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FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1999
REGISTRATION NO. [ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BEYOND.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7375 94-3212136
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
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1195 WEST FREMONT AVENUE
SUNNYVALE, CALIFORNIA 94087
(408) 616-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARK L. BREIER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BEYOND.COM CORPORATION
1195 WEST FREMONT AVENUE
SUNNYVALE, CALIFORNIA 94087
(408) 616-4200
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
RICHARD SCUDELLARI
SHANE BYRNE
JACKSON TUFTS COLE & BLACK, LLP
60 SOUTH MARKET STREET, 10TH FLOOR
SAN JOSE, CALIFORNIA 95113
(408) 998-1952
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X];
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ];
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ];
If this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ];
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE
BE REGISTERED BE REGISTERED PRICE PER UNIT OFFERING PRICE
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7 1/4% Convertible Subordinated Notes
Due December 1, 2003................. $63,250,000 100%(1) $63,250,000
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Common Stock, issuable upon conversion
of 7 1/4% Convertible Subordinated
Notes Due December 1, 2003(2)....... 3,448,745 N/A N/A
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Common Stock(3)....................... 8,582 $29.53(5) $253,427
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Total.................................
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TITLE OF EACH CLASS OF SECURITIES TO AMOUNT OF
BE REGISTERED REGISTRATION FEE
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7 1/4% Convertible Subordinated Notes
Due December 1, 2003................. $18,659
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Common Stock, issuable upon conversion
of 7 1/4% Convertible Subordinated
Notes Due December 1, 2003(2)....... N/A(4)
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Common Stock(3)....................... $75
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Total................................. $18,734
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(1) Exclusive of accrued interest, if any. Estimated solely for purposes of
calculating the registration fee.
(2) Up to 3,448,745 shares of common stock we may from time to time issue upon
conversion of our 7 1/4% Convertible Subordinated Notes, at a conversion
price of $18.34 per share.
(3) Shares of common stock previously issued to various purchasers under
privately negotiated transactions.
(4) Pursuant to Rule 457(c), there is no filing fee with respect to the shares
of our common stock issuable upon conversion of our 7 1/4% Convertible
Subordinated Notes being registered hereunder because no additional
consideration will be received in connection with the exercise of the
conversion privilege.
(5) Pursuant to Rule 457(c), such price based on the average high and low prices
of our common stock on January 19, 1999, as reported on the Nasdaq National
Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 21, 1999
LOGO
7 1/4% CONVERTIBLE SUBORDINATED NOTES AND COMMON STOCK
------------------
This prospectus relates to the resale of the following securities of
Beyond.com Corporation, a Delaware corporation, by the present holders of such
securities:
- $63,250,000 aggregate principal amount of 7 1/4% Convertible Subordinated
Notes Due December 1, 2003;
- 3,448,745 shares of our common stock into which our 7 1/4% Convertible
Subordinated Notes may convert;
- 8,582 shares of our common stock.
Our 7 1/4% Convertible Subordinated Notes and the shares of our common
stock will be offered and sold by their present holders. We will not receive any
proceeds from any resale by the present holders.
Shares of our common stock are listed for trading on The Nasdaq Stock
Market's National Market under the symbol "BYND". On January 20, 1999, the last
reported sales price for our common stock on The Nasdaq National Market was $28.
Our 7 1/4% Convertible Subordinated Notes are eligible for trading on The
PORTAL(SM) ("PORTAL") Market of The Nasdaq Stock Market.
INVESTING IN OUR COMMON STOCK OR OUR 7 1/4% CONVERTIBLE SUBORDINATED NOTES
INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January , 1999
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................. 3
RISK FACTORS........................ 8
USE OF PROCEEDS..................... 25
DIVIDEND POLICY..................... 25
PRICE RANGE OF COMMON STOCK......... 25
CORPORATE INFORMATION............... 25
CAPITALIZATION...................... 26
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 29
BUSINESS............................ 40
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MANAGEMENT.......................... 60
CERTAIN TRANSACTIONS................ 69
PRINCIPAL AND SELLING
STOCKHOLDERS...................... 75
DESCRIPTION OF CAPITAL
STOCK............................. 81
DESCRIPTION OF NOTES................ 84
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS................ 103
LEGAL MATTERS....................... 109
EXPERTS............................. 109
ADDITIONAL INFORMATION.............. 110
INDEX TO FINANCIAL STATEMENTS....... F-1
</TABLE>
-------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are not historical facts, but rather are
based on our current expectations, estimates and projections about our industry,
our beliefs and assumptions. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and other
factors, some of which are beyond our control, are difficult to predict and
could cause actual results to differ materially from those expressed or
forecasted in the forward-looking statements. These risks and uncertainties are
described in "Risk Factors" and elsewhere in this prospectus. We caution you not
to place undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this prospectus. We are not obligated
to update these statements or publicly release the result of any revisions to
them to reflect events or circumstances after the date of this prospectus or to
reflect the occurrence of unanticipated events.
