period commencing on the Commencement Date and ending on the day
preceding the first (1st) anniversary of the Commencement Date (such
first anniversary date being hereinafter sometimes referred to as the
"ABATEMENT DATE"); and
(b) the fixed rent payable hereunder shall be partially abated
for the period commencing on the Abatement Date and ending on the day
preceding the fifteen month anniversary date of the Abatement Date (the
"PARTIAL ABATEMENT PERIOD") so that the fixed rent payable during the
Partial Abatement Period shall be Sixteen Thousand One Hundred Eighteen
and 83/100 ($16,118.83) Dollars per month.
1.9 Fee title to the Building and Land is held by Landlord and
the New York City District Council of Carpenters Apprenticeship Journeymen's
Retraining, Education and Industry Funds (the "APPRENTICE FUND"). The
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Building was established as a commercial condominium in December, 1992. Said
condominium is comprised of two units. Unit B is comprised of portions of the
first and second floors and floors three through ten of the Building. It is the
intention of the Landlord and the Apprentice Fund that Unit B will be conveyed
to the Landlord by unit deed. The Apprentice Fund hereby evidences its assent to
the execution and delivery of this lease. Upon the conveyance of Unit B to the
Landlord, there shall be no change in the descriptions and definitions of the
Demised Premises, Tenant's Proportionate Share or any other term defined herein.
ARTICLE II
USE
2.1 The Demised Premises shall be used for executive and
general offices, computer software research and development and marketing, and
for no other purpose but subject to the provisions of this lease and the
certificate of occupancy for the Building. The Demised Premises may also include
a data center, pantry area for use by employees and invitees of Tenant (although
no cooking shall be permitted in the Demised Premises), an exercise area (which
shall be soundproofed to protect other tenants) and conference rooms.
2.2 If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business in the Demised Premises,
or any part thereof, and if failure to secure such license or permit would in
any way adversely affect Landlord, the Land or the Building or the conduct of
business thereon or therein, then Tenant, at its sole cost and expense, shall
duly procure and thereafter maintain such license or permit and submit the same
for inspection by Landlord upon request. Tenant shall at all times comply with
the terms and conditions of each such license or permit.
2.3 Tenant shall not at any time use or occupy, or suffer or
permit anyone to use or occupy, the Demised Premises, or any portion thereof, or
do or permit anything to be done in the Demised Premises, in violation of the
Certificate of Occupancy for the Demised Premises or for the Building. Landlord
will use its best efforts and cooperate with Tenant's efforts to obtain a
temporary Certificate of
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Occupancy for the Demised Premises which permits the uses enumerated in
Paragraph 2.1 of this Article 2.
2.4 Tenant shall not at any time use or occupy, or suffer or
permit anyone to use or occupy, the Demised Premises, or any portion thereof, as
a commercial bank, trust company, savings bank, or savings and loan institution.
ARTICLE III
PREPARATION OF THE DEMISED PREMISES;
LAYOUT AND FINISH
3.1 Tenant has examined the Demised Premises and agrees to
accept the same in their condition and state of repair existing as of the date
hereof subject to normal wear and tear and to the removal therefrom of the
property of the existing tenant or occupant thereof, if any, and understands and
agrees that Landlord shall not be required to perform any work, supply any
materials or incur any expense to prepare the Demised Premises for Tenant's
occupancy; provided, however, that Landlord shall deliver the Demised Premises
to Tenant vacant and in "broom clean" condition. Landlord agrees that, prior to
the date hereof, it shall have removed, solely at its cost and expense, any
friable asbestos containing material, if any, existing in the Demised Premises
other than that which may be sealed in perimeter walls, columns and beams.
Landlord represents that, as of the date hereof, there exist no water leaks in
the slab ceiling or the bathroom area of the Demised Premises.
3.2 Tenant hereby covenants and agrees that Tenant will, at
Tenant's own cost and expense, and in a good and workmanlike manner, diligently
(subject to force majeure) make and complete the work and installations in and
to the Demised Premises set forth below in such manner so that the Demised
Premises will be appropriate for the use set forth in Section 2.1 and as more
particularly provided in Exhibit I annexed hereto and made a part hereof.
3.3 Tenant, at Tenant's expense, shall prepare a final plan or
final set of plans and specifications (which said-final plan or final set of
plans, as the case may be, and specifications are hereinafter called the "FINAL
PLAN") which shall contain complete information and dimensions
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necessary for the construction and finishing of the Demised Premises and for the
engineering in connection therewith. The final plan shall be submitted by Tenant
to Landlord for Landlord's written approval, which approval shall not be
unreasonably withheld or delayed. Landlord shall, within fifteen (15) business
days following receipt of same from Tenant, advise Tenant of its approval or
disapproval of the final plan, or any portion thereof. If Landlord fails to
approve or disapprove the final plan, or any part thereof, within such fifteen
(15) business day period, it shall be deemed, for purposes of this Section 3.3,
that Landlord shall have approved the final plan or portion thereof. If Landlord
shall disapprove the final plan, Landlord shall set forth its reasons for such
disapproval in writing and in reasonable detail and itemize those portions of
the final plan so disapproved. Landlord shall not be deemed unreasonable in
withholding its consent to the extent that the final plan prepared by Tenant
pursuant hereto involves the performance of work or the installation in the
Demised Premises of materials or equipment which do not at least equal the
standard of quality adopted by Landlord for the Building as set forth on Exhibit
J attached hereto ("BUILDING STANDARD") or adversely affects the effective
operation of any system of the Building. Tenant shall resubmit the final plan or
portions thereof disapproved by Landlord within five (5) business days following
receipt of any notice of such disapproval by Tenant. Landlord shall advise
Tenant within five (5) business days following receipt of any revised final plan
or portions thereof of Landlord's approval or disapproval thereof and shall set
forth its reasons for such disapproval in writing and in reasonable detail. If
Landlord fails to approve or disapprove the revised final plan, or any part
thereof, within such five (5) business day period, it shall be deemed, for
purposes of this Section 3.3, that Landlord shall have approved the revised
final plan or portion thereof. The final plan shall not be deemed approved by
Landlord unless and until all portions of the final plan have been approved in
writing by Landlord or be deemed approved as hereinabove provided.
Notwithstanding the provisions of the immediately preceding sentence to the
contrary, Tenant shall be permitted to "FAST-TRACK" Tenant's Work (as
hereinafter defined) in which event Tenant shall be permitted to commence
Tenant's Work with respect to that portion thereof for which Landlord has
theretofore approved a final plan (with respect to a portion of Tenant's Work,
hereinafter sometimes called an "INTERIM PLAN") even though all final plans or
an interim plan for all portions of
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Tenant's Work may not have yet been submitted; provided, however, that Landlord
shall have the right to stop all or any portion of Tenant's Work being so
fast-tracked in the event that any such portion is inconsistent with the final
plan or interim plans approved or to be approved by Landlord; and further
provided, however, that the initial approval by Landlord of any portion or
portions of the final plan or interim plans in connection with Tenant's Work
shall not be deemed approval of all of Tenant's final plan or plans or interim
plans. Landlord hereby approves Studios Architecture as the architect for
Tenant's Work and Cosentini Associates as the engineer for Tenant's Work.
Landlord hereby approves Structure-Tone, Inc. as general
contractor for the completion of Tenant's Work. Such general contractor shall,
to the extent permitted by law, use employees for Tenant's Work who will work
harmoniously with other employees or other contractors on the job. Such general
contractor(s) and all subcontractors to perform any portion of Tenant's Work or
Tenant's Changes (as hereinafter defined) shall be selected from the list(s)
annexed hereto as Exhibit H and made a part hereof, as such list may be amended
by Landlord, in the reasonable exercise of its judgment, from time to time
during the term of this lease.
Notwithstanding anything to the contrary contained in this
lease, all contractors and subcontractors used in connection with the Tenant's
Work and all Tenant Changes shall at all times, where appropriate, be
signatories to the carpenter's union (or other appropriate construction labor
union) collective bargaining agreement and all employees thereof shall at all
times be members in good standing of the appropriate labor union. Landlord
reserves the right at any time to determine the union membership status of any
workmen or materialmen working at or delivering construction materials to or
otherwise involved in Tenant's Work and all Tenant Changes. Landlord may stop
any work being performed, or any delivery of construction materials, by such
non-union person or persons in the event of noncompliance with this paragraph.
In accordance with the final plan, Tenant at Tenant's expense,
will make and complete in and to the Demised Premises (hereinafter sometimes
called the "WORK AREA") the work and installations (hereinafter called "TENANT'S
WORK") specified in the final plan. Tenant may make minor changes in the final
plans without Landlord's
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prior consent as may be required by field conditions if such changes do not in
any way affect the structural components of the Building or the Building
systems. Tenant agrees that Tenant's Work will be performed in a manner intended
to minimize disturbance to the occupants of other parts of the Building and to
the structural and mechanical parts of the Building and Tenant will, at its own
cost and expense, leave all structural and mechanical parts of the Building
which shall or may likely be affected by Tenant's Work in the condition existing
prior to the commencement of Tenant's Work, except to the extent approved by
Landlord in the final plan. Tenant, in performing Tenant's Work will, at its own
cost and expense, promptly comply with all laws, rules and regulations of all
public authorities having jurisdiction in the Building with reference to
Tenant's Work. Tenant shall not do or fail to do any act which shall or may
render the Building of which the Demised Premises are a part, liable to any
mechanic's lien or other lien and if such lien or liens be filed against the
Building of which the Demised Premises are a part, or against Tenant's Work, or
any part thereof, Tenant will, at Tenant's own cost and expense, promptly remove
the same of record, by bond or otherwise, within thirty (30) days after
receiving written notice of the filing of such lien or liens; or in default
thereof, Landlord may, but shall not be obligated to, upon five (5) business
days notice to Tenant, cause any such lien or liens to be removed of record by
payment or bond or otherwise, as Landlord may elect, and Tenant will reimburse
Landlord for all reasonable costs and expenses incidental to the removal of any
such lien or liens incurred by Landlord including, but not limited to,
reasonable counsel fees. Tenant shall indemnify and save harmless Landlord of
and from all claims, reasonable counsel fees, loss, damage and reasonable
expenses whatsoever that may actually be incurred or become chargeable against
Landlord or the Building of which the Demised Premises are a part, or Tenant's
Work or any part thereof, by reason of any work done or to be done or materials
furnished or to be furnished to or upon the Demised Premises by or on behalf of
Tenant in connection with Tenant's Work, except as otherwise provided in Section
19.3. Tenant hereby covenants and agrees to indemnify and save harmless Landlord
of and from all claims, reasonable counsel fees, loss, damage and reasonable
expenses actually incurred by reason of any injury or damage, howsoever caused,
to any person or property occurring prior to the completion of Tenant's Work or
occurring after such completion, as a result of anything done or omitted by or
on behalf of Tenant in connection therewith or arising out of
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any fine, penalty or imposition or out of any other matter or thing connected
with any work done or to be done or materials furnished or to be furnished by or
on behalf of Tenant in connection with Tenant's Work, except as otherwise
provided in Section 19.3 and except to the extent caused by the negligence or
willful misconduct of Landlord or its agents, contractors and employees. At any
and all times during the progress of Tenant's Work, Landlord shall be entitled
to have a representative or representatives on the site to inspect Tenant's Work
and such representative or representatives shall have free and unrestricted
access to any and every part of the Demised Premises, provided that Landlord
shall use reasonable efforts to give notice of any such inspection to Tenant
(which may be given orally) and shall permit a representative of Tenant to
accompany Landlord and/or its representative on such inspection (subject to the
availability of such Tenant's representative), and further provided that notices
with respect to Tenant's Work shall be given directly to Tenant (which may be
delivered by hand at the Demised Premises).
3.4 The following conditions shall also apply to Tenant's
Work:
(a) all Tenant's Work shall be of material, manufacture,
design and capacity at least equal to the Building Standard;
(b) Tenant, at Tenant's expense, shall (i) file all required
architectural, mechanical and electrical drawings and obtain all
necessary certificates and permits, and (ii) furnish and perform all
engineering and engineering drawings in connection with Tenant's Work;
and
(c) Tenant shall designate, subject to the approval of
Landlord (which approval, Landlord agrees, shall not be unreasonably
withheld or delayed), the engineer with respect to the preparation of
Tenant's engineering drawings in connection with Tenant's Work.
3.5 It is understood that of the services to be furnished by
Landlord referred to in Article 16 hereof, Landlord shall not furnish any
cleaning services until Tenant commences occupancy of the Demised Premises for
the conduct of its business. Tenant shall be responsible for the removal of
Tenant's refuse and rubbish during the period that Tenant's Work is in progress
in the Demised Premises.
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3.6 Landlord shall cooperate in all reasonable respects with
Tenant in the performance by Tenant of Tenant's Work in preparing the Demised
Premises for Tenant's occupancy including, without limitation, filings by Tenant
with the Department of Buildings of the City of New York, the execution of all
applicable documents, applications, authorizations and other instruments, and
the furnishing of all pertinent information, and Landlord shall instruct its
employees and contractors to render such assistance and to cooperate with
Tenant's employees, representatives and contractors provided that to the extent
that Landlord shall incur any out-of-pocket costs and expenses in so
cooperating, Tenant shall reimburse Landlord (subject to the provisions of
Section 3.7) for such reasonable costs and expenses actually incurred as
additional rent hereunder, upon rendition to Tenant of bills therefor.
3.7 Tenant shall promptly reimburse Landlord, as additional
rent hereunder, for all reasonable out-of-pocket costs and expenses incurred in
connection with the performance of Tenant's Work, Landlord's review and approval
of Tenant's final plan (including, but not limited to, architects, engineers,
consultants and reasonable counsel fees) not to exceed $5,000.
3.8 Landlord and Tenant agree that a portion of the Demised
Premises measuring approximately 11,378 square feet (the "INITIAL UNIMPROVED
SPACE") shall not be improved by Tenant prior to the Tenant's move into the
Demised Premises. The eventual improvement of the Initial Unimproved Space by
Tenant shall for all purposes be deemed Tenant's Work and not a Tenant Change
and shall be governed by the provisions of this Lease dealing with Tenant's
Work.
3.9 During the performance of Tenant's Work, Tenant shall have
six (6) hours, in the aggregate, of overtime freight elevator usage at no charge
to Tenant.
ARTICLE IV
ADJUSTMENTS OF RENT
4.1 Tax Escalation. For the purposes of Sections 4.1-4.6:
(a) "TAXES" shall mean the real estate taxes and assessments
and special assessments that would be imposed
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upon the Land and the Building (based upon a fully assessed valuation of the
Land and the Building). In no event shall Taxes include (a) interest or
penalties incurred by Landlord as a result of Landlord's late payment of Taxes;
corporation, income or profit tax or capital levy, inheritance, estate, gift or
franchise tax. If at any time during the term of this lease the methods of
taxation prevailing at the commencement of the term hereof shall be altered so
that in lieu of or as an addition to or as a substitute for the whole or any
part of the taxes, assessments, levies, impositions or charges now levied,
assessed or imposed on real estate and the improvements thereon, there shall be
levied, assessed or imposed (i) a tax, assessment, levy, imposition or charge
wholly or partially as capital levy or otherwise on the rents received
therefrom, or (ii) a tax, assessment, levy, imposition or charge measured by or
based in whole or in part upon the Demised Premises and imposed upon Landlord,
or (iii) a license fee measured by the rents payable by Tenant to Landlord, then
all such taxes, assessments, levies, impositions or charges, or the part thereof
so measured or based, shall be deemed to be included within the term "TAXES" for
the purposes hereof, such substitute taxes shall be computed as though the
interest of Landlord in the Land and/or Building were the only asset of
Landlord.
(b) "TAX BASE" shall mean the Taxes for the Tax Year (as
defined in Section 4.1(c)) commencing January 1, 1997 and ending on December 31,
1997.
(c) "TAX YEAR" shall mean the calendar year for which Taxes
are levied by the governmental authority.
(d) "TENANT'S PROPORTIONATE SHARE" shall mean for purposes of
this lease and all calculations in connection herewith 9.0867%.
(e) "TENANT'S PROJECTED SHARE OF TAXES" shall mean the Tax
Payment, if any, to be made by Tenant for the then current Tax Year divided by
twelve (12) and payable monthly by Tenant to Landlord as additional rent.
Notwithstanding the foregoing, however, if, and for so long as, Landlord shall
pay deposits to any mortgagee or ground lessor on account of Taxes and such
payment by Landlord is, or is to be, in excess of the Tax Payment, if any, made
by Tenant for the prior Tax Year, "Tenant's Projected Share of Taxes" shall be
deemed to mean an amount equal to Tenant's Proportionate Share of each such
deposit and shall be
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payable on the same periodic basis that Landlord pays such deposit to the
mortgagee or ground lessor at least fifteen (15) days before the date upon which
each such deposit is due from Landlord; provided, however, that such periodic
basis shall not cover a period in excess of one (1) month.
4.2 If the Taxes for any Tax Year shall be more than the Tax
Base, Tenant shall pay, as additional rent for such Tax Year, an amount equal to
Tenant's Proportionate Share of the amount by which the Taxes for such Tax Year
are greater than the Tax Base (the amount payable by Tenant is hereinafter
called the "TAX PAYMENT"). The Tax Payment shall be prorated, if necessary, to
correspond with that portion of a Tax Year occurring within the term of this
lease. The Tax Payment shall be payable by Tenant within ten (10) days after
receipt of a demand from Landlord therefor, which demand shall be accompanied by
a copy of the tax bill together with Landlord's computation of the Tax Payment.
Notwithstanding the immediately preceding sentence, in no event shall Tenant be
required to pay the Tax Payment more than thirty (30) days prior to the date
upon which Landlord is required to pay such Taxes to the taxing authority,
except as provided in Section 4.1. Notwithstanding anything to the contrary
contained herein, Tenant shall not be responsible to pay Tenant's Proportionate
Share of any increase in Taxes during the first year of the term of this lease.
This waiver shall not serve to adjust the Tax Base and commencing the second
year of the term of this lease, Tenant's Tax Payment will be based upon
escalations above Taxes payable during the 1997 Calendar Year.
4.3 Notwithstanding the fact that the increase in additional
rent is measured by an increase in Taxes, such increase is additional rent and
shall be paid by Tenant as provided herein regardless of the fact that Tenant
may be exempt, in whole or in part, from the payment of any taxes by reason of
Tenant's diplomatic or other tax exempt status or for any other reason
whatsoever.