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SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the securities being registered hereby and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus. Because this is only a summary, you should read the rest of
this prospectus before you invest in our common stock or our 7 1/4% Convertible
Subordinated Notes. Read the entire prospectus carefully, especially the risks
described under "Risk Factors."
BEYOND.COM CORPORATION
We are a leading online reseller of commercial off-the-shelf computer
software to the consumer, small business and large enterprise markets. Through
our online store (www.beyond.com), we offer customers a comprehensive selection
of software, customer service and competitive pricing. We believe that our
Beyond.com Web site is one of the most widely known and used sites on the World
Wide Web for the purchase of software. We deliver software to customers one of
two ways: either we physically deliver the shrink-wrap software package or we
deliver the software over the Internet through digital download. We believe we
give our customers superior value because we offer:
- one of the largest selections of brand name, high quality software
available online; and
- the convenience of shopping from home or office, twenty-four-hours-a-day,
seven-days-a-week with technical support.
We believe the Internet is an ideal medium for the sale and delivery of
software for several reasons:
- the demographics of Internet users overlap one-to-one with the
demographics of potential software purchasers;
- we can provide instant gratification because we can deliver many software
titles and their related stock keeping units via digital download; and
- large enterprise customers can use digital download to achieve efficient
and cost effective distribution of software.
We have based our business on scaleable technology that permits the sale,
order processing and delivery of software with limited human intervention. With
our technology, and our significant operational experience, we can address the
complex process of real time digital download. Approximately 350 leading
software publishers have granted us the right to distribute approximately 5,600
software stock keeping units via digital download.
We also have established strategic marketing alliances with America Online,
Inc., Excite, Inc., Netscape Communications Corporation and Network Associates,
Inc. These alliances promote our Web site and services on the Web sites of these
strategic partners.
The software reselling industry is large and growing. International Data
Corporation estimates total software sales in the United States through indirect
channels will grow to approximately $52.7 billion in 2000. Jupiter
Communications, Inc. estimates that online PC software sales revenue in 1997
were $84.5 million and projects these revenues will grow to $2.4 billion in
2002.
We intend to extend our momentum as a "first mover" in online software
reselling, to deliver outstanding value to our customers and to leverage our
online store model to achieve economies of scale. Since we launched our Web site
in November 1994, we have delivered software products to approximately 634,000
cumulative customers (including individual desktops for corporate and government
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customers and users to whom we have distributed freeware and trial download
products). Our sales increased from approximately $5.9 million in 1996 to
approximately $36.7 million in 1998.
Our address is 1195 West Fremont Avenue, Sunnyvale, California 94087 and
our telephone number is (408) 616-4200.
THE OFFERING
In November and December 1998, we sold $63,250,000 aggregate principal
amount of our 7 1/4% Convertible Subordinated Notes due December 1, 2003. As
part of that offering, we agreed to register our 7 1/4% Convertible Subordinated
Notes and the shares of common stock into which our 7 1/4% Convertible
Subordinated Notes may be converted on behalf of the purchasers. To comply with
that agreement, we are filing a registration statement with the Securities and
Exchange Commission of which this prospectus is a part.
In a series of privately negotiated transactions between January 1995 and
April 1998, we issued and sold shares of our common stock and shares of our
Series A, Series B, Series C and Series D preferred stock to private purchasers.
Under the terms of those transactions, the purchasers have the right to include
their shares in the registration statement of which this prospectus is a part.
All of the outstanding shares of our preferred stock automatically converted
into shares of our common stock immediately prior to the initial public offering
of our common stock in June 1998. One stockholder has elected to include an
aggregate of 8,582 shares of common stock in this registration statement.
Under this registration statement, holders of our 7 1/4% Convertible
Subordinated Notes may sell our 7 1/4% Convertible Subordinated Notes and
holders of our common stock registered under this registration statement may
sell such common stock in one or more offerings. We must keep the registration
statement effective for a period of two years from the date of this prospectus.
This prospectus provides you with a general description of our 7 1/4%
Convertible Subordinated Notes and the shares of our common stock that may be
sold. For more detailed information, you should read the exhibits filed with the
registration statement of which this prospectus is a part.