4.4 Only Landlord shall be eligible to institute tax reduction
or other proceedings to reduce the assessed valuation of the Land and/or
Building. Should Landlord be successful in any such reduction proceedings and
obtain a reduction in Taxes for periods during which Tenant has paid its share
of increases or received the benefit of any decreases, Landlord shall, after
deducting its expenses, including without limitation, reasonable attorneys' fees
and
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disbursements in connection therewith, credit Tenant's Proportionate Share of
such reduction against the next fixed rent or additional rent due from Tenant or
promptly refund the same to Tenant, if such reduction is obtained in the last
month of the term or subsequent to the expiration Of the term of this lease. If
the reduction in the assessed valuation affects the Tax Base, Tenant shall
thereafter be responsible for, and shall pay to Landlord as additional rent, any
resultant increase in Tenant's Projected Share of Taxes.
4.5 Within ninety (90) days after the expiration of any Tax
Year occurring in whole or in part after the Commencement Date, Landlord shall
furnish Tenant with a statement setting forth Tenant's Proportionate Share of
Taxes. The statement furnished under this Section 4.5 is hereinafter called a
"TAX STATEMENT."
4.6 Commencing with the first Tax Year that Landlord shall be
entitled to receive a Tax Payment, Tenant shall pay to Landlord, as additional
rent for the then Tax Year, Tenant's Projected Share of Taxes. Upon each date
that a Tax Payment or an installment on account thereof shall be due from Tenant
pursuant to the terms of Section 4.2 hereof, Landlord shall apply the aggregate
amount of the installments of Tenant's Projected Share of Taxes then on account
with Landlord (pursuant to Section 4.1(e)), if and as applicable, against the
Tax Payment or installment thereof then due from Tenant. In the event that such
aggregate amount shall be insufficient to discharge such Tax Payment or
installment, Landlord shall so notify Tenant in a demand served upon Tenant
pursuant to the terms of Section 4.2, and the amount of Tenant's payment
obligation with respect to such Tax Payment or installment pursuant to Section
4.2 shall be equal to the amount of the insufficiency. If, however, such
aggregate amount shall be greater than the Tax Payment or installment, Landlord
shall credit Tenant with the amount of such excess against the next payment(s)
of fixed rent or additional rent due hereunder.
4.7 Expense Escalation. For the purposes of Sections 4.7-4.11:
(a) "OPERATING EXPENSES" shall mean any or all reasonable
expenses actually incurred by Landlord (except as otherwise specifically
provided) in connection with the operation of the Building (in no event less
than an amount
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proportionately adjusted to assume ninety-five (95%) percent current occupancy
of the Building), including all expenses incurred as a result of Landlord's
compliance with any of its obligations hereunder, and such expenses shall
include: (i) salaries, wages, medical, surgical and general welfare benefits,
(including group life insurance) pension payments and other fringe benefits of
employees, pursuant to appropriate collective bargaining agreements, to the
extent applicable, of Landlord engaged full time (or if part time, calculated on
a pro rated basis) in the operation and maintenance of the Building not
including executives and principals of Landlord or other employees above the
grade of building manager; (ii) payroll taxes, worker's compensation, uniforms
and dry cleaning for the employees referred to in subdivision (i); (iii) the
cost of all charges for steam, heat, ventilation, air conditioning and water
(including sewer rental and taxes, to the extent not included in Taxes)
furnished to the common and/or untenantable areas of the Building and/or used in
the operation of all of the service facilities of the Building, provided the
same shall not be paid for by tenants of the Building, and the cost of all
charges for electricity furnished to the public and service areas of the
Building and/or used in the operation of all of the service facilities of the
Building including any taxes on any of such utilities provided that same shall
not be paid for by tenants of the Building; (iv) the cost of all charges for
rent, hazard, casualty, war risk insurance (if obtainable from the United States
government) and liability insurance for the Building carried by Landlord; (v)
the cost of all building and cleaning supplies for the common areas of the
Building and reasonable charges for telephone for the Building; (vi) the cost of
all charges for the management of the Building (if there is no managing agent
for the Building, a sum in lieu thereof which is not in excess of the then
prevailing rates for unaffiliated managing agents of other first class office
buildings in Manhattan); (vii) the cost of all reasonable charges for window
cleaning and service contracts with independent contractors for the common areas
of the Building; (viii) the cost of rentals of capital equipment designed to
result in savings or reductions in Operating Expenses; (ix) the cost of capital
improvements made by Landlord with respect to the maintenance and/or operation
of the Land and/or Building, amortized over the shorter of (A) ten (10) years
and (B) the life of such capital improvements; (x) the cost of Compliance by
Landlord with any federal, state, municipal or local ordinances affecting the
Land and/or the Building; (xi) the cost of the maintenance and operation of the
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elevators in the Building; (xii) the cost of protection and security; (xiii) the
cost of lobby decorations and interior and exterior landscape maintenance; (xiv)
repairs, replacements and improvements which are appropriate for the continued
operation of the Building as a first class office building in Manhattan; (xv)
painting of non-tenantable areas; (xvi) legal, accounting, engineering and other
professional and consulting fees incurred in connection with the operation of
the Building; and (xvii) association fees or dues normally incurred by
Landlord's owning first class office buildings in New York City. Operating
Expenses shall not include (A) costs of preparing any space for any Tenant's
occupancy or the cost of any Landlord contribution work therefor; (B)
administrative wages and salaries, including executive compensation; (C)
brokerage or leasing commissions; (D) franchise, income, gains, estate,
transfer, or other non-real estate taxes; (E) Taxes; (F) the cost of providing
services to or performing work for tenants of the Building to the extent the
same are payable solely by such tenants; (G) the cost of any work or service
provided to any tenant of the Building that is not provided to Tenant; (H) the
cost of any repairs, alterations, additions, changes and replacements of items
which under general accounting principles are properly classified as capital
expenditures and new capital improvements other than those set forth in 4.7(a)
(ix) above; (I) the cost of repairs or replacements incurred by reason of fire
or other casualty, or condemnation; (J) any operating expenses representing an
amount paid to a related corporation, entity or person which is in excess of the
amount which would be paid in the absence of such relationship; (K) the cost of
any repairs or improvements to leasable areas of the Building, and amortization
of the equipment and improvements thereto; (L) costs incurred in providing
services, repairs or improvements which are either included in a tenant's or
occupants rent or separately payable by invoiced charges to all tenants or
occupants of the Building or which are not provided on a regular basis to
tenants or occupants of the building (M) costs and expenses of enforcing leases
(or any provision thereof) against tenants, including legal fees or
disbursements); (N) legal fees or disbursement other than those incurred in
connection with the routine operation of the Building; (0) expenses (including,
without limitation, attorney's fees and the cost of overtime or Tenant; or other
expenses of Landlord) of curing Landlord's default or performing work resulting
from any violation by Landlord of the terms of any lease of space in the
Building including, without limitation, any contract for services at the
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Building and any mortgage or ground lease; and (P) any costs which duplicate
costs reimbursable to Landlord under other provisions of this lease.
(b) "OPERATIONAL YEAR" shall mean each calendar year during
the term hereof.
(c) "OPERATING EXPENSE BASE" shall mean the Operating Expenses
for the Calendar year 1997.
(d) "TENANT'S PROJECTED SHARE OF OPERATING EXPENSES" shall
mean Tenant's Operating Expense Payment, if any, for the then current
Operational Year divided by twelve (12) and payable monthly by Tenant to
Landlord as additional rent.
(e) "TENANT'S PROPORTIONATE SHARE" shall have the meaning
ascribed to it in subsection 4.1(d).
4.8 Within ninety (90) days after the expiration of each
Operational Year, Landlord shall furnish Tenant a detailed written statement
setting forth the aggregate amount of the Operating Expenses for such
Operational Year. The statement furnished under this Section 4.8 is hereinafter
called an "OPERATING STATEMENT."
4.9 If the Operating Expenses for any Operational Year shall
be more than the Operating Expense Base, Tenant shall pay, as additional rent
for such Operational Year, an amount equal to Tenant's Proportionate Share of
the amount by which the Operating Expenses for such Operational Year are greater
than the Operating Expense Base. (The amount so payable by Tenant is hereinafter
called the "OPERATING EXPENSE PAYMENT.") The Operating Expense shall be
prorated, if necessary, to correspond with that portion of an Operational Year
occurring with the term of this lease. The Operating Expense Payment shall be
payable by Tenant within twenty (20) days after receipt of the Operating
Statement.
4.10 Commencing with the first Operational Year after Landlord
shall be entitled to receive an Operating Expense Payment, Tenant shall pay to
Landlord, as additional rent for the then Operational Year, Tenant's Operating
Expense Payment. If the Operating Statement furnished by Landlord to Tenant at
the end of the Operational Year shall indicate that Tenant's Projected Share of
Operating Expenses exceeded the Operating Expense Payment, Landlord shall
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credit Tenant the amount of such excess against the subsequent payment(s) of
fixed rent and additional rent due hereunder or if the term of this lease has
expired or such excess exceeds any subsequent payment(s) of fixed rent or
additional rent due hereunder, promptly refund the same to Tenant. If such
Operating Statement furnished by Landlord to Tenant hereunder shall indicate
that the Operating Expense Payment exceeded Tenant's Projected Share of Increase
for the then Operational Year, Tenant shall pay the amount of such excess to
Landlord within thirty (30) days thereafter.
4.11 Every Operating Statement given by Landlord pursuant to
Section 4.8 shall be conclusive and binding upon Tenant unless (i) within ninety
(90) days after the receipt of such Operating Statement Tenant shall notify
Landlord that it disputes the correctness of the Operating Statement, specifying
the particular respects in which the Operating Statement is claimed to be
incorrect, and (ii) if such dispute shall not have been settled by agreement,
shall submit the dispute to arbitration within one hundred twenty (120) days
after receipt of the Operating Statement. Pending the determination of such
dispute by agreement or arbitration as aforesaid, Tenant shall within twenty
(20) days after receipt of such Operating Statement, pay additional rent, if
due, in accordance with the Operating Statement and such payment shall be
without prejudice to Tenant's position; provided that if any dispute is resolved
in favor of Tenant, Landlord shall credit Tenant the amount of any excess
against subsequent payment(s) of Operating Expense Payments due hereunder.
Landlord agrees to grant Tenant reasonable access to Landlord's books, records
and other supporting data to Tenant, its accountants and representatives,
limited to one (1) review per annum (or in the case of a subsequent demand by
Landlord, an additional review), for the purpose of verifying Operating Expenses
incurred by Landlord and to have and make copies of any and all bills and
vouchers relating thereto and subject to reimbursement by Tenant as herein
provided.
4.12 Except as otherwise provided herein, Landlord's failure
during the lease term to prepare and deliver any of the tax bills, statements or
notices set forth in this Article, or Landlord's failure to make a demand for
payment therefor, or Landlord's preparation and delivery of any incorrect tax
bills, statements or notices, shall not in any way cause Landlord to forfeit or
surrender its rights to collect any of the foregoing items of
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additional rent which may have or are to become due during the term of this
lease. Landlord's and Tenant's liability for the amounts due under this Article
shall survive the expiration of the term of this lease.
ARTICLE V
SUBORDINATION, NOTICE TO LESSORS AND MORTGAGEES
5.1 This lease, and all rights of Tenant hereunder, are and
shall be subject and subordinate in all respects to all ground leases,
overriding leases and underlying leases of the Land and/or the Building now or
hereafter existing and to all mortgages which may now or hereafter affect the
Land and/or the Building and/or any of such leases, whether or not such
mortgages shall also cover other lands and/or buildings, to each and every
advance made or hereafter to be made under such mortgages, and to all renewals,
modifications, replacements and extensions of such leases and such mortgages and
spreaders and consolidations of such mortgages. Such subordination is and shall
remain subject to the express condition that all subsequent lessors under
superior leases and holders of superior mortgages execute and deliver to Tenant
an agreement in recordable form (the "NONDISTURBANCE AGREEMENT") to the effect
that, so long as this Lease shall be in full force and effect, Tenant shall not
be joined as a party defendant in any foreclosure action or proceeding which may
be instituted by such mortgagee or any action or proceeding which may be
instituted or taken by any lessor of any superior lease for the purpose of
terminating such superior lease by reason of any default under such superior
mortgage or superior lease, nor, so long as this Lease is in full force and
effect, shall Tenant be evicted from the Demised Premises nor shall its
leasehold estate hereunder be terminated or disturbed, nor shall any of Tenant's
rights under this Lease be affected in any way by reason of any default under
any superior mortgage or superior lease. The leases to which this lease is, at
the time referred to, subject and subordinate pursuant to which this Article are
hereinafter sometimes called "SUPERIOR LEASES" and the mortgages to which this
lease is, at the time referred to, subject and subordinate are hereinafter
sometimes called "SUPERIOR MORTGAGES" and the lessor of a superior lease or its
successor in interest at the time referred to is sometimes hereinafter called a
"LESSOR" and the holder of a superior
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mortgage or its successor in interest at the time referred to is sometimes
hereinafter called a "HOLDER."
5.2 In the event of any act or omission of Landlord which
would give Tenant the right, immediately or after lapse of a period of time or
notice, to cancel or terminate this lease, or to claim a partial or total
eviction, Tenant shall not exercise such right (i) until it has given written
notice of such act or omission to the holder of each superior mortgage and the
lessor of each superior lease whose name and address shall have previously been
furnished in writing to Tenant, of such act or omission, addressed to each such
party at its last address so furnished and (ii) unless such act or omission
shall be one which is not capable of being remedied by Landlord or such mortgage
holder or lessor within a reasonable period of time, until a reasonable period
for remedying such act or omission shall have elapsed following the giving of
such notice and following the time when such holder or lessor shall have become
entitled under such superior mortgage or superior lease, as the case may be, to
remedy the same (which reasonable period shall in no event be less than the
period to which Landlord would be entitled under this lease or otherwise, after
similar notice, to effect such remedy), provided such holder or lessor shall
with due diligence give Tenant written notice of its intention to, and commence
and continue, remedy such act or omission. The foregoing provision shall be
applicable unless a non-disturbance agreement executed between Tenant and the
holder of a superior mortgage specifically provides otherwise.
5.3 If the lessor of a superior lease or the holder of a
superior mortgage, or the designee of either (herein sometimes called "SUCCESSOR
LANDLORD"), shall succeed to the rights of Landlord under this lease, whether
through possession or foreclosure action or delivery of a new lease or deed,
then provided such successor landlord shall have delivered a subordination,
non-disturbance and attornment agreement in accordance with Section 5.1, Tenant
shall attorn to and recognize such successor landlord as Tenant's landlord under
this lease, and shall promptly execute and deliver any instrument that such
successor landlord may reasonably request to evidence such attornment. Upon such
attornment this lease shall continue in full force and effect as, or as if it
were, a direct lease between the successor landlord and Tenant upon all of the
terms, conditions and covenants as are set forth in this lease and
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shall be applicable after such attornment except that the successor landlord
shall not:
(a) be liable for any previous act or omission of Landlord
under this lease;
(b) be subject to any offset, not expressly provided for in
this lease, which shall have theretofore accrued to Tenant against
Landlord;
(c) be bound by any previous modification of this lease, not
expressly provided for in this lease, or any previous prepayment of
more than one (1) month's fixed rent, unless such modification or
prepayment shall have been expressly approved in writing by the lessor
of the superior lease or the holder of the superior mortgage through or
by reason of which the successor landlord shall have succeeded to the
rights of Landlord under this lease provided that Tenant had received
written notice of the identity and address of such lessor or holder
prior to such modification or prepayment.
5.4 If, in connection with obtaining, continuing or renewing
financing for which the Building, Land or the interest of the lessee under any
superior lease represents collateral, in whole or in part, the holder or
proposed holder (including any which may elect that this lease shall have
priority over such superior mortgage) shall request reasonable modifications of
this lease as a condition of such financing, Tenant shall not unreasonably
withhold its consent thereto, provided that such modifications do not increase
Tenant's obligation to pay fixed rent or additional rent or shorten or lengthen
the term of this lease or do not materially increase any other obligations or
materially diminish any other rights of Tenant under this lease.
5.5 Landlord represents that as of the date of this lease,
there exist no superior leases or superior mortgages.
ARTICLE VI
QUIET ENJOYMENT
6.1 So long this lease is in full force and effect, Tenant
shall peaceably and quietly have, hold and enjoy the Demised Premises subject,
nevertheless, to the
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obligations of this lease and, as provided in Article 5, to the superior leases
and the superior mortgages, if any (subject to Tenant's rights under any
Nondisturbance Agreement).
ARTICLE VII
ASSIGNMENT AND SUBLETTING
7.1 Except as expressly provided for in this lease, Tenant,
for itself, its heirs, distributees, executors, administrators, legal
representatives, successors and assigns, expressly covenants that it shall not
assign, mortgage or encumber this lease, by operation of law or otherwise, nor
sublet, nor suffer, nor permit the Demised Premises or any part thereof to be
used or occupied by others, without the prior written consent of Landlord in
each instance (which consent may not be unreasonably withheld or delayed). If
this lease is assigned, or if the Demised Premises or any part thereof is sublet
or occupied by anybody other than Tenant, Landlord may, but shall not be
obligated to, after default by Tenant beyond all applicable notice and grace
periods provided for in this lease, collect rents from the assignee, subtenant
or occupant, and apply the net amount collected to the rents herein reserved,
but no assignment, subletting, occupancy or collection, except as expressly
provided for in this lease, shall be deemed a waiver of the provisions hereof,
the acceptance of the assignee, subtenant or occupant as tenant under this
lease, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or subletting shall not in any wise be construed to relieve Tenant,
or its assignee or subtenant, from obtaining the express consent in writing of
Landlord to any further assignment or subletting. In no event shall any
permitted subtenant assign or encumber its sublease or further sublet all or any
portion of its sublet space, or otherwise suffer or permit the sublet space or
any part thereof to be used or occupied by others, without Landlord's prior
written consent in each instance (which consent shall not be unreasonably
withheld or delayed).
7.2 If Tenant shall, at any time or times during the-term of
this lease, desire to assign this lease or sublet all or a part of the Building
then comprising the Demised Premises, Tenant shall give notice thereof to
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Landlord, which notice shall set forth the proposed effective or commencement
date of such assignment or subleasing which shall be not less than sixty (60)
nor more than one hundred eighty (180) days after the giving of such notice and
the proposed term, if a subletting is desired.
7.3 Providing that Tenant is not in default of any of Tenant's
obligations under this lease beyond all applicable notice and grace periods
herein provided, Landlord's consent (which must be in writing and in form and
substance reasonably satisfactory to Landlord) to the proposed assignment or
sublease shall not be unreasonably withheld or delayed, provided and upon
condition that:
(a) Tenant shall have complied with the provisions of Section
7.2;
(b) In Landlord's reasonable judgment, the proposed assignee
or subtenant is engaged in a business and the Demised Premises, or the
relevant part thereof, will be used in a manner which (i) is in keeping
with the then standards of the Building, and (ii) is limited to the use
expressly permitted under this lease;
(c) In Landlord's reasonable judgment, the proposed assignee
or subtenant is a reputable person of good character and with
sufficient financial worth considering the responsibility involved, and
Landlord has been furnished with reasonable proof thereof;
(d) Neither (i) the proposed assignee or sublessee nor (ii)
any person which, directly or indirectly, controls, is controlled by,
or is under common control with, the proposed assignee or sublessee or
any person who controls the proposed assignee or sublessee, is then an
occupant of any part of the Building; unless there is at such time no
suitable space available in the Building;
(e) The proposed assignee or sublessee is not a person with
whom Landlord or its agent has been negotiating to lease space in the
Building within the prior six (6) months (upon the request by Tenant of
consent hereunder, Landlord will provide Tenant a list of all persons
with whom Landlord or its agent has
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negotiated to lease space in the Building within the prior six
(6) months);
(f) The form of the proposed sublease or assignment shall be
in form reasonably satisfactory to Landlord and shall comply with the
applicable provisions of this Article;
(g) There shall not be more than two (2) occupants (including
Landlord or its designee and Tenant and its affiliates) with respect to
any floor constituting a portion of the Demised Premises;
(h) The rent and other terms of the assignment or sublease are
the same as those contained in the notice from Tenant with respect to
the proposed assignment or sublease furnished to Landlord pursuant to
Section 7.2;
(i) Tenant shall reimburse Landlord within twenty (20) days
after written demand for any and all reasonable costs or expenses that
may actually be incurred by Landlord in connection with said assignment
or sublease including, without limitation, the reasonable costs of
making investigations as to the acceptability of the proposed assignee
or subtenant and reasonable legal costs incurred in connection with the
granting of any requested consent;
(j) Tenant shall not have (i) advertised or publicized in any
way (except in standard multiple listing services) the availability of
the Demised Premises without prior written notice to and written
approval by Landlord (which approval may be withheld in Landlord's sole
and unreviewable discretion), nor shall any advertisement (including
any advertisement in such standard multiple listing service) state the
name (as distinguished from the address) of the Building or the
proposed rental, (ii) listed the Demised Premises for subletting or
assignment at a rental rate less than the greater of (1) the fixed rent
and additional rent then payable under this lease for such space, or
(2) the fixed rent and additional rent at which Landlord is then
offering to lease other space in the Building;
(k) The assignment or sublease shall not allow the use of the
Demised Premises or any part thereof for (i) the preparation and/or
sale of food for off
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premises consumption or (ii) for use by a foreign or domestic
governmental or quasigovernmental agency; and
(l) There shall be no reasonably likely increase in the
traffic to or from the Demised Premises as a result of such assignment
or sublease (except to a de minimis extent).
Each subletting pursuant to this Article 7 shall be subject to
all of the covenants, agreement, terms, provisions and conditions contained in
this lease. Notwithstanding any acceptance of fixed rent or additional rent by
Landlord from any subtenant, Tenant shall and will remain fully liable for the
payment of the fixed rent and additional rent due and to become due hereunder
and for the performance of all the covenants, agreements, terms, provisions and
conditions contained in this lease on the part of Tenant to be performed and all
acts and omissions of any assignee, subtenant or other occupant permitted
hereunder or anyone claiming under or through any assignee, subtenant or other
occupant permitted hereunder which shall be in violation of any of the
obligations of this lease, shall be deemed to be a violation by Tenant. Tenant
further agrees that notwithstanding any such assignment or subletting, no other
and further assignment or subletting of the Demised Premises by Tenant or any
person claiming through or under Tenant shall or will be made except upon
compliance with and subject to the provisions of this Article 7. If Landlord
shall properly decline in accordance with the terms of this Article to give its
consent to any proposed assignment or sublease, Tenant shall indemnify, defend
and hold harmless Landlord against and from any and all loss, liability,
damages, reasonable costs and expenses (including reasonable counsel fees and
disbursements) resulting from any claims that may be made against Landlord by
the proposed assignee or sublessee or by any brokers or other persons claiming a
commission or similar compensation in connection with the proposed assignment or
sublease.
7.4 In the event that Tenant fails to execute and deliver the
assignment or sublease to which Landlord consented within sixty (60) days after
the giving of such consent, then Tenant shall again comply with all of the
provisions and conditions of Section 7.2 before assigning this lease or
subletting all or part of the Demised Premises. Landlord's failure to respond to
any request by Tenant under Section 7.7 to a proposed sublease or assignment
within thirty (30) days following receipt by
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Landlord of Tenant's written request therefor (time being of the essence) shall
be deemed Landlord's consent to such sublease or assignment.
7.5 With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this lease, it is further agreed:
(a) No subletting shall be for a term ending later than one
(1) day prior to the Expiration Date;
(b) No sublease shall be valid, and no subtenant shall take
possession of the Demised Premises or any part thereof, until an
executed counterpart of such sublease has been delivered to Landlord
within the time period provided in Section 7.8(b);
(c) Each sublease shall provide that it is subject and
subordinate to this lease and to the matters to which this lease is or
shall be subordinate, and that in the event of termination, re-entry or
dispossess by Landlord under this lease, Landlord may, at its option,
take over all of the right, title and interest of Tenant, as sublessor,
under such sublease, and such subtenant shall, at Landlord's option,
attorn to Landlord pursuant to the then executory provisions of such
sublease, except that Landlord shall not (i) be liable for any previous
act or omission of Tenant under such sublease, (ii) be subject to any
offset not expressly provided in this lease, if any, which theretofore
accrued to such subtenant against Tenant, or (iii) be bound by any
previous modification of such sublease or by any prepayment of more
than one (1) month's rent, unless such modification or prepayment was
consented to in writing by Landlord and any lessor or holder, if
applicable.
7.6 If the Landlord shall give its consent to any assignment
of this lease or to any sublease, Tenant shall, in consideration therefor, pay
to Landlord, as additional rent:
(a) in the case of an assignment, an amount equal to one-half
(1/2) of all sums and other considerations paid to Tenant by the
assignee for or by reason of such assignment (including, but not
limited to, sums in excess of the fair market value paid for the sale
of Tenant's fixtures, leasehold improvements, equipment,
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furniture, furnishings or other personal property, less, in the case of
a sale thereof, the then net unamortized or undepreciated cost thereof
determined on the basis of Tenant's federal income tax returns,
exclusive of any allowance or credit given by Landlord), less
reasonable advertising costs and expenses, customary brokerage
commissions and reasonable legal fees, actually incurred in connection
with such assignment; and
(b) in the case of a sublease, one-half (1/2) of any rents,
additional charge or other consideration payable under the sublease to
Tenant by the subtenant which is in excess of the fixed rent and
additional rent accruing during the term of the sublease in respect of
the subleased space (at the rate per square foot payable by Tenant
hereunder) pursuant to the terms hereof (including, but not limited to,
sums in excess of the fair market value paid for the sale or rental of
Tenant's fixtures, leasehold improvements, equipment, furniture or
other personal property, less, in the case of the sale thereof, the
then net unamortized or undepreciated cost thereof determined on the
basis of Tenant's federal income tax returns, exclusive of any
allowance or credit given by Landlord), less reasonable advertising
costs and expenses, customary brokerage commission and reasonable legal
fees, actually incurred in connection with such sublease.
The sums payable under subsections (a) and (b) above shall be paid to
Landlord promptly after the same are paid by the assignee or subtenant, as the
case may be, to Tenant.
7.7 Any assignment or transfer (whether or not the prior
consent of Landlord is required therefore) shall be made only if, and shall not
be effective until, the assignee shall execute, acknowledge and deliver to
Landlord an agreement, in form and substance satisfactory to Landlord whereby
the assignee shall assume the obligations of this lease on the part of Tenant to
be performed or observed and whereby the assignee shall agree that the
provisions in Section 7.1 shall, notwithstanding such assignment or transfer,
continue to be binding upon Tenant in respect of all future assignments and
transfers. The original named Tenant covenants that, notwithstanding any
assignment or transfer, whether or not in violation of the provisions of this
lease, and notwithstanding the acceptance of fixed rent and/or additional rent
by Landlord from an assignee,
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transferee, or any other party, the original named Tenant shall remain fully
liable for the payment of the fixed rent and additional rent and for all of the
other obligations of this lease on the part of Tenant to be performed or
observed.
7.8 The joint and several liability of Tenant and any
immediate or remote successor in interest of Tenant and the due performance of
the obligations of this lease on Tenant's part to be performed or observed shall
not be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this lease.
7.9 Notwithstanding anything to the contrary contained
elsewhere in this Article 7, Tenant shall not be required to obtain Landlord's
consent, if Tenant desires to assign this lease (by operation of law or
otherwise) or sublease all or a portion of the Demised Premises (i) to an
affiliate of Tenant, or (ii) to a successor corporation in connection with a
bona fide merger, sale of assets or stock of Tenant (including an Initial Public
Offering or subsequent public sale of the capital stock of Tenant) in an arms
length transaction, provided that any such successor corporation shall have a
net worth upon such assignment of this lease or sublet of all or any portion of
the Demised Premises at least equal to Tenant's net worth at the time of the
execution and delivery of this lease (taking into consideration the then present
value of money from the date of the execution and delivery of this lease to the
date of such transaction) and Tenant shall provide reasonable evidence of same
prior to the effectiveness of any such assignment or sublease. As used in this
lease, the term "AFFILIATE" shall mean an individual, partnership, corporation,
unincorporated association or other entity controlling, controlled by or under
common control with a party and for the purposes of the foregoing, "CONTROL"
shall mean ownership of a majority of the legal and beneficial interest in such
corporation, together with the ability to direct the management, affairs and
operations thereof and the term "PUBLIC CORPORATION" shall mean a corporation
which is by law required to file annual 10-K reports with the Securities and
Exchange Commission. Except as otherwise specifically provided in this lease,
any transfer or cessation of control over any affiliate to which this lease is
assigned, or all or any portion of the Demised Premises
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is sublet, shall constitute an assignment of this lease or a subletting of all
or any portion of the Demised Premises to which the provisions of Section 7.3
(other than clauses (a), (e), (f), (h), (j) and (1)) shall apply. In such event,
Tenant shall deliver to Landlord reasonable evidence of the compliance with
Section 7.3 (other than clauses (a), (e), (f), (h), (j) and (1) within thirty
(30) days following any such transfer or cessation of control. In addition, any
further assignment or subletting by any such entity which is no longer an
affiliate shall be subject to the provisions of this Article 7. In the event
that Tenant assigns this lease in accordance with this Section 7.9, the assignee
of this lease shall execute an agreement of the type required to be executed by
an assignee pursuant to Section 7.3 hereof and a copy of same, together with
evidence of the relationship between Tenant and the assignee reasonably
satisfactory to Landlord (a certificate from the chief executive officer,
general counsel or executive vice-president of Tenant shall, for the purposes of
this Section 7.9, be deemed satisfactory to Landlord), shall be immediately
delivered to Landlord and no such assignment shall be effective unless and until
same shall have been delivered to Landlord.
ARTICLE VIII
COMPLIANCE WITH LAWS AND REQUIREMENTS
OF PUBLIC AUTHORITIES
8.1 Landlord and Tenant shall give each other prompt notice of
any notice either receives of the violation of any law or requirement of public
authority, and at Tenant's expense Tenant shall comply with all laws and
requirements of public authorities which shall, with respect to the Demised
Premises or the use and/or occupation thereof, or the abatement of any nuisance,
impose any violation, order or duty on Landlord or Tenant, arising from (i)
Tenants use of the Demised Premises for purposes other than uses permitted
hereunder, (ii) the manner of conduct of Tenant's business or operation of its
installations, equipment or other property therein, (iii) any cause or condition
created by or at the instance of Tenant, including the performance of any work
performed by Landlord for or on behalf of Tenant in curing a default by Tenant
hereunder, or (iv) breach of any of Tenant's obligations hereunder.
Notwithstanding anything to the contrary contained elsewhere in this lease,
Tenant shall also be required to comply with all Local Laws of the City of New
York, now or hereafter
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enacted, affecting the Demised Premises and/or Tenant's occupancy thereof or the
conduct of its business therein. Landlord, at its sole cost and expense, shall
be responsible for compliance with all Local Laws of the City of New York, now
or hereafter enacted, which affect the Building as a whole, except to the extent
the foregoing provisions of this paragraph apply. Landlord, at its expense,
shall comply with all other such laws and requirements of public authorities as
shall affect the Demised Premises, but may contest the same subject to
conditions reciprocal to Subsections (a), (b) and (d) of Section 8.2. Landlord
and Tenant hereby acknowledge and agree that to the extent required by law,
Landlord's applicable obligations with respect to the Demised Premises under
this Section 8.1 shall include, without limitation, compliance throughout the
term of this lease with the Americans With Disabilities Act of 1990, together
with all amendments thereto which may be adopted from time to time, and all
regulations and rules promulgated thereunder ("ADA"). Tenant shall pay all the
reasonable costs, expenses, fines, penalties and damages imposed upon Landlord
or any superior lessors or superior mortgagees solely by reason of Tenant's
failure to comply with the provisions of this Section. For example, but not by
way of limitation, if any public authority requires or recommends any additional
sprinkler heads or changes to the sprinkler system in or serving the Demised
Premises solely by reason of the manner of conduct of Tenant's business in the
Demised Premises or by reason of Tenant's alterations, or the location of
partitions, trade fixtures, or other contents of the Demised Premises, Tenant
shall, at its expense, promptly make and supply such additional sprinkler heads
or make such changes.
8.2 Tenant may, at its expense (and if necessary, in the name
of but without expense to Landlord) contest, by appropriate proceedings
prosecuted diligently and in good faith, the validity, or applicability to the
Demised Premises, of any law or requirement of public authority, and Landlord
shall cooperate with Tenant in such proceedings, provided that:
(a) Landlord shall not be subject to criminal penalty or to
prosecution for a crime nor shall the Demised Premises or any part
thereof be subject to being condemned or permanently vacated, by reason
of non-compliance or otherwise by reason of such contest;
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(b) Tenant shall defend, indemnify and hold harmless Landlord
against all liability, loss, damage, cost or expense which Landlord
shall suffer by reason of such noncompliance or contest including, but
not limited to, reasonable attorney's fees and other expenses actually
incurred by Landlord;
(c) Such non-compliance or contest shall not constitute or
result in any violation of any superior lease or superior mortgage of
which Tenant has notice, or if such superior lease and/or superior
mortgage shall permit such non-compliance or contest on condition of
the taking of action or furnishing of security by Landlord, such action
shall be taken and such security shall be furnished at the expense of
Tenant;
(d) Tenant shall furnish Landlord with such reasonable
security as Landlord shall require in connection with Tenant's
non-compliance or contest; and
(e) Tenant shall keep Landlord advised in writing, at
Landlord's request, as to the status of such proceedings.
Without limiting the application of Section 8.2(a) thereto, Landlord shall be
deemed subject to prosecution for a crime within the meaning of said Subsection,
if Landlord, or any officer or shareholder of Landlord individually, is charged
with a crime of any kind or degree whatever, whether by service of a summons or
otherwise, unless such charge is withdrawn before Landlord or such officer (as
the case may be) is required to plead or answer thereto.
8.3 In addition, and notwithstanding anything to the contrary
contained elsewhere in this lease, Tenant shall, at all times, comply with all
local, state and federal laws, rules and regulations governing the use, handling
and disposal of Hazardous Material in the Demised Premises including, but not
limited to, Section 1004 of the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et. seq. and any additions, amendments, or modifications
thereto. As used herein, the term "HAZARDOUS MATERIAL" shall mean any hazardous
or toxic substance, material or waste which is, or becomes, regulated by any
local or state government authority in which the Demised Premises is located or
the United States Government. Landlord and its agents shall have the right, but
not the duty, to inspect
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the Demised Premises at any time to determine whether Tenant is complying with
the terms of this Section 8.3. If Tenant is not in compliance with this Section
8.3 for more than 30 days after written notice to Tenant, except in cases of
emergency, Landlord shall have the right to take whatever actions as are
reasonably necessary to comply including, but not limited to, the removal from
the Demised Premises of any Hazardous Material and the restoration of the
Demised Premises to a clean, neat, attractive, healthy and sanitary condition.
Tenant shall pay all costs so incurred by Landlord, as additional rent, ten (10)
days upon receipt of a bill therefor plus twelve percent (12%) for Landlord's
administration expenses in connection therewith.
ARTICLE IX
INSURANCE
9.1 Tenant shall not violate, or permit the violation of, any
condition imposed by the standard fire insurance policy then issued for office
buildings in the Borough of Manhattan, City of New York, and shall not do, or
permit anything to be done, or keep or permit anything to be kept in the Demised
Premises which would subject Landlord to any liability or responsibility for
personal injury or death or property damage, or which would increase the fire or
other casualty insurance rate on the Building or the property therein over the
rate which would otherwise then be in effect.
9.2 Tenant covenants to provide on or before the Commencement
Date, and to keep in force during the term hereof, the following insurance
coverage:
(a) For the benefit of Landlord and Tenant, a comprehensive
policy of general commercial liability insurance protecting Landlord
and Tenant against any liability whatsoever occasioned by accident on
or about the Demised Premises or any appurtenances thereto. Such policy
is to be written by good and solvent insurance companies authorized to
do business in the State of New York reasonably satisfactory to
Landlord and the limits of liability thereunder shall not be less than
Three Million ($3,000,000) Dollars combined single limit coverage on a
per occurrence basis with a Five Million ($5,000,000) Dollar aggregate
and One Million ($1,000,000) Dollars in respect of property
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damages. Such insurance may be carried under a blanket policy covering
the Demised Premises and other locations of Tenant or Guarantor, if
any.
(b) Fire and Extended coverage in an amount adequate to cover
the cost of replacement of all personal property, fixtures, furnishing
and equipment in the Demised Premises. Such policy shall be written by
good and solvent insurance companies authorized to do business in the
State of New York and reasonably satisfactory to Landlord.
Prior to the time such insurance is first required to be
carried by Tenant and thereafter, at least thirty (30) days prior to the
expiration of any such policies, Tenant agrees to deliver to Landlord either
duplicate originals of the aforesaid policies or certificates evidencing such
insurance provided said certificate contains an endorsement that such insurance
may not be modified or cancelled except upon forty-five (45) days' notice to
Landlord, together with evidence reasonably satisfactory to Landlord of payment
for the policy. Tenant's failure to provide and keep in force the aforementioned
insurance shall be regarded as a material default hereunder.
9.3 Landlord and Tenant shall each endeavor to secure an
appropriate clause in, or an endorsement upon, each fire or extended coverage
policy obtained by it and covering the Building, the Demised Premises or the
personal property, fixtures and equipment located therein or thereon, pursuant
to which the respective insurance companies waive subrogation or permit the
insured, prior to any loss, to agree with a third party to waive any claim it
might have against said third party. The waiver of subrogation or permission for
waiver of any claim hereinbefore referred to shall extend to the agents of each
party and its employees and, in the case of Tenant, shall also extend to all
other persons and entities occupying or using the Demised Premises. If permitted
by law and to the extent that such waiver or permission can be obtained only
upon payment of an additional charge then, except as provided in the following
two paragraphs, the party benefiting from the waiver or permission shall pay
such charge upon demand, or shall be deemed to have agreed that the party
obtaining the insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission.
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In the event that Landlord shall be unable at any time to
obtain one of the provisions referred to above in any of its insurance policies,
at Tenant's option, Landlord shall cause Tenant to be named in such policy or
policies as one of the insureds, but if any additional premium shall be imposed
for the inclusion of Tenant as such insured, Tenant shall pay such additional
premium to Landlord within twenty (20) days following Landlord's demand. In the
event that Tenant shall have been named as one of the insureds in any of
Landlord's policies in accordance with the foregoing, Tenant shall endorse
promptly to the order of Landlord, without recourse, any check, draft or order
for the payment of money representing the proceeds of any such policy or any
other payment growing out of or connected with said policy and Tenant hereby
irrevocably waives any and all rights in and to such proceeds and payments.
In the event that Tenant shall be unable at any time to obtain
one of the provisions referred to above in any of its insurance policies, Tenant
shall cause Landlord to be named in such policy or policies as one of the
insureds, but if any additional premium shall be imposed for the inclusion of
Landlord as such an insured, Landlord shall pay such additional premium to
Tenant upon demand or Tenant shall be excused from its obligations under this
paragraph with respect to the insurance policy or policies for which such
additional premiums would be imposed. In the event that Landlord shall have been
named as one of the insureds in any of Tenant's policies in accordance with the
foregoing, Landlord shall endorse promptly to the order of Tenant, without
recourse, any check, draft or order for the payment of money representing the
proceeds of any such policy or any other payment growing out of or connected
with said policy and Landlord hereby irrevocably waives any and all rights in
and to such proceeds and payments.
Subject to the waiver of subrogation being obtained or being
named as an additional insured pursuant to the foregoing provisions of this
Section 9.3, and insofar as may be permitted by the terms of the insurance
policies carried by it, each party hereby releases the other with respect to any
claim (including a claim for negligence) which it might otherwise have against
the other party for loss, damages or destruction with respect to its property by
fire or other casualty (including rental value or business interruption, as the
case may be) occurring during the term of this lease.
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9.4 If, by reason of a failure of Tenant to comply with the
provisions of Section 8.1 or Section 9.1, the rate of fire insurance with
extended coverage on the Building or equipment or other property of Landlord
shall be higher than it otherwise would be, Tenant shall reimburse Landlord, on
demand, for that part of the premiums for fire insurance and extended coverage
paid by Landlord to the extent caused by such failure on the part of Tenant
within thirty (30) days following Landlord's demand for such reimbursement.
9.5 If any dispute shall arise between Landlord and Tenant
with respect to the incurrence or amount of any additional insurance premium
referred to in Section 9.3, the dispute shall be determined by arbitration
pursuant to Article 34.
9.6 A schedule or make up of rates for the Building or the
Demised Premises, as the case may be, issued by the New York Fire Insurance
Rating Organization or other similar body making rates for fire insurance and
extended coverage for the premises concerned, shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rate with extended coverage then applicable to such premises.
9.7 Landlord covenants to maintain casualty and liability
insurance insuring Landlord's interest in the Building at rates commercially
reasonable for Buildings of this nature; provided, however, that Landlord shall
have the right at any time, in Landlord's sole discretion, to "self-insure" with
respect to same, provided that upon such election, Landlord shall send Tenant a
notice of its intention to self-insure, which such notice shall contain a
statement of Landlord's "net worth" as of such date, which such net worth shall
be not less than $10,000,000.
ARTICLE X
RULES AND REGULATIONS
10.1 Tenant and its employees and agents shall faithfully
observe and comply with the Rules and Regulations annexed hereto as Exhibit C
and made a part hereof, and such reasonable changes therein (whether by
modification, elimination or addition) as Landlord at any time or times
hereafter may make and communicate in writing to Tenant
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which, in Landlord's reasonable judgment, shall be necessary for the reputation,
safety, care and appearance of the Building or the preservation of good order
therein, or the operation or maintenance thereof, which do not unreasonably
affect the conduct of Tenant's business in the Demised Premises except as
required by any governmental law, rule, regulation, ordinance or similar decree;
provided, however, that in case of any conflict or inconsistency between the
provisions of this lease and any of the Rules and Regulations as originally
promulgated or as changed, the provisions of this lease shall control.
10.2 Nothing in this lease contained shall be construed to
impose upon Landlord any duty or obligation to Tenant to enforce the Rules and
Regulations or the terms, covenants or conditions in any other lease, as against
any other tenant, and Landlord shall not be liable to Tenant in any manner for
violation of the same by any other tenant or its employees, agents or visitors.
The Rules and Regulations shall be applied uniformly towards all tenants in the
building.
ARTICLE XI
TENANT'S CHANGES
11.1 Except as otherwise specifically provided in this lease,
Tenant shall not make any alterations, additions, installations, substitutions
or improvements (hereinafter collectively called "CHANGES" and, as applied to
changes provided for in this Article, "TENANT'S CHANGES") in and to the Demised
Premises the legal performance of which would require the filing of a Building
Notice or the obtaining of any alteration permit from the Department of
Buildings of the City of New York and/or other appropriate governmental agency,
and affects the structure or systems of the Building, without the prior written
approval of Landlord in each instance, which approval shall not be unreasonably
withheld or delayed provided that such Tenant's Changes are to be non-structural
and do not affect any systems of the Building. Nothing herein shall require
Tenant to obtain Landlord's consent to mere decorative changes, provided the
same do not require the issuance of a permit and such change shall be otherwise
in compliance with the provisions of this lease. The provisions of this Article
11 do not apply to Tenant's Work.
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11.2 Tenant shall submit to Landlord, for Landlord's review
and approval, detailed plans and specifications with respect to any proposed
Tenant's Change. Landlord shall, within ten (10) business days following receipt
of same from Tenant, advise Tenant of its approval or disapproval of such plans
and specifications or any portion thereof. If Landlord fails to approve or
disapprove such plans, or any part thereof, within such ten (10) business day
period, it shall be deemed for purposes of this Section 11.2, that Landlord
shall have approved such plans or portion thereof. Landlord shall cooperate in
all reasonable respects with Tenant in the performance by Tenant of Tenant's
Changes including, without limitation, filings by Tenant with the Department of
Buildings of the City of New York, the execution of all applicable documents,
applications and authorizations and the furnishing of all pertinent information,
and Landlord shall instruct its employees and contractors to render such
reasonable assistance and to reasonably cooperate with Tenant's employees,
representatives and contractors subject to the terms and conditions of this
lease. Tenant shall promptly reimburse Landlord for Landlord's reasonable costs
and expenses actually incurred in connection with such review including, but not
limited to, architectural, engineering and counsel fees. Tenant, at its expense,
shall obtain all necessary governmental permits and certificates for the
commencement and prosecution of Tenant's Changes and for final approval thereof
upon completion, and shall cause Tenant's Changes to be performed in compliance
therewith and with all applicable laws and requirements of public authorities,
and with all applicable requirements of insurance bodies, and in a good and
workmanlike manner, using new materials and equipment at least equal in quality
and class to Landlord's established standard for the Building. Tenant's Changes
shall be performed in such manner as not to unreasonably interfere with or delay
(except to a de minimis extent) and (unless Tenant shall indemnify Landlord
therefor to the latter's reasonable satisfaction) as not to impose any
additional expense upon Landlord in the maintenance or operation of the
Building. Throughout the performance of Tenant's Changes, Tenant, at its
expense, shall carry, or cause to be carried, worker's or workmen's compensation
insurance in statutory limits and general liability insurance for any occurrence
on or in the Land or the Building as set forth in Section 9.2 hereof, in which
Landlord and its agents shall be named as parties insured, in such limits as
Landlord may reasonably prescribe, with insurers reasonably satisfactory to
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Landlord. Tenant shall furnish Landlord with satisfactory evidence that such
insurance is in effect at or before the commencement of Tenant's Changes and, on
request, at reasonable intervals thereafter during the continuance of Tenant's
Changes. If any of Tenant's Changes shall involve the removal of any fixtures,
equipment of other property in the Demised Premises which, pursuant to the terms
of Section 12.1, are to be come Landlord's property at the expiration or sooner
of this lease, such fixtures, equipment or other property shall be promptly
replaced, at Tenant's expense with improvements to the Demised Premises of like
utility and at least equal value unless Landlord shall otherwise expressly
consent in writing (which consent shall not be unreasonably withheld). All
electrical and plumbing work in connection with Tenant's Changes shall be
performed by contractors or subcontractors reasonably satisfactory to Landlord
and licensed therefor by all governmental agencies having or asserting
jurisdiction.
11.3 Tenant, at its expense, shall diligently procure the
cancellation or discharge of all notices of violation arising from or otherwise
connected with Tenant's Changes which shall be issued by the Department of
Buildings of the City of New York or any other public or quasi-public authority
having or asserting jurisdiction. Tenant shall defend, indemnify and save
harmless Landlord against any and all mechanic's and other liens filed in
connection with Tenant's Changes, excluding the liens of any security interest
in, conditional sales of, or chattel mortgages upon, any materials, fixtures or
articles so installed in and constituting part of the Demised Premises and
against all costs, expense and liabilities incurred in connection with any such
lien, or any action or proceeding brought thereon. Tenant, at its expense, shall
procure the satisfaction, removal of record or discharge of all such liens
within thirty (30) days after Tenant has received written notice thereof.
Nothing contained herein shall prevent Tenant from contesting, in good faith and
at its own expense, any notice of violation, provided that Tenant complies in
all respects with the provisions of Section 8.2.
11.4 Tenant agrees that the exercise of its rights pursuant to
the provisions of this Article shall not be done in a manner which would create
any work stoppage, picketing, labor disruption or dispute or violate Landlord's
union contracts affecting the Land and/or Building nor interference with the
business of Landlord or any tenant or
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occupant of the Building. In the event of the occurrence of any condition
described above arising from the exercise by Tenant of its right pursuant to the
provisions of this Article, Tenant shall, immediately upon notice from Landlord,
cease the manner of exercise of such right giving rise to such condition. In the
event Tenant fails to cease such manner of exercise of its rights as aforesaid,
Landlord, in addition to any rights available to it under this lease and
pursuant to law, shall have the right to injunction upon notice to Tenant, which
may be by order to show cause. With respect to Tenant's Changes, Tenant shall
make all arrangements for, and pay all reasonable expenses, at rates set by
Landlord for the Building, incurred in connection with the use during
non-business hours of the freight elevators servicing the Demised Premises.
ARTICLE XII
TENANT'S PROPERTY
12.1 Except as specifically provided in Section 12.2, all
fixtures, equipment, improvements and appurtenances attached to or built into
the Demised Premises at the commencement of or during the term of this lease and
which cannot be removed without causing irreparable damage to the Demised
Premises, whether or not by or at the expense of Tenant, shall be and remain a
part of the Demised Premises, shall become Landlord's property at the expiration
or sooner termination of the term of this lease and shall not be removed by
Tenant, except as hereinafter in this Article expressly provided.
12.2 All paneling, movable partitions, lighting fixtures,
special cabinet work, other business and trade fixtures, machinery and
equipment, communications equipment and office equipment, whether or not
attached to or built into the Demised Premises, which are installed in the
Demised Premises by or for the account of Tenant and can be removed without
irreparable damage to the Building or the Demised Premises, and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Demised Premises (all of which are sometimes called "TENANT'S
PROPERTY") shall be and shall remain the property of Tenant and may be removed
by it at any time during the term of this lease; provided that if any of
Tenant's Property is removed, Tenant or any party or person entitled to remove
same shall promptly repair or reimburse
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Landlord for the reasonable cost of repairing any damage to the Demised Premises
or to the Building resulting from such removal within twenty (20) days following
Landlord's demand.
12.3 At or before the Expiration Date, or the date of any
earlier termination of this lease, or as promptly as practicable after such an
earlier termination date, but in no event fifteen (15) days thereafter, Tenant
at its expense, shall remove from the Demised Premises all of Tenant's Property
except such items thereof as Tenant shall have expressly agreed in writing with
Landlord were to remain and to become the property of Landlord, and shall fully
repair, or reimburse Landlord for the reasonable cost of such repair of any
damage to the Demised Premises or the Building resulting from such removal.
Tenant's obligation herein shall survive the termination of the lease. Landlord
agrees not to require Tenant to remove such items of Tenant's Property which are
attached to or built into the Demised Premises provided that same have been
constructed in accordance with the provisions of this lease and unless the
removal of same was a condition imposed by Landlord in connection with the
granting by Landlord of its consent to same.
12.4 Any other items of Tenant's Property (except money,
securities and other like valuables) which shall remain in the Demised Premises
after the Expiration Date or after a period of thirty (30) days following an
earlier termination date, may, at the option of the Landlord, be deemed to have
been abandoned, and in such case either may be retained by Landlord as its
property or may be disposed of, without accountability, at Tenant's expense in
such manner as Landlord may see fit.
ARTICLE XIII
REPAIRS AND MAINTENANCE
13.1 Tenant shall take good care of the Demised Premises and
shall, at its sole cost and expense, promptly make all repairs in and about the
Demised Premises and the Building, as shall be required by reason of (i) the
performance or existence of Tenant's Changes, (ii) the installation, use or
operation of Tenant's Property in the Demised Premises, (iii) the moving of
Tenant's Property in or out of the Building, or (iv) the negligence or willful
misconduct of Tenant or any of its employees, agents or
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contractors; provided that any structural or exterior repairs or repairs
affecting any systems or common areas of the Building so required shall be
performed by Landlord, at Tenant's sole reasonable cost and expense. All other
structural and exterior repairs and maintenance or repairs or maintenance of any
Building systems or common areas shall be performed by Landlord at Landlord's
sole cost and expense. Tenant, at its sole cost and expense, shall replace all
scratched, damaged or broken doors or other glass in or about the Demised
Premises and shall be responsible for all repairs, maintenance and replacement
of wall and floor coverings in the Demised Premises and, for the repair and
maintenance of all lighting fixtures therein.
13.2 Except as expressly otherwise provided in this lease,
Landlord shall have no liability to Tenant by reason of any inconvenience,
annoyance, interruption or injury to business arising from Landlord's making any
repairs or changes which Landlord is required or permitted by this lease, or
required by law, to make in or to any portion of the Building or the Demised
Premises, or in or to the fixtures, equipment or appurtenances of the Building
or the Demised Premises. Landlord shall, as expeditiously as practicable,
proceed with the performance of any repairs which Landlord is, under this lease,
required to perform, and shall use reasonable efforts to minimize interference
with Tenant's use and occupancy of the Demised Premises in performing such
repairs, provided that Landlord shall not be required to perform same on an
overtime or premium pay basis. In the event the performance of repairs by
Landlord interferes with Tenant's use and occupancy of the Demised Premises
thereby rendering the Demised Premises untenantable for the ordinary conduct of
Tenant's business for more than twenty (20) days, Tenant shall be entitled to
pro-rata abatement of rents for such period of time.
ARTICLE XIV
ELECTRICITY
14.1 Tenant's electricity consumption and demand shall be
measured by existing submeters serving the Demised Premises, and Tenant agrees
to purchase such electricity from Landlord. The amount to be paid by Tenant for
electricity consumed shall be determined in accordance with consumption amounts
as recorded by each meter. The amount to be charged to Tenant by Landlord per
"KWHR" pursuant to
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this Article for electricity consumed within the Demised Premises, as shown in
the meters measuring Tenant's consumption of electricity, shall be one hundred
and eight (108%) percent of the amount at which Landlord from time to time
purchases each KWHR of electricity for the same period from the utility company
which amount shall be determined by dividing the amount paid by Landlord to the
utility company on account of electricity consumed in the Building during each
respective billing period by the number of KWHRs consumed by the Building as
both figures are reflected on such bill, which bill shall be accompanied by a
copy of Landlord's utility bill upon which the calculation of such bill to
Tenant shall have been based. All such sums shall be paid by Tenant to Landlord
as additional rent hereunder. If more than one meter measures the electricity
consumption of Tenant in the Building, the service rendered through each meter
shall be aggregated and billed in accordance with the above provisions, unless
Tenant shall request separate billing on a per-meter basis. Landlord may, not
more frequently than monthly, render bills for Tenant's consumption and Tenant
shall pay the same within twenty (20) days following the date the same are
rendered.
14.2 Tenant's use of electric energy in the Demised Premises
shall not at any time exceed a demand load of six (6) watts (connected load) per
square foot exclusive of electricity necessary for Building (as distinct from
Tenant's supplemental, if any) air-conditioning. In order to insure that such
capacity is not exceeded and to avert possible adverse effect upon the Building
electric service, Tenant shall not connect any additional fixtures, machinery,
appliances or equipment, to the electric system of the Demised Premises existing
on the Commencement Date which would likely substantially increase Tenant's
electric energy needs or usage without thirty (30) days prior written notice to
Landlord.
14.3 Landlord shall not be liable in any way to Tenant for any
failure or defect in the supply or character of electric energy furnished to the
Demised Premises by reason of any requirement, act or omission of the public
utility serving the Building with electricity or for any other reason whatsoever
unless caused by the gross negligence or willful misconduct of Landlord, its
employees, agents or contractors. If Landlord receives any notice regarding a
cessation of services from said public utility, Landlord shall promptly furnish
a copy of same to Tenant.
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14.4 Provided that prior thereto or simultaneously therewith,
Landlord shall discontinue or shall have discontinued furnishing electric energy
to at least eighty (80%) percent of the space in the Building, Landlord reserves
the right to discontinue furnishing electric energy to Tenant at any time upon
not less than sixty (60) days' written notice to Tenant, and from and after the
effective date of such termination, Landlord shall no longer be obligated to
furnish Tenant with electric energy (provided, however, that Landlord shall not,
unless required by law, cease furnishing electricity to Tenant until Tenant has
arranged for, and is obtaining, electrical service directly from the public
utility, provided that at all times Tenant is exercising due diligence and its
best efforts to obtain same, and further provided that in the event Landlord
shall at any time thereafter furnish electric energy to more than twenty (20%)
percent of the space in the Building, Landlord shall furnish electric energy to
Tenant, at Tenant's option). If Landlord exercises such right of termination,
this lease shall remain unaffected thereby and shall continue in full force and
effect, and thereafter Tenant shall diligently arrange to obtain electric
service directly from the public utility company servicing the Building, and may
utilize the then existing electric feeders, risers and wiring serving the
Demised Premises to the extent the same are available, suitable and safe for
such purpose, and only to the extent of Tenant's then authorized connected load,
unless the public utility serving the Building has otherwise agreed to make
available such electrical energy as all of the occupants and tenants of the
Building shall require. All meters and additional panel boards, feeders, risers,
wiring and other conductors and equipment which maybe required to obtain
electric energy directly from such public utility company shall be installed and
maintained by Tenant at its expense.
14.5 Unless otherwise agreed upon by the parties, Landlord, at
Tenant's expense, shall supply all electric meters Landlord reasonably deems
necessary for use hereunder. In no instance shall Tenant install or permit the
installation or use of electric meters or electric metering devices for the
purposes herein and/or to be installed or used for billing unless such meters
and/or metering devices shall conform in every respect to the requirements,
rules and regulations of the local public utility as approved from time to time
by the Public Service Commission of the State of New York as to the accuracy of
measurement of such meters or metering devices including,
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but not limited to, proper measurement and reflection of power factor. Landlord
warrants and represents that all such meters presently installed for the purpose
of measuring Tenant's electric consumption and all future meters installed shall
conform to the requirements, rules and regulations of the local public utility
as approved from time to time by the Public Service Commission of the State of
New York as to the accuracy of measurement of such meters or metering devices
including, but not limited to, proper measurement and reflection of power
factor.
14.6 If any tax is imposed upon Landlord with respect to electrical
energy furnished to Tenant at the Demised Premises by any federal, state or
municipal authority, Tenant covenants and agrees that where permitted by
applicable law, Tenant's pro rata share of such taxes shall be reimbursed to
Landlord by Tenant as additional rent.
ARTICLE XV
HEAT, VENTILATION AND AIR-CONDITIONING
15.1 Landlord, at its expense, shall maintain, keep in working order
and repair and replace as reasonably required, and operate the heating,
ventilating and air-conditioning systems (hereafter called the "SYSTEMS") and,
subject to energy conservation requirements of governmental authorities, shall
furnish heat, ventilating and air-conditioning (hereafter collectively called
"AIR-CONDITIONING SERVICE") in the Demised Premises through the systems, in
accordance with Landlord's standard for the Building (which shall be
commercially reasonable for a Building of this nature), during "REGULAR HOURS"
(that is between the hours of 8:00 A.M. and 6:00 P.M.) of "BUSINESS DAYS" (which
term is used herein to mean all days except Saturdays, Sundays and days observed
by the Federal or New York State government as legal holidays) throughout the
year. Tenant shall pay to Landlord a one-time hook-up charge of $1,575 per ton
for any supplemental air-conditioning (excluding any Building Systems) now or
hereafter installed in or serving the Demised Premises, together with a charge
for condenser water at a rate of eleven ($.11) cents per ton of usage promptly
upon the rendition of Landlord's bills therefor, on a monthly basis. In
connection with Tenant's supplemental air-conditioning, Landlord will make
available to Tenant up to twenty (20)
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tons of chilled condenser water. In the event Tenant improves the Initial
Unimproved Space, Landlord shall make available to Tenant an additional two and
one-half (2-1/2) tons of chilled condenser water with which to provide
supplemental air-conditioning to such Initial unimproved Space at the cost to
Tenant of set forth above. If Tenant shall require heating, ventilating or
air-conditioning service (other than from Tenant's own supplemental
air-conditioning, if any) at any time other than as hereinabove provided
(hereinafter called "AFTER HOURS"), Landlord shall furnish such after hours
service upon reasonable advance notice from Tenant, [which such notice may be by
telecopier and shall be delivered to the Building's Managing Agent (Attn:
District Manager, 395 Hudson Street)], before noon on the day such service is
requested, if such service is requested on a business day, or delivered to
Landlord before noon the preceding business day, if such service is requested
for a non-business day. Tenant shall pay Landlord's standard rate for such after
hours service, which is presently $52.50 per hour per floor, which such amount
shall be increased annually, from and after the first anniversary of the
Commencement Date, by Landlord in accordance with increases in the Consumer's
Price Index (the "CONSUMER PRICE INDEX") for All Urban Consumers, New York, New
York - Northeastern, N.J., base year 1986-88 = 100, specified for "All Items,"
as issued by the Bureau of Labor Statistics of the United States Department of
Labor, or, in the event such index is no longer in use or published, by
utilizing another published index or statistical data, which such alternative
index shall reasonably be designated by Landlord as would reasonably reflect the
consequences that would have resulted if such Consumer Price Index had not been
discontinued, within twenty (20) days following Landlord's written demand. In
the event such after hours service is shared by other tenants, the cost thereof
shall be prorated among all such tenants.
15.2 Use of the Demised Premises, or any part thereof, in a manner
exceeding the Landlord's standard for the Building, or which would result in the
rearrangement of partitioning, which interferes with normal operation of the
heat, ventilation and air-conditioning in the Demised Premises or the Building,
may require changes in the heat, ventilation and air-conditioning system
servicing the Demised Premises. Such changes, so occasioned, shall be made by
Tenant, at its expense, as Tenant's Changes pursuant to Article 11.
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15.3 HVAC specifications are as follows: The variable air volume
heating, ventilating and air conditioning system shall provide interior
conditions to 75 degrees F. average dry bulb and 50% relative humidity when
outside conditions are 91 degrees F. dry bulb and 75 degrees F. wet bulb, with a
10 m.p.h, wind, during summer and 70 degrees F. average inside when outside
temperatures at 15 degrees F. with a 10 m.p.h, wind, during winter, provided
that in any given room or area to the Demised Premises, the occupancy does not
exceed one (1) person for each 100 square feet and total electric load does not
exceed 9 watts per square foot for all purposes, including, lighting and power.
15.4 Landlord represents that the heating, ventilation and
air-conditioning system and all other Building systems are, as of the date
hereof, in working order.
ARTICLE XVI
LANDLORD'S OTHER SERVICES
16.1 Landlord, at its expense, shall provide (i) nonexclusive passenger
elevator service reasonably sufficient for the normal conduct of Tenant's
business to the Demised Premises at all times and (ii) freight elevator service
to the Demised Premises on a first-come/first-served basis only during the hours
of 8:00 a.m. to 12:00 p.m. and 1:00 p.m. to 4:00 p.m. on business days. If
Tenant shall require freight elevator service prior to 8:00 a.m. or after 4.00
p.m. on business days, or on days other than business days, Tenant shall give
Landlord not less than 24-hour notice on the preceding business day which notice
[shall be delivered to the Building's Managing Agent (Attn: District Manager -
395 Hudson Street)]. Such additional freight elevator service shall also be
available on a first-come/first-served basis, in accordance with reservations
made pursuant to the preceding sentence. Tenant shall pay Landlord its standard
rate, which is presently $100 per hour, increased from and after the first
anniversary of the Rent Commencement Date by increases in the Consumer Price
Index, for use of the freight elevator during non-business hours and/or on
non-business days. There shall be no charge for Tenant's use of the freight
elevator during the business hours of 8:00 a.m. to 12:00 p.m. and 1:00 p.m. to
4:00 p.m. Tenant shall only be permitted to deliver construction material before
or after the business hours above provided.
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Notwithstanding anything to the contrary in this lease, Tenant's use of the
freight elevator shall be subject to the provisions of this lease, including
Landlord's Rules and Regulations for the Building, and the rights of Landlord
and other tenants and occupants of the Building. Tenant shall only be permitted
to deliver construction material and remove construction refuse and debris after
business hours. Landlord represents that Tenant shall have access to the Demised
Premises on a 24 hour per day, seven day per week basis without charge (except
as specifically hereinabove provided). All of Tenant's Tradesmen, Contractors
and Subcontractors shall use the freight elevators only in connection with
Tenant's Work.
16.2 Landlord, at its expense, shall furnish adequate hot and cold
water to the Demised Premises for drinking, pantry, lavatory and cleaning
purposes. If Tenant uses water for any other purpose, Landlord, at Tenant's
reasonable expense, shall install meters to measure Tenant's consumption of cold
water and/or hot water for such other purposes, as the case may be. Tenant shall
reimburse Landlord for its actual costs for the quantities of cold water and hot
water shown on such meters, at Landlord's cost thereof, within twenty (20) days
following the rendition of Landlord's bills therefor.
16.3 Landlord shall cause the Premises to be cleaned in accordance with
Landlord's Building standard specifications set forth on Exhibit E annexed
hereto and made a part hereof. Landlord shall not be required to clean any
portions of the Demised Premises which are used for the preparation, serving or
consumption of food or beverages, storage, training rooms, data processing or
reproducing operations (cleaning of the rooms, as opposed to the machines, shall
be performed to the extent practicable), private lavatories or toilets,
darkrooms, child care facilities or any other purpose for which cleaning
contractors servicing first-class office buildings in midtown Manhattan would
generally not provide cleaning except at an additional charge. Tenant shall pay
to Landlord the reasonable costs actually incurred by Landlord for (a) extra
cleaning work in the Demised Premises required because of (i) the misuse or
neglect on the part of Tenant or any subtenant or licensee, or their respective
employees, agents, contractors or invitees, (ii) use of portions of the Demised
Premises for purposes requiring greater or more difficult cleaning work than
required in normal office areas, (iii) interior glass partitions or unusual
quantity
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of interior glass surfaces (other than comprising the entranceway of the Demised
Premises), and (iv) non-Building standard materials or special materials or
finishes on items installed by or on behalf of Tenant, (b) collection and
removal from the Demised Premises or the Building of any refuse or rubbish of
Tenant in excess of that ordinarily accumulated in general office occupancy or
at times other than Landlord's standard cleaning times, and (c) cleaning
requested by Tenant which is not generally available from cleaning contractors
servicing first-class office buildings in midtown Manhattan without additional
charge. Landlord, its cleaning contractor and their employees shall have after
hours access to the Demised Premises and the free use of light, power and water
in the Demised Premises as reasonably required for the purpose of cleaning the
Demised Premises in accordance with Landlord obligations hereunder. If Tenant
shall reasonably and in good faith determine that Landlord's cleaning of the
Demised Premises is inadequate for the conduct of Tenant's business, Tenant
shall have the right, at Tenant's sole cost and expense, to contract directly
with another cleaning contractor who provides services to similar buildings and
which will work harmoniously in the Building, with the consent of Landlord,
which shall not be unreasonably withheld.
16.4 Landlord, at its expense, and on Tenant's request, shall maintain
the name of Tenant, and the names of its officers and employees on the Building
directory, provided that the names so listed shall not take up more than
lines on the Building directory. In the event Tenant shall require additional
(in addition to the listings Landlord is required to provide under this Section
16.4) or substitute listings on the Building directory, Landlord shall, to the
extent space for such additional or substitute listing is available (as
reasonably determined by Landlord) maintain such listings and Tenant shall pay
to Landlord an amount equal to Landlord's standard charge for such listings. In
addition to the foregoing services, Landlord shall keep, maintain and operate
the Building, the Land and all systems serving the Building in a first-class
manner. Without limiting the foregoing, Landlord shall keep the sidewalks
appurtenant to the Building in good repair, free from all dirt, litter, snow and
ice. Landlord shall employ, or cause to be provided, the services of a
first-class non-affiliate managing agent comparable to the managing agent of
comparable first-class office buildings in Manhattan (unless Tenant shall
reasonably agree otherwise). Landlord represents that Williams Real Estate, Inc.
is
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presently the managing agent of the Building. Landlord's services shall include,
but shall not be limited to, security services for the Building and the Demised
Premises in accordance with the specifications set forth in Exhibit G annexed
hereto and made a part hereof.
16.5 Landlord reserves the right, without any liability to Tenant, to
stop service of any of the heating, ventilating, air conditioning, electric,
sanitary, elevator or other Building systems serving the Demised Premises, or
the rendition of any of the other services required of Landlord under this
lease, whenever and for so long as may be necessary, by reason of accidents,
emergencies, strikes or the making of repairs or changes which Landlord is
required by this lease or by law to make or in good faith deems necessary, by
reason of difficulty in securing proper supplies of fuel, steam, water,
electricity, labor or supplies, or by reason of any other cause beyond
Landlord's reasonable control. Landlord shall use commercially reasonable
efforts to remedy such stoppage or interruption. Notwithstanding the foregoing,
if the stoppage of services renders the Demised Premises untenantable for the
ordinary conduct of Tenant's business for more than twenty (20) days, Tenant
shall be entitled to pro-rata abatement of rents for such period of time.
ARTICLE XVII
ACCESS, CHANGES IN BUILDING FACILITIES, NAME
17.1 All portions of the Building except the interior of the Demised
Premises, inside surfaces of all walls, ceilings, windows and doors bounding the
Demised Premises (including exterior Building walls, core corridor walls and
doors and any core corridor entrance) and any space in or adjacent to the
Demised Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, sinks or other Building facilities, and the use
thereof, as well as access thereto through the Demised Premises for the purpose
of operation, maintenance, decoration and repair, in accordance with the
provisions of this lease, are reserved to Landlord.
17.2 Tenant shall permit Landlord upon reasonable notice to Tenant and
at reasonable times (except in case of emergency) to install, use, replace and
maintain concealed pipes, ducts and conduits within the demising
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walls, bearing columns and ceilings of the Demised Premises and that Landlord
shall use reasonable efforts to minimize its interference with Tenant's ordinary
business operation in connection therewith, provided Landlord shall not be
required to perform same on an overtime or premium pay basis. Notwithstanding
the foregoing, Tenant shall identify in its plans and specifications submitted
to Landlord the location of its 900 square foot (approximate) data center
through which Landlord may not install pipes, ducts or conduits.
17.3 Landlord or Landlord's agent shall have the right, upon reasonable
advance notice to Tenant and at reasonable times (except in emergency under
clause (ii) hereof) and, when accompanied by a representative of Tenant, to the
extent Tenant makes same available, to enter and/or pass through the Demised
Premises or any part thereof (i) to examine the Demised Premises and to show
them to the fee owners, lessors of superior leases, holders of superior
mortgages, or prospective purchasers, mortgagees or lessees of the Building as
an entirety, and (ii) for the purpose of making such repairs or changes in or to
the Demised Premises or in or its facilities, as may be provided for by this
lease or as may be mutually agreed upon by the parties or as Landlord may be
required to make by law or in order to repair and maintain said structure or its
fixtures or facilities Landlord shall be allowed to take all materials into and
upon the Demised premises that may be reasonably required for such repairs,
changes, repairing or maintenance. Landlord shall also have the right to enter
on and/or pass through the Demised Premises, or any part thereof, at such times
as such entry shall be required by an emergency affecting the Demised Premises
or said structure. The rights reserved to Landlord pursuant to this Section 17.3
are and shall be conditioned upon Landlord using reasonable efforts to minimize
its interference with Tenant's ordinary business operations conducted in the
Demised Premises provided Landlord shall not be required to exercise such rights
utilizing overtime or on a premium pay basis.
17.4 During the period of twelve (12) months prior to the Expiration
Date Landlord, upon reasonable notice to Tenant and at reasonable times may
exhibit the Demised Premises to prospective Tenants.
17.5 Landlord reserves the right, without incurring any liability to
Tenant therefor, to make such
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changes in or to the Building and the fixtures and equipment thereof, as well as
in or to the street entrances, halls, passages, elevators, escalators and
stairways thereof, as it may deem necessary or desirable, provided that such
changes do not adversely affect access to the Building or the Demised Premises
or the elevator services provided thereto.
17.6 Landlord may adopt any name for the Building and Landlord reserves
the right to change the name or address of the Building at any time.
17.7 For the purposes of this Article, the term "LANDLORD" shall
include lessors of leases and the holders of mortgages to which this lease is
subject and subordinate as provided in Article 5.
Article XVIII
NOTICE OF ACCIDENTS
18.1 Tenant shall give notice to Landlord, promptly after Tenant learns
thereof, of (i) any accident in or about the Demised Premises for which Landlord
might be liable, (ii) all fires in the Demised Premises, (iii) all damages to or
defects in the Demised Premises, including the fixtures, equipment and
appurtenances thereof, for the repair of which Landlord might be responsible,
and (iv) all damage to or defects in any parts or appurtenances of the
Building's sanitary, electrical, heating, ventilating, air-conditioning,
elevator and other systems located in or passing through the Demised Premises or
any part thereof, but the failure of Tenant to give any notice shall not
diminish or impair Landlord's obligation nor result in any liability to Tenant
except to the extent Landlord is precluded from acting or Landlord, the Land or
the Building, or any portion thereof, is damaged by or any liability arises as a
result of such failure by Tenant to give such notice on a timely basis.
ARTICLE XIX
NON-LIABILITY AND INDEMNIFICATION
19.1 Neither Landlord nor any agent or employee of Landlord shall be
liable to Tenant for any injury or damage to Tenant or to any other person or
for any damage
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to, or loss (by theft or otherwise) of, any property of Tenant or of any other
person, irrespective of the cause of such injury, damage or loss, unless caused
by or due to the negligence or willful misconduct of Landlord, its agents or
employees.
19.2 Tenant shall indemnify and save harmless Landlord and its agents
against and from (a) any and all claims, costs or expenses (including, but not
limited, to reasonable counsel fees) (i) to the extent resulting from (x) the
conduct or management of the Demised Premises or of any business therein, or (y)
any work or thing whatsoever done, or any condition created (other than by
Landlord or any agent or employee of Landlord, but including work done by
Landlord for Tenant's account in curing a default by Tenant hereunder, if any
and also including any work done by or on behalf of Tenant and consented to by
Landlord) in or about the Demised Premises during the term of this lease or
during the period of time, if any, prior to the Commencement Date that Tenant
may have been given access to the Demised Premises, or (ii) arising from any
negligent or willful misconduct of Tenant or any of its permitted subtenants or
licensees or its or their employees, agents or contractors, and (b) all
reasonable costs, expenses and liabilities actually incurred in connection with
each such claim or action or proceeding brought thereon. In case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord shall from time to time at the request of Landlord pay all
of Landlord's costs and expenses incurred to resist and defend such action or
proceeding. With respect to any matter for which Tenant shall indemnify Landlord
hereunder, Landlord shall not settle or compromise such matter without the
consent of Tenant, such consent not to be unreasonably withheld, and if Tenant
shall not be resisting and defending such action or proceeding, Landlord shall
use counsel reasonably satisfactory to Tenant and Landlord's or Tenant's
insurance company counsel shall be deemed satisfactory.
19.3 Landlord shall indemnify and save harmless Tenant and its agents
against and from (a) any and all claims, costs or expenses (including, but not
limited, to reasonable counsel fees) (i) to the extent resulting from (x) the
conduct or management of the Building or of any business therein, or (y) any
work or thing whatsoever done, or any condition created (other than by Tenant or
any agent or employee of Tenant) in or about the Building during the term of
this lease or during the period of time, if any,
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prior to the Commencement Date that Tenant may have been given access to the
Building, or (ii) arising from any negligent or willful misconduct of Landlord
or any of its subtenants or licensees or its or their employees, agents or
contractors, and (b) all reasonable costs, expenses and liabilities actually
incurred in or in connection with each such claim or action or proceeding
brought thereon. In case any action or proceeding be brought against Tenant by
reason of any such claim, Landlord, upon notice from Tenant shall from time to
time, pay all of Tenant's costs and expenses incurred to resist and defend such
action or proceeding. With respect to any matter for which Landlord shall
indemnify Tenant hereunder, Tenant shall not settle or compromise such matter
without the consent of Landlord, such consent not to be unreasonably withheld,
and if Landlord shall not be resisting and defending such action or proceeding,
Tenant shall use counsel reasonably satisfactory to Landlord and Tenant's or
Landlord's insurance company counsel shall be deemed satisfactory.
19.4 Except as otherwise expressly provided in this lease and the
obligations of Tenant hereunder, shall be in no wise affected, impaired or
excused because Landlord is unable to fulfill or is delayed in fulfilling any of
its obligations hereunder by reason of strike, other labor trouble, governmental
preemption or priorities or other controls in connection with a national other
public emergency or shortages of fuel, supplies or labor resulting therefrom,
acts of God or other like cause beyond Landlord's reasonable control, and Tenant
shall have no right of offset against any fixed rent or additional rent due
hereunder for any reason whatsoever.
ARTICLE XX
DESTRUCTION OR DAMAGE
20.1 If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other cause, then, whether or not the
damage or destruction shall have resulted from the fault or neglect of Tenant,
or its employees, agents or visitors (and if this lease shall not have been
terminated as in this Article hereinafter provided), Landlord shall repair the
damage and restore and rebuild the Building and/or the Demised Premises, at its
expense, with reasonable dispatch after notice to it of the damage or
destruction; provided,
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however, that Landlord shall not be required to repair or replace any of
Tenant's Property.
20.2 If the Building or the Demised Premises shall be partially damaged
or partially destroyed by fire or other cause, the rents payable hereunder shall
be abated to the extent that the Demised Premises shall have been rendered
untenantable for the ordinary conduct of Tenant's business and for the period
from the date of such damage or destruction to the date the damage shall be
repaired or restored. It is explicitly understood and agreed that
notwithstanding that the Demised Premises may be unaffected by such fire or
casualty or that any damage caused to the Demised Premises may have been
repaired, the Demised Premises will be deemed untenantable for the ordinary
conduct of its business if Tenant shall not have access thereto or if the
utilities and/or services to be provided from other portions of the Building
have been cut off. If the Demised Premises or a major part thereof shall be
totally (which shall be deemed to include substantially totally) damaged or
destroyed or rendered completely (which shall be deemed to include substantially
completely) untenantable for the ordinary conduct of Tenant's business on
account of fire or other cause, the rents shall abate as of the date of the
damage or destruction and until Landlord shall repair, restore and rebuild the
Building and the Demised Premises, provided, however, that should Tenant
reoccupy a portion of the Demised Premises for the ordinary conduct of Tenant's
business during the period the restoration work is taking place and prior to the
date that the same are made completely tenantable, rents allocable to such
portion shall be payable by Tenant from the date of such occupancy.
20.3 If the Building shall be damaged or destroyed by fire or other
cause (whether or not the Demised Premises are damaged or destroyed) as to
require a reasonably estimated expenditure of more than forty (40%) percent of
the full insurable value of the Building immediately prior to the casualty,
then, provided that Landlord shall also terminate the leases of all other
non-affiliated (with Landlord) tenants in the Building, Landlord may terminate
this lease by giving Tenant notice to such effect within one hundred eighty
(180) days after the date of the casualty. In case of any damage or destruction
mentioned in this Section 20.3, or any damage to or destruction of the Demised
Premises, Tenant may terminate this lease, by notice to Landlord, if Landlord
has not
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completed the making of the required repairs and restored and rebuilt, or if it
is reasonably estimated by an independent, reputable contractor, construction
manager, registered architect, licenses professional engineer selected by
Landlord, or Landlord that Landlord will not or will not be able to complete the
making of the required repairs and restore and rebuild, the Building and/or the
Demised Premises within nine (9) months from the date of such damage or
destruction, or within such period after such date (not exceeding six (6)
months) as shall equal the aggregate period Landlord may have been delayed in
doing so by adjustment of insurance (provided Landlord diligently pursues such
adjustment), labor trouble, governmental controls, act of God, or any other
cause beyond Landlord's reasonable control.
20.4 No damages, compensation or claim shall be payable by Landlord to
Tenant for inconvenience, loss of business or annoyance arising from any repair
or restoration of any portion of the Demised Premises or of the Building
pursuant to this Article.
20.5 Notwithstanding any of the foregoing provisions of this Article,
if Landlord or the lessor of any superior lease or the holder of any superior
mortgage shall be unable to collect all of the insurance proceeds (including
rent insurance proceeds) applicable to damage or destruction of the Demised
Premises or the Building by fire or other cause, by reason of Tenant's refusal
or failure to cooperate with Landlord and/or its agents or employees in
connection with the settlement of Landlord's insurance claim then, without
prejudice to any other remedies which may be available against Tenant, there
shall be no abatement of Tenant's rents, but the total amount of such rents not
abated (which would otherwise have been abated) shall not exceed the amount of
the uncollected insurance proceeds.
20.6 Landlord will not carry insurance of any kind on Tenant's Property
and shall not be obligated to repair any damage thereto or replace the same.
20.7 The provisions of this Article shall be considered an express
agreement governing any case of damage or destruction of the Demised Premises by
fire or other casualty, and Section 227 of the Real Property Law of the State of
New York, providing for such a contingency in the absence of an express
agreement, and any other law of like
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import, now or hereafter in force, shall have no application in such case.
ARTICLE XXI
EMINENT DOMAIN
21.1 If the whole of the Building shall be lawfully taken by
condemnation or in any other manner for any public or quasi-public use or
purpose, this lease and the term and estate hereby granted shall forthwith
terminate as of the date of vesting of title in such taking (which date is
hereinafter also referred to as the "DATE OF THE TAKING"), and the fixed rent
and additional rent due hereunder shall be prorated and adjusted as of such
date.
21.2 If only a part of the Building shall be so taken, this lease shall
be unaffected by such taking, except that Tenant may elect to terminate this
lease in the event of a partial taking, only if Tenant's access to the Building
or Demised Premises is denied or materially interfered with, or if the remaining
area of the Demised Premises shall not be reasonably sufficient for Tenant to
continue feasible operation of its business. Tenant shall give notice of such
election to Landlord not later than thirty (30) days after (i) notice of such
taking is given by Landlord to Tenant, or (ii) the date of such taking, which
ever occurs sooner. Upon the giving of such notice by Tenant this lease shall
terminate on the date which is thirty (30) days after the date such notice is
given by Tenant to Landlord of such taking and the fixed rent and additional
rent due hereunder shall be prorated as of such termination date. Upon such
partial taking and this lease continuing in force as to any part of the Demised
Premises, the rents apportioned to the part taken shall be prorated and adjusted
as of the date of taking and from such date the fixed rent for the Demised
Premises and additional rent shall be payable pursuant to Article 4 according to
the rentable area remaining.
21.3 Landlord shall be entitled to receive the entire award in any
proceeding with respect to any taking provided for in this Article without
deduction therefrom for any estate vested in Tenant by this lease and Tenant
shall receive no part of such award, except as hereinafter expressly provided in
this Article. Tenant hereby expressly assigns to Landlord all of its right,
title and interest in or to every such award. Notwithstanding anything herein to
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the contrary, Tenant may, at its sole cost and expense, make a claim with the
condemning authority for any interruption to Tenant's business, Tenant's moving
expenses, the value of Tenant's fixtures or Tenant's Property, provided,
however, that with respect to each item claimed by Tenant Landlord's award is
not thereby reduced or otherwise adversely affected.
21.4 If the temporary use or occupancy of all or any part of the
Demised Premises shall be lawfully taken by condemnation or in any other manner
for any public or quasi-public use or purpose during the term of this lease,
Tenant shall be entitled, except as hereinafter set forth, to receive that
portion of the award for such taking which represents compensation for the use
and occupancy of the Demised Premises and, if so awarded, for the taking of
Tenant's Property and for moving expenses, and Landlord shall be entitled to
receive that portion which represents reimbursement for the cost of restoration
of the Demised Premises. Except as herein specifically provided, this lease
shall be and remain unaffected by such taking and Tenant shall continue
responsible for all its obligations hereunder insofar as such obligations are
not affected by such taking and shall continue to pay in full the fixed rent and
additional rent when due. If the period of temporary use of occupancy shall
extend beyond the Expiration Date, that part of the award which represents
compensation for the use or occupancy of the Demised Premises (or a part
thereof) shall be divided between Landlord and Tenant so that Landlord shall
receive so much thereof as represents the period subsequent to the Expiration
Date. All moneys received by Landlord as, or as part of, an award for temporary
use and occupancy for the period beyond the date to which the rents hereunder
have been paid by Tenant, but prior to the Expiration Date, shall be received,
held and applied by Landlord as a trust fund for payment of the fixed rent and
additional rent due hereunder.
21.5 In the event of any taking of less than the whole of the Building
which does not result in a termination of this lease, or in the event of a
taking for a temporary use of occupancy of all or any part of the Demised
Premises which does not extend beyond the Expiration Date, Landlord, at its
expense, and regardless of whether any award or awards shall be sufficient for
the purpose, shall proceed with reasonable diligence to repair, alter and
restore the remaining parts of the Building and the Demised Premises to
substantially a building standard condition to the extent
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that the same may be feasible and so as to constitute a complete and tenantable
Building and Demised Premises; provided, however, that in the event that any
such award or awards are not sufficient for the purpose, Landlord shall have the
right to terminate this lease and the estate thereby granted; further provided,
however, that Landlord shall have no such right in the event Tenant elects to
fund any such deficiency as and when due. Tenant shall give Landlord written
notice of its election to fund such deficiency within thirty (30) days (time
being of the essence) following notice from Landlord that Landlord has elected
to terminate this lease pursuant to this Section 21.5, which notice shall
contain the amount of such deficiency and which notice must be given to Tenant
within thirty (30) days from the date Landlord receives notification as to the
amount of such award(s). In any event, in case of any taking mentioned in this
Section 21.5, Tenant may terminate this lease, by notice to Landlord, if
Landlord has not completed the making of such required repairs and restored the
remaining parts of the Building and the Demised Premises within nine (9) months
from the date of such taking, or with such period after such date (not exceeding
six (6) months) as shall equal the aggregate period Landlord may have been
delayed in doing so by labor trouble, governmental controls, act of God, or any
other cause beyond Landlord's reasonable control.
21.6 Should any part of the Demised Premises be taken to effect
compliance with any law or requirement of public authority other than in the
manner hereinabove provided in this Article, then (i) if such compliance is the
obligation of Tenant under this lease, Tenant shall not be entitled to any
diminution or abatement of rents or other compensation from Landlord therefor,
but (ii) if such compliance is the obligation of Landlord under this lease, the
fixed rent hereunder shall be reduced and additional rents under Article 4 shall
be adjusted in the same manner as is provided in Section 21.2 according to the
reduction in rentable area of the Demised Premises resulting from such taking.
21.7 Any dispute which may arise between the parties with respect to
the meaning or application of any of the provisions of this Article shall be
determined by arbitration in the manner provided in Article 34.
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ARTICLE XXII
[INTENTIONALLY OMITTED]
ARTICLE XXIII
[INTENTIONALLY OMITTED]
ARTICLE XXIV
SURRENDER
24.1 On the last day of the term of this lease, or upon any earlier
termination of this lease as provided hereunder or upon any re-entry by Landlord
upon the Demised Premises as provided under this lease, Tenant shall quit and
surrender the Demised Premises to Landlord in good order, condition and repair,
except for ordinary wear and tear and such damage or destruction for which
Tenant is not responsible under this lease, and Tenant shall remove all of
Tenant's Property therefrom except as otherwise expressly provided in this lease
and shall repair any damage to the Demised Premises caused by such removal.
24.2 In the event Tenant remains in possession of the Demised Premises,
after the Expiration Date or the date of sooner termination of this lease,
Tenant, at the option of Landlord, shall be deemed to be occupying the Demised
Premises as a holdover tenant from month-to-month, at a monthly rent equal to
two (2) times the sum of (i) the monthly installment of fixed rent payable
during the last month of the term of this lease, and (ii) one-twelfth (1/12th)
of the additional rent payable during the last year of the term of this lease,
subject to all of the other terms and obligations of this lease insofar as the
same are applicable to a month-to-month tenancy.
ARTICLE XXV
CONDITIONS OF LIMITATION
25.1 To the extent permitted by applicable law, this lease, and the
term and estate hereby granted, are subject to the limitation that, whenever
Tenant shall be unable to pay its debts generally as they become due (and
Landlord can so reasonably demonstrate), or shall make an
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assignment of the property of Tenant for the benefit of creditors, or shall
consent to, or acquiesce in, the appointment of a liquidator receiver, trustee,
or other custodian of itself or the whole or any part of its properties or
assets, or shall commence a voluntary case for relief under the United States
Bankruptcy Code or file a petition or take advantage of any bankruptcy or
insolvency act or applicable law of like import, or whenever an involuntary case
under the United States Bankruptcy Code shall be commenced against Tenant, or if
a petition shall be filed against it seeking similar relief under any bankruptcy
or insolvency or other applicable law of like import, or whenever a receiver,
liquidator, trustee, or other custodian of Tenant, or of, or for, substantially
all of the property of, Tenant shall be appointed without Tenant's consent or
acquiescence, then, Landlord (a) at any time after receipt of notice of the
occurrence of any such event, or (b) if such event occurs without the
acquiescence of Tenant, at any time after the event continues for one hundred
twenty (120) days, may give Tenant a notice of intention to end the term of this
lease at the expiration of five (5) days from the date of service of such notice
of intention, and, upon the expiration of said five (5) day period, this lease
and the term and estate hereby granted, whether or not the term shall
theretofore have commenced, shall terminate with the same effect as if that day
were the Expiration Date, but Tenant shall remain liable for damages as provided
in Article 27. As used in this Section 23.1, the term "TENANT" shall mean the
then owner and holder of the interest and estate of the tenant under this lease.
25.2 This lease and the term and estate granted are subject to the
further limitation that:
(a) whenever Tenant shall default in the payment of any installment of
fixed rent, or in the payment of any additional rent or any other charge payable
by Tenant to Landlord, on any day upon which the same ought to be paid, and such
default shall continue for seven (7) days after notice from Landlord, or
(b) whenever Tenant shall default in the performance of any obligation
of Tenant under this lease (except for the obligation to pay rent or additional
rent) and such default shall continue and shall not be remedied by Tenant within
thirty (30) days after Landlord shall have given to Tenant a notice specifying
the same, or in the case of a happening or default which cannot with due
diligence be
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cured within a period of thirty (30) days and the continuance of which for the
period required for cure will not subject Landlord to the prosecution for
criminal liability (as more particularly described in Section 8.2) or
termination of any superior lease or foreclosure of any superior mortgage, if
Tenant shall not, (i) within said thirty (30) day period advise Landlord of
Tenant's intention to duly institute all steps necessary to remedy such
situation, and (ii) duly institute within said thirty (30) day period, and
thereafter diligently prosecute to completion all steps necessary to remedy the
same and (iii) complete such remedy within such time after the date of the
giving of said notice of Landlord as shall reasonably be necessary, or
(c) whenever any event shall occur or any contingency shall arise
whereby this lease or the estate hereby granted or the unexpired balance of the
term hereof would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly permitted by
Article 7 and such condition shall not be cured within thirty (30) days after
notice from Landlord, or
(d) whenever Tenant shall abandon the Demised Premises (unless as a
result of casualty as provided herein),
(e) then in any of said cases set forth in the foregoing Subsections
(a), (b), (c) and (d), Landlord may give to Tenant a notice of intention to end
the term of this lease at the expiration of five (5) business days from the date
of the service of such notice of intention, and upon the expiration of said five
(5) business days this lease and the term and estate hereby granted, whether or
not the term shall theretofore have commenced, shall terminate with the same
effect as if that day were the Expiration Date, but Tenant shall remain liable
for damages as provided in Article 27.
ARTICLE XXVI
RE-ENTRY BY LANDLORD
26.1 If this lease shall be terminated or expire as in Article 25
provided, Landlord or Landlord's agents and employees may immediately or at any
time thereafter re-enter
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the Demised Premises, or any part thereof, either by summary dispossess
proceedings or by any suitable action or proceeding at law, and may repossess
the same, and may remove any persons therefrom, to the end that Landlord may
have, hold and enjoy the Demised Premises again as and of its first estate and
interest therein. The word re-enter, as herein used, is not restricted to its
technical legal meaning. In the event of any termination of this lease under the
provisions of Article 25 or otherwise, or of re-entry, by or under any summary
dispossess or other proceeding or action or any provision of law by reason of
default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord
the fixed rent and additional rent payable by Tenant to Landlord up to the time
of such termination of this lease, or of such recovery of possession of the
Demised Premises by Landlord, as the case may be, and shall also pay to Landlord
damages as provided in Article 27.
26.2 In the event of a breach or threatened breach by Tenant of any of
its obligations under this lease, Landlord shall also have the right of
injunction upon notice to Tenant (which may be by order to show cause). The
special remedies to which Landlord may resort hereunder are cumulative and are
not intended to be exclusive of any other remedies or means of redress to which
Landlord may lawfully be entitled at any time and Landlord may invoke any remedy
allowed at law or in equity as if specific remedies were not provided for
herein.
26.3 If this lease shall terminate under the provisions of Article 25,
or if Landlord shall re-enter the Demised Premises under the provisions of this
Article 25 or otherwise, or of re-entry, by or under any summary dispossess or
other proceeding of action or any provision of law by reason of default
hereunder on the part of Tenant, Landlord shall be entitled to retain all
moneys, if any, paid by Tenant to Landlord, whether as advance fixed rent or
additional rent, security or otherwise, and draw on the Letter of Credit, and
such moneys shall be credited by Landlord against any fixed rent or additional
rent due from Tenant at the time of such termination or re-entry or, at
Landlord's option, against any damages payable by Tenant under Article 27 or
pursuant to law.
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ARTICLE XXVII
DAMAGES
27.1 If this lease is terminated under the provisions of Article 25, or
if Landlord shall re-enter the Demised Premises under the provisions of Article
26, Tenant shall pay to Landlord as damages, at the election of Landlord,
either:
(a) a sum which at the time of such termination of this lease or at the
time of any such re-entry of Landlord, as the case may be, represents the then
value of the aggregate of the fixed rent and the additional rent payable
hereunder which would have been payable by Tenant (conclusively presuming the
additional rent to be the same as was payable for the Tax Year and calendar year
immediately preceding such termination) for the period commencing with such
earlier termination of this lease or the date of any such re-entry, as the case
may be, and ending with the Expiration Date, had this lease not so terminated or
had Landlord not so re-entered the Demised Premises, present valued using a
discount rate of six (6%) percent, or
(b) sums equal to the fixed rent and the additional rent (as above
presumed) payable hereunder which would have been payable by Tenant had this
lease not so terminated, or had Landlord not so re-entered the Demised Premises,
payable upon the due dates therefore specified herein following such termination
or such re-entry and until the Expiration Date, provided, however, that if
Landlord shall relet the Demised Premises during said period, Landlord shall
credit Tenant with the net rents received by Landlord from such reletting such
net rents to be determined by first deducting from the gross rents as and when
received by Landlord from such reletting any and all reasonable expenses
incurred or paid by Landlord in terminating this lease or in re-entering the
Demised Premises and in securing possession thereof, as well as the reasonable
expenses of reletting including, without limitation, altering and preparing the
Demised Premises for new tenants, brokers' commissions, counsel fees and all
other expenses properly chargeable against the Demised Premises and the rental
therefrom; it being understood that any such reletting may be for a period
shorter or longer than the remaining term of this lease; but in no event shall
Tenant be entitled to receive any excess of such net rents over the sums payable
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by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for
the collection of damages pursuant to this Subsection to a credit in respect of
any net rents from a reletting, except to the extent that such net rents are
actually received by Landlord. If the Demised Premises or any part thereof
should be relet in combination with other space, then proper apportionment on a
square foot basis (for equivalent space) shall be made of the rent received from
such reletting and of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord for
the unexpired portion of the term of this lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Demised Premises, or part thereof, so relet
during the term of the reletting.
27.2 Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the term of this lease would have expired if
it had not been so terminated under the provisions of Article 25, or under any
provision of law, or had Landlord not re-entered the Demised Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages other than consequential damages to which,
in addition to the damages particularly provided above, Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant. Nothing
herein contained shall be construed to limit or prejudice the right of Landlord
to prove for and obtain as liquidated damages by reason of the termination of
this lease or re-entry on the Demised Premises for the default of Tenant under
this lease, an amount equal to the maximum allowed by any statute or rule of law
in effect at the time when, and governing the proceedings in which, such damages
are to be proved whether or not such amount be greater, equal to, or less than
any of the sums referred to in Section 25.1.
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ARTICLE XXVIII
WAIVERS
28.1 TENANT, FOR TENANT, AND ON BEHALF OF ANY AND ALL PERSONS CLAIMING
THROUGH OR UNDER TENANT, INCLUDING CREDITORS OF ALL KINDS, DOES HEREBY WAIVE AND
SURRENDER ALL RIGHT AND PRIVILEGE WHICH THEY OR ANY OF THEM MIGHT HAVE UNDER OR
BY REASON OF ANY PRESENT OR FUTURE LAW, TO REDEEM THE DEMISED PREMISES OR TO
HAVE A CONTINUANCE OF THIS LEASE FOR THE TERM HEREBY DEMISED AFTER BEING
DISPOSSESSED OR EJECTED THEREFROM BY PROCESS OF LAW OR UNDER THE TERMS OF THIS
LEASE OR AFTER THE TERMINATION OF THIS LEASE AS HEREIN PROVIDED OR PURSUANT TO
LAW.
28.2 In the event that Tenant is in arrears in payment of fixed rent or
additional rent hereunder, Tenant waives Tenant's right, if any, to designate
the items against which any payments made by Tenant are to be credited, and
Tenant agrees that Landlord may apply any payments made by Tenant to any items
it sees fit, irrespective of any notwithstanding any designation or request by
Tenant as to the items against which any such payments shall be credited.
28.3 LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT EITHER AGAINST THE OTHER ON ANY MATTER
WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE DEMISED
PREMISES, INCLUDING ANY CLAIM OF INJURY OR DAMAGE, OR ANY EMERGENCY OR OTHER
STATUTORY REMEDY WITH RESPECT THERETO.
28.4 The provisions of Articles 15 and 16 shall be considered express
agreements governing the services to be furnished by Landlord, and Tenant agrees
that any laws and/or requirements of public authorities, now or hereafter in
force, shall have no application in connection with any enlargement of
Landlord's obligations with respect to such services unless Tenant agrees, in
writing, to pay to Landlord, as additional rent, Landlord's reasonable charges
for any additional services provided. The provisions of this Article 28 shall
survive the expiration or sooner termination of this lease.
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ARTICLE XXIX
NO OTHER WAIVER OR MODIFICATIONS
29.1 The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the obligations of this lease,
or to exercise any election herein contained, shall not be construed as a waiver
or relinquishment for the future of the performance of such one or more
obligations of this lease or of the right to exercise such election, but the
same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. No executory agreement hereafter made
between Landlord and Tenant shall be effective to change, modify, waive,
release, discharge terminate or effect an abandonment of this lease, in whole or
in part, unless such executory agreement is in writing, refers expressly to this
lease and is signed by the party against whom enforcement of the change,
modification, waiver, release, discharge or termination or effectuation of the
abandonment is sought.
29.2 The following specific provisions of this Section 29.2 shall not
be deemed to limit the generality of any of the foregoing provisions of this
Article:
(a) No agreement to accept surrender of all or any part of the
Demised Premises shall be valid unless in writing and signed by
Landlord. The delivery of keys to an employee of Landlord or of its
agent shall not operate as a termination of this lease or a surrender
of the Demised Premises. If Tenant shall at any time request Landlord
to sublet the Demised Premises for Tenant's account, Landlord or its
agents is authorized to receive said keys for such purposes without
releasing Tenant from any of its obligations under this lease, and
Tenant hereby releases Landlord from any liability for loss or damage
to any of Tenant's property in connection with such subletting.
(b) The receipt by Landlord of rent with knowledge of breach
of any obligation of this lease shall not be deemed a waiver of such
breach.
(c) No payment by Tenant or receipt by Landlord of a lesser
amount than the correct fixed rent or additional rent due hereunder
shall be deemed to be other than a payment on account, nor shall any
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endorsement or statement on any check or any letter accompanying any
check or payment without prejudice to Landlord's right to recover the
balance or pursue any other remedy in this lease or at law provided.
ARTICLE XXX
CURING TENANTS DEFAULTS, ADDITIONAL RENT
30.1 (a) If Tenant shall default in the performance of any of Tenant's
obligations under this lease after applicable notice and the expiration of
applicable cure periods, Landlord, without thereby waiving such default, may
(but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice, in a case of emergency, and in any other
case, only if such default continues after applicable notice and the expiration
of applicable cure periods.
(b) If Tenant is late in making any payment due to Landlord under this
lease for seven (7) or more days after notice from Landlord that the same shall
have come due, then interest shall become due and owing to Landlord on such
payment from the date when it was due computed at the rate of five (5%) percent
per annum over the then prime rate of Citibank, N.A. (the "INTEREST RATE"), but
in no event in excess of the maximum lawful rate of interest chargeable to
corporations in the State of New York.
30.2 Bills for any reasonable expenses actually incurred by Landlord in
connection with any such performance by it for the account of Tenant in
accordance with Section 30.1, and bills for all reasonable costs, expenses and
disbursements of every kind and nature whatsoever, including reasonable counsel
fees, actually incurred in collecting or endeavoring to collect the fixed rent
or additional rent or any part thereof or enforcing or endeavoring to enforce
any rights against Tenant, under or in connection with this lease, or pursuant
to law, including any such reasonable cost, expense and disbursement involved in
instituting and prosecuting summary proceedings, as well as bills for any
property, material, labor or services provided, furnished, or rendered by
Landlord to Tenant, pursuant to the terms hereof, may be sent by Landlord to
Tenant monthly, or immediately, at Landlord's option, and, shall be due and
payable twenty (20) days following the rendition of such bills, provided that
such bills shall be accompanied by
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itemized statements showing, in reasonable detail, a breakdown of all such
costs, expenses and disbursements in accordance with the terms of such bills.
ARTICLE XXXI
BROKER
31.1 Landlord and Tenant each covenants, warrants and represents to the
other that it had no negotiations or other dealings with any broker or finder
except Peter Friedman, Ltd., and Williams Real Estate Co. Inc. (collectively,
the "BROKER") concerning the renting of the Demised Premises. Landlord and
Tenant each agrees to hold the other harmless against any claims for a brokerage
commission arising out of any negotiations or other dealings had by Landlord or
Tenant, respectively, with any broker or finder except the Broker. Landlord
shall pay the commission due the Broker pursuant to separate agreement.
ARTICLE XXXII
NOTICES
32.1 Any notice, statement, demand or other communication required or
permitted to be given, rendered or made by either party to the other, pursuant
to this lease or pursuant to any applicable law or requirement of public
authority, shall be in writing (whether or not so stated elsewhere in this
lease) and shall be deemed to have been properly given, rendered or made, if
personally delivered or sent by registered or certified mail, return receipt
requested, addressed to the other party at the address hereinabove set forth
(except that after the Commencement Date, Tenant's address, unless Tenant shall
give notice to the contrary, shall be the Building) and shall be deemed to have
been given, rendered or made on the day so delivered, or on the day such
delivery was refused, if personally delivered, or on the third (3rd) day after
being mailed, if sent by registered or certified mail. A copy of any notice,
statement, demand or other commission shall be sent by like means: (i) if to
Landlord to Williams Real Estate Co., Inc., 530 Fifth Avenue, New York, New
York, 10036, Attention: Kenneth Carmel; and if to Tenant to the attention of the
Chief Financial Officer, with a copy to the attention of the Controller. Either
party may, by notice as
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aforesaid, designate a different address or addresses for notices, statements,
demand or other communications intended for it.
ARTICLE XXXIII
ESTOPPEL CERTIFICATE, MEMORANDUM
33.1 Each party agrees, at any time and from time to time, as requested
by the other party, upon not less than thirty (30) days' prior notice, to
execute and deliver to the other a statement certifying (a) that this lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications) and whether any options granted to Tenant pursuant to the
provisions of this lease have been exercised, (b) certifying the dates to which
the fixed rent and additional rent have been paid and the amounts thereof, and
stating whether or not, to the best knowledge of the signer, the other party is
in default in performance of any of its obligations under this lease, and, if
so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant hereto may be relied
upon by others with whom the party requesting such certificate may be dealing.
33.2 At the request of Landlord, Tenant shall promptly execute,
acknowledge and deliver a memorandum with respect to this lease sufficient for
recording. Such memorandum shall not in any circumstances be deemed to change or
otherwise affect any of the obligations or provisions of this lease. Tenant
shall have no right, on its own without Landlord's prior written consent, to
record any memorandum of this lease or the lease itself, and any such
recordation, without such Landlord's consent, shall be void and shall constitute
a default under this lease.
ARTICLE XXXIV
ARBITRATION
34.1 Either party may request arbitration of any matter in dispute only
wherein arbitration is expressly provided in this lease as the appropriate
remedy. The party requesting arbitration shall do so by giving notice to that
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effect to the other party, and both parties shall promptly thereafter jointly
apply to the American Arbitration Association (or any organization successor
thereto) in the City and County of New York for the appointment of a single
arbitrator.
34.2 The arbitration shall be conducted in accordance with the then
prevailing rules of the American Arbitration Association (or any organization
successor thereto) in the City and County of New York. In rendering such
decision and award, the arbitrator shall not add to, subtract from or otherwise
modify the provisions of this lease.
34.3 If for any reason whatsoever a written decision and award of the
arbitrator shall not be rendered within sixty (60) days after the appointment of
such arbitrator, then at any time thereafter before such decision and award
shall have been rendered either party may apply to the Supreme Court of the
State of New York or to any other court having jurisdiction and exercising the
functions similar to those now exercised by such court, by action, proceeding or
otherwise (but not by a new arbitration proceeding) as may be proper to
determine the question in dispute consistently with the provisions of this
lease.
34.4 All the expenses of the arbitration shall be borne by the parties
equally.
34.5 If there is a dispute between Landlord and Tenant and Speedy
Arbitration is expressly provided for as an appropriate remedy for such dispute
in this lease, such dispute shall be determined by arbitration in The City of
New York in accordance with the following provisions: Within five (5) business
days next following the giving of any notice by Tenant to Landlord stating that
it wishes such dispute to be so determined, Landlord and Tenant each shall give
notice to the other setting forth the name and address of an arbitrator
designated by the party giving such notice. If either party shall fail to give
notice of such designation within said five (5) business days, then the
arbitrator chosen by the other side shall make the determination alone. If two
arbitrators have been designated, such arbitrators shall designate a third
arbitrator. If the two arbitrators shall fail to agree upon the designation of a
third arbitrator within two (2) business days of the designation of the second
arbitrator, then either party may apply to the American Arbitration
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Association or to any successor thereto, for the designation of such arbitrator.
All arbitrators shall be persons who shall have had at least fifteen (15) years
continuous experience in the business of appraising or managing real estate or
acting as real estate agents of brokers dealing with institutional first-class
office buildings located in the Borough of Manhattan, City of New York. The
three arbitrators shall conduct such hearings as they deem appropriate, making
their determination in writing, and shall give notice to Landlord and Tenant of
their determination as soon as practicable, and, if possible, within two (2)
business days of the designation of the third arbitrator but in no event later
than ten (10) days after such designation; the concurrence of any two of said
arbitrators shall be binding upon Landlord and Tenant, or, in the event no two
of the arbitrators shall render a concurrent determination, then the
determination of the third arbitrator designated shall be binding upon Landlord
and Tenant. Notwithstanding the foregoing, in the event no two (2) of the
arbitrators shall render a concurrent determination with regards to arbitration
arising as to the Fair Market Rent pursuant to Section 41.2 herein, the third
arbitrator designated shall not make an independent determination as to the Fair
Market Rent but shall select the Fair Market Rent determination of one of the
remaining two (2) arbitrators, which selection shall be binding upon Landlord
and Tenant as the Fair Market Rent; provided, however, that in the event the
difference in the Fair Market Rent determinations of the remaining two (2)
arbitrators is less than ten percent (10%), the average of the remaining two (2)
arbitrators' Fair Market Rent determinations shall constitute the Fair Market
Rent and be binding upon Landlord and Tenant. Any such determination shall be
final and binding upon the parties, whether or not a judgment shall be entered
in any court. Each party shall pay its own counsel fees and expenses, if any, in
connection with any arbitration under this Section 34.5, including the expenses
and fees of any arbitrator selected by it in accordance with the provisions of
this Section 34.5, and the parties shall share equally all other expenses and
fees of any such arbitration. The arbitrators shall be bound by the provisions
of this lease and shall not add to, subtract from or otherwise modify such
provisions. This Article shall be construed as an express written waiver of the
parties' rights under Section 7506(f) of the C.P.L.R.
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ARTICLE XXXV
NO OTHER REPRESENTATIVES,
CONSTRUCTION, GOVERNING LAW, CONSENTS
35.1 Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and, in executing and delivering this lease, is not
relying upon, any warranties, representations, promises or statements, except to
the extent that the same are expressly set forth in this lease or in any other
written agreement which may be made between the parties concurrently with the
execution and delivery of this lease and shall expressly refer to this lease.
This lease and said other written agreement(s) made concurrently herewith are
hereinafter referred to as the "LEASE DOCUMENTS." It is understood and agreed
that all understandings and agreements heretofore had between the parties are
merged in the lease documents, which alone fully and completely express their
agreements and that the same are entered into after full investigation, neither
party relying upon any statement or representation not embodied in the lease
documents, made by the other.
35.2 If any of the provisions of this lease, or the application thereof
to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this lease shall be valid and enforceable to the fullest extent
permitted by law.
35.3 This lease shall be governed by and construed in accordance with
the laws of the State of New York.
35.4 Wherever in this lease Landlord's consent or approval is required,
if Landlord shall refuse such consent or approval, Tenant in no event shall be
entitled to make, nor shall Tenant make, any claim, and Tenant hereby waives any
claim, for money damages (nor shall Tenant claim any money damages by way of
set-off, counterclaim or defense) based upon any claim or assertion by Tenant
that Landlord unreasonably withheld or unreasonably delayed its consent or
approval. Tenant's remedy shall either be an action or proceeding to enforce any
such provision, for
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specific performance, injunction or declaratory judgment or Speedy Arbitration.
ARTICLE XXXVI
PARTIES BOUND
36.1 The obligations of this lease shall bind and benefit the
successors and assigns of the parties with the same effect as if mentioned in
each instance where a party is named or referred to, except that no violation of
the provisions of Article 7 shall operate to vest any rights in any successor or
assignee of Tenant and that the provisions of this Article shall not be
construed as modifying the conditions of limitation contained in Article 25.
However, the obligations of Landlord under this lease shall not be binding upon
Landlord herein named with respect to any period subsequent to the transfer of
its interest in the Building as owner or lessee thereof and in event of such
transfer said obligations shall thereafter be binding upon each transferee of
the interest of Landlord herein named as such owner or lessee of the Building,
and it shall be deemed without further agreement, and binding upon each
succeeding transferee, that such transferee has assumed such obligations, but
only with respect to the period ending with a subsequent transfer within the
meaning of this Article.
36.2 If Landlord shall be an individual, joint venture, tenancy in
common, co-partnership, unincorporated association, or other unincorporated
aggregate of individuals and/or entities or a corporation, Tenant shall look
only to such Landlord's estate, interest and property in the Land and Building
which, for purposes hereof, shall be deemed to include all sales proceeds
(including judicial sales), refinancing proceeds, insurance proceeds,
condemnation awards, rents and other income produced at or from the Land and/or
Building, for the satisfaction of Tenant's remedies for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord
in the event of any default by Landlord hereunder, and no other property or
assets of such Landlord or any partner, member, officer or director thereof,
disclosed or undisclosed shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this lease, the relationship of Landlord and Tenant hereunder or
Tenant's use or occupancy of the Demised Premises. Landlord agrees
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that each and every person who now is or who becomes an officer, director or
shareholder of Tenant shall, except in the case of fraud or willful misconduct,
have no personal liability to the Landlord, directly or indirectly, for any
default by, or other obligation of, the Tenant hereunder.
ARTICLE XXXVII
CERTAIN DEFINITIONS AND CONSTRUCTION
37.1 For the purposes of this lease and all agreements supplemental to
this lease, unless the context otherwise requires the definitions set forth in
Exhibit D annexed hereto and made a part hereof shall be utilized.
37.2 The various terms which are italicized and defined in other
Articles of this lease or are defined in Exhibits annexed hereto, shall have the
meanings specified in such other Articles and such Exhibits for all purposes of
this lease and all agreements supplemental thereto, unless the context shall
otherwise require.
ARTICLE XXXVIII
ADJACENT EXCAVATION - SHORING
38.1 Subject to the provisions of Section 13.3, if an excavation or
other substructure work shall be made upon land adjacent to the Demised
Premises, or shall be authorized to be made, Tenant shall afford access to the
Demised Premises for the purpose of doing such work as shall be necessary to
preserve the wall of the Building from injury or damage and to support the same
by proper foundations without any claim for damages or indemnity against
Landlord, or diminution or abatement of rent.
ARTICLE XXXIX
AUTHORITY
39.1 Landlord and Tenant each warrant, covenant and represent that
they, and their respective representatives executing this lease, have the power
and authority to enter into this lease which will be the valid binding
obligation of the parties hereto.
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ARTICLE XL
TENANT'S CREDIT
40.1 Landlord shall allow Tenant a credit in the amount of One Million
Six Hundred Seventy-Three Thousand ($1,673,000.00) Dollars (hereinafter called
the "WORK CREDIT") which credit shall be solely applied against the cost and
expense of Tenant's Work. In the event that the cost and expense of Tenant's
Work shall exceed the amount of the Work Credit, Tenant shall be entirely
responsible for such excess. The Work Credit shall be payable by Landlord to
Tenant, within twenty (20) days after demand therefor, on the basis of amounts
coming due with respect to Tenant's Work, from time to time, but no more
frequently than monthly, upon receipt of paid invoices (aggregating an amount
not exceeding the Work Credit). Unless such payment is contested by Landlord,
Tenant may offset all or any portion of any due but unpaid installment of Work
Credit against the next due installment of fixed rent under this lease.
40.2 At reasonable times during the progress of Tenant's Work, on
reasonable notice to Tenant, and accompanied by a representative of Tenant to
the extent one has been made available, representatives of Landlord shall have
the right of access to the Demised Premises and inspection thereof and shall
have the right to withhold all or any portion of the Work Credit as shall equal
the cost of correcting any portions of Tenant's Work which shall not have been
performed in accordance with Tenant's final plan, until such Tenant's Work is in
accordance with Tenant's final plan.
40.3 In connection with the payment of the Work Credit, Tenant shall
promptly after the completion of Tenant's Work and promptly following the
payment of all or any portion of the Work Credit furnish to Landlord a
statement, in recordable form and otherwise in form satisfactory to Landlord and
its counsel, of the contractors, subcontractors and material men performing
Tenant's Work, or supplying material in connection therewith, acknowledging
payment for Tenant's Work and releasing Landlord and Tenant from all liens or
liability for payment in connection therewith.
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ARTICLE XLI
CANCELLATION OPTION
41.1 Tenant shall have the one-time right to cancel this lease at the
expiration of the sixth anniversary of the Commencement Date of this lease by
giving Landlord at least six (6) months prior written notice of such
cancellation. In the event of such cancellation, Tenant shall pay to Landlord an
amount equal to the unamortized initial transaction cost (including construction
allowance, free rent, and leasing commissions) of Landlord plus six months fixed
rent ("LANDLORD'S INVESTMENT"). Landlord and Tenant agree that Landlord's
Investment was in the amount of $2,207,698.55.
ARTICLE XLII
SECURITY DEPOSIT
42.1 Tenant has deposited with Landlord the sum of $1,578,745.03 as
security for the faithful performance and observance by Tenant of the terms,
provisions, covenants and conditions of this lease; it is agreed that in the
event Tenant defaults following notice and the expiration of applicable cure
periods in respect of any of the terms, provisions, covenants and conditions of
this lease, including, but not limited to, the payment of fixed rent and
additional rent, Landlord may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any fixed rent
and additional rent or any other sum as to which Tenant is in default following
notice and the expiration of applicable cure periods or for any sum which
Landlord may expend or may be required to expend by reason of Tenant's default
in respect of any of the terms, provisions, covenants and conditions of this
lease, including but not limited to, any damages or deficiency accrued before or
after summary proceedings or other re-entry by Landlord. In the event that
Tenant shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this lease, the security shall be returned to Tenant
after the date fixed as the end of the term of this lease and after delivery of
entire possession of the Demised Premises to Landlord as provided hereunder. In
the event of a sale of the Land and Building or leasing of the Building, of
which the Demised
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Premises form a part, Landlord shall have the right to transfer the security to
the vendee or lessee and Landlord shall thereupon be released by Tenant from all
liability for the return of such security; and Tenant agrees to look solely to
the new Landlord for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Landlord. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Landlord nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment or attempted
encumbrance. In the event Landlord applies or retains any portion or all of the
security deposited, Tenant shall forthwith restore the amount so applied or
retained so that at all times the amount deposited shall be $1,578,745.03.
42.2 In lieu of the cash security deposit provided for in Section 39.1,
Tenant may at any time during the term hereof, deliver to Landlord and, shall,
except as otherwise provided herein, maintain in effect at all times during the
term hereof, an irrevocable letter of credit, in form and substance satisfactory
to Landlord, in the amount of the security required pursuant to this Article 42
issued by a banking corporation satisfactory to Landlord and having its
principal place of business or its duly licensed branch or agency in the State
of New York. Such letter of credit shall have an expiration date no earlier than
the first anniversary of the date of issuance thereof. Except as otherwise
provided in this Article 42, Tenant shall, throughout the term of this lease
(and shall keep in effect for not less than thirty (30) days thereafter) deliver
to Landlord successive extensions of such letter of credit or replacement
letters of credit in lieu thereof (each such letter of credit and such
extensions or replacements thereof, as the case may be, is hereinafter referred
to as a "SECURITY Letter") no later than 30 days prior to the expiration date of
the preceding Security Letter. The term of each such Security Letter shall be
not less than one year. If Tenant shall fail to obtain any extension or
replacement of a Security Letter within the time limits set forth in this
Section 42.2, Landlord may draw down the full amount of the existing Security
Letter and retain the same as security hereunder.
42.3 In the event Tenant defaults, beyond applicable notice and cure
periods, in respect of any of the terms, provisions, covenants and conditions of
this lease
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including, but not limited to, the payment of fixed rent and additional rent,
Landlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any fixed rent and
additional rent or any other sum as to which Tenant is in default, beyond
applicable notice and cure periods, or for any sum which Landlord may expend or
may be required to expend by reason of Tenant's default, beyond applicable
notice and cure periods, in respect of any of the terms, provisions, covenants,
and conditions of this lease including, but not limited to, any damages or
deficiency accrued before or after summary proceedings or other re-entry by
Landlord. To insure that Landlord may utilize the security represented by the
Security Letter in the manner, for the purposes, and to the extent provided in
this Article 42, each Security Letter shall provide that up to the full amount
thereof may be drawn down by Landlord upon the presentation to the issuing bank
of Landlord's draft drawn on the issuing bank accompanied by the signed
memorandum of Landlord indicating the amount of Landlord's charge against the
security and that Landlord has the right to make such charge pursuant to the
provisions of this lease. A copy of such memorandum shall be simultaneously
furnished to Tenant; provided, however, that such memorandum as so presented
shall be absolutely binding and unconditional on said issuing bank. Landlord's
right to draw down under said Security Letter shall, upon such presentation,
also be absolute as against Tenant.
42.4 In the event that Tenant defaults, beyond applicable notice and
cure periods, in respect of any of the terms, provisions, covenants, and
conditions of this lease and Landlord utilizes all or any part of the security
represented by the Security Letter but does not terminate this lease as provided
in Article 42, Landlord may, in addition to exercising its rights as provided in
Section 42.3, retain the unapplied and unused balance of the principal amount of
the Security Letter as security for the faithful performance and observance by
Tenant thereafter of the terms, provisions, and conditions of this lease, and
may use, apply, or retain the whole or any part of said balance to the extent
required for payment of rent, additional rent, or any other sum as to which
Tenant is in default beyond applicable notice and cure periods or for any sum
which Landlord may expend or be required to expend by reason of Tenant's default
beyond applicable notice and cure periods in respect of any of the terms,
covenants, and conditions of this lease. In the event Landlord applies or
retains any
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portion or all of the security delivered hereunder, Tenant shall forthwith
restore the amount so applied or retained so that at all times the amount
deposited shall be not less than the security required by Section 42.1.
42.5 In the event that Tenant shall fully and faithfully comply with
all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant thirty (30) days after the date fixed as
the end of the lease and after delivery of entire possession of the Demised
Premises to Landlord as provided in this lease. In the event of a sale of the
Land and the Building or leasing of the Building, of which the Demised Premises
form a part, Landlord shall have the right to transfer any interest it may have
in the Security Letter to the vendee or lessee and Landlord shall thereupon be
released by Tenant from all liability for the return of such Security Letter,
provided such vendee or lessee assumes any responsibilities of Landlord with
respect to such Security Letter and Tenant agrees to look solely to the new
landlord for the return of said Security Letter; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
Security Letter to a new landlord. Tenant further covenants that it will not
assign or encumber or attempt to assign or encumber the monies deposited herein
(or any Security Letter) as security and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance. In the event of a sale of the
Land and the Building or leasing of a substantial portion of the Building,
Landlord shall have the right to require Tenant to deliver a replacement
Security Letter naming the new landlord as beneficiary and, if Tenant shall fail
to promptly deliver the same after notice, to draw down the existing Security
Letter and retain the proceeds as security hereunder until a replacement
Security Letter is delivered.
42.6 On the sixth anniversary of the Commencement Date of this lease,
the security deposit hereunder shall be reduced by the amount of 20% and on each
succeeding anniversary of the Commencement Date of this lease by an additional
20% of the initial amount thereof provided, however that the security deposit
shall never be less than two (2) months fixed rent (as escalated) and provided
further that no reduction shall occur if Tenant is in default under this lease
at the time any such reduction would otherwise occur.
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ARTICLE XLIII
ADDITIONAL SPACE
43.1 Landlord agrees that if Landlord receives a bona fide written
proposal to lease (which would form a reasonable basis for negotiation with
Landlord) for all or any part of the southerly half of the seventh (7th) floor
of the Building during the term of this lease, then Landlord, before offering
such space (hereinafter called the "FIRST REFUSAL SPACE") to any other
non-tenant party will offer subject to the prior rights of other Tenants of the
Building as hereinafter provided, to Tenant the right to include such First
Refusal Space within the Demised Premises upon all of the terms and conditions
of this lease as if the First Refusal Space had been part of the Demised
Premises upon the commencement of the term hereof. Tenants rights hereunder are,
however, subject to and subordinate to the rights of the Thompson Trading
Services Inc. and Global Financial Services, et al. who have respectively the
first and second rights of first refusal with respect to the First Refusal
Space. Any such right shall be exercised by Tenant, if at all, by a written
notice (hereinafter the "FIRST REFUSAL Notice") from Tenant to Landlord within
seven (7) business days following the giving of notice by Landlord to Tenant
advising Tenant of the availability of such First Refusal Space and the waiver
of Thompson Trading Services, Inc. and Global Financial Services, et al. of
their prior right, time being of the essence as to the exercising by Tenant of
any such right. In the event Tenant shall send a First Refusal Notice to
Landlord, the First Refusal Space shall be added to and included within the
Demised Premises effective as of the date of the giving of the first Refusal
Notice to Landlord (the "FIRST REFUSAL INCLUSION DATE").
43.2 Effective as of the First Refusal Inclusion Date:
(a) the fixed rent hereunder shall be increased by the product
obtained by multiplying the rentable area of the First Refusal Space by
an amount equal to twelve (12) times the monthly installment of fixed
rent for the month in which the First Refusal Inclusion Date occurs
determined on a per rentable square foot basis (and subject to increase
over the remaining term of this lease as provided in Articles 1 and 4);
and
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(b) Tenant's Proportionate Share, as defined in Section
4.1(d), shall be increased by adding to such percentage the percentage
obtained by dividing the number of rentable square feet comprising any
First Refusal Space so included with the Demised Premises by 526,044.
43.3 Tenant shall accept First Refusal Space vacant and free of
tenancies and occupancies and in its then "as is" condition, but nevertheless
broom-clean, on the First Refusal Inclusion Date and agrees that Landlord will
not be required to make any improvements therein; provided, however, that Tenant
shall receive a (i) Work credit in an amount equal to Thirty-Five ($35) Dollars
multiplied by the number of rentable square feet comprising the First Refusal
Space multiplied by a fraction, the numerator of which is the number of full
months then remaining in the term of this lease prior to the Expiration Date and
the denominator of which is [132]. The effective date for the inclusion of First
Refusal Space in the Demised Premises shall be the day that Tenant exercises its
option as aforesaid. If Tenant does not accept an offer made by Landlord
pursuant to the provisions of, and within the time provided in, this Article 42
with respect to First Refusal Space, and (a) Landlord fails to execute a lease
or occupancy agreement with such tenant (or with Thompson Trading Services, Inc.
or Global Financial Services, et al.) for such First Refusal Space within one
(1) year after receiving such bona fide written proposal, time being of the
essence, or (b) Landlord executes a lease or occupancy agreement for such First
Refusal Space but all or any portion of such space becomes vacant before the
expiration of the term of this lease, then Landlord shall again comply with the
terms and conditions of Section 42.1 before offering such space to any other
party. Tenant agrees not to acquire any First Refusal Space pursuant to this
Article 42 for the primary purpose of subletting or otherwise disposing of the
same or any part thereof to others (except for such assignments and sublets
which do not require the consent of Landlord hereunder).
43.4 If any First Refusal Space shall not be available for Tenant's
occupancy on the date Tenant exercises its option for any reason including the
holding over of the prior tenant, then Landlord and Tenant agree that the
failure to have such First Refusal Space available for occupancy by Tenant shall
in no way affect the validity of this lease or the inclusion of such First
Refusal Space
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in the Demised Premises or the obligations of Landlord or Tenant hereunder, nor
shall the same be construed in any way to extend the term of this lease and for
the purposes of this Article 43 the inclusion date shall be deferred to and
shall be the date such First Refusal Space is available for Tenant's occupancy
in accordance with the terms of Section 43.3.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this lease
as of the day and year first above written.
NEW YORK CITY DISTRICT COUNCIL OF
CARPENTERS PENSION FUND, Landlord
By:________________________________________
Name:
Trustee:
By:________________________________________
Name:
Trustee:
By:________________________________________
Name:
Trustee:
By:________________________________________
Name:
Trustee:
INTERWORLD TECHNOLOGY VENTURES, INC.
Tenant
By:________________________________________
Name:
Trustee:
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<PAGE> 90
Executed as evidence of the
Undersigned's Assent to this
Lease as set forth in
Paragraph 1.8 hereof this
_______ day of , 199__.
THE NEW YORK CITY DISTRICT
COUNCIL OF CARPENTERS
APPRENTICESHIP JOURNEYMEN'S
RETRAINING, EDUCATION AND
INDUSTRY FUNDS
By:________________________________
Name:
Title:
82
<PAGE> 1
Exhibit 21.1
Subsidiaries
InterWorld Technology Ventures Canada Ltd.
InterWorld Corporation Pty Limited
InterWorld Corporation Japan K.K.
InterWorld UK Limited
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 29, 1998, relating
to the consolidated financial statements of InterWorld Corporation, which
appears in such Prospectus. We also consent to the application of such report to
the Financial Statement Schedule for the period from inception to December 31,
1995 and the two years in the period ended December 31, 1997 listed under Item
16(b) of this Registration Statement when such schedule is read in conjunction
with the consolidated financial statements referred to in our report. The audits
referred to in such report also included this schedule. We also consent to the
references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Consolidated Financial Data".
PricewaterhouseCoopers LLP
New York, NY
July 22, 1998
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