OUR 7 1/4% CONVERTIBLE SUBORDINATED NOTES
Amount Offered................ $63,250,000 principal amount of 7 1/4%
Convertible Subordinated Notes Due December 1,
2003.
Maturity Date................. December 1, 2003.
Interest Payment Dates........ June 1 and December 1 of each year, commencing
June 1, 1999.
Conversion Rights............. You may convert our 7 1/4% Convertible
Subordinated Notes into shares of our common
stock at any time prior to maturity at a
conversion price of $18.34 per share, subject
to adjustment under certain conditions.
However, the right to convert a 7 1/4%
Convertible Subordinated Note called for
redemption terminates on the business day
immediately preceding the redemption date or
such earlier date as the holder presents any of
our 7 1/4% Convertible Subordinated Notes for
redemption.
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Optional Redemption of Notes
by the Company................ We cannot redeem our 7 1/4% Convertible
Subordinated Notes prior to December 6, 2001.
On and after December 6, 2001, we may redeem
our 7 1/4% Convertible Subordinated Notes in
whole or in part, at any time at the redemption
prices listed in the section "Description of
Notes" under the heading "Optional Redemption."
Sinking Fund.................. None.
Change in Control............. If we sell certain assets or experience
specific kinds of changes in control, we must
offer to repurchase our 7 1/4% Convertible
Subordinated Notes (if any remain outstanding)
at the prices listed in "Description of Notes."
If we experience an event that triggers this
obligation, we cannot assure that we will have
enough cash to pay the purchase price for our
7 1/4% Convertible Subordinated Notes, or that
we could do so without violating the terms of
other agreements.
Subordination................. Our 7 1/4% Convertible Subordinated Notes are
general unsecured obligations of ours and rank
behind all of our existing and future senior
indebtedness. As of December 31, 1998, we had
no senior indebtedness outstanding that would
have been senior in right of payment to our
7 1/4% Convertible Subordinated Notes. Although
we do not currently have any subsidiaries, our
7 1/4% Convertible Subordinated Notes rank
behind all existing and future indebtedness and
other liabilities (including trade payables) of
any subsidiaries which we may acquire or
establish. The Indenture with LaSalle National
Bank governing our 7 1/4% Convertible
Subordinated Notes does not limit our ability
to take on senior or other indebtedness.
Use of Proceeds............... We will not receive any cash from the sale of
our 7 1/4% Convertible Subordinated Notes or
common stock offered hereby. On November 23,
1998 and December 17, 1998, we received an
aggregate of approximately $60.3 million from
the sale of our 7 1/4% Convertible Subordinated
Notes to the initial purchasers after deducting
expenses and the underwriters' discount. We
intend to use a substantial portion of the net
proceeds from the initial sale of our 7 1/4%
Convertible Subordinated Notes for sales and
marketing expenses. These expenses will include
payments to America Online, Excite and Network
Associates pursuant to our agreements with
these parties. We must pay these parties
approximately $20.3 million over the next three
years, and approximately $9.0 million in 1999.
We anticipate continuing to expend substantial
resources on broadcast and other sales and
marketing campaigns in order to build our
customer base and brand name. We have no
specific plan for use of the remaining proceeds
and we expect to use such proceeds for
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general corporate purposes, including working
capital to fund anticipated operating losses
and capital expenditures.
Trading....................... Our 7 1/4% Convertible Subordinated Notes are
designated for trading on The PORTAL(SM)
Market. However, we cannot assure that there
will be any liquidity or trading market for our
7 1/4% Convertible Subordinated Notes.
Liquidated Damages............ We have agreed to file this registration
statement with respect to the resale of our
7 1/4% Convertible Subordinated Notes and the
shares of our common stock issuable upon
conversion of our 7 1/4% Convertible
Subordinated Notes and to keep this
registration statement effective until two
years after the filing date. If the Securities
and Exchange Commission does not declare the
registration statement of which this prospectus
is a part effective within 120 days after
November 23, 1998, or if the Securities and
Exchange Commission issues a stop order
suspending this registration statement or
initiates proceedings therefor under the
Securities Act, or if this prospectus is
unavailable in excess of certain time periods,
we have agreed to pay liquidated damages to the
holders of our 7 1/4% Convertible Subordinated
Notes and the common stock issued upon
conversion of our 7 1/4% Convertible
Subordinated Notes.
Minimum Denominations......... Our 7 1/4% Convertible Subordinated Notes are
issued in amounts of $1,000 principal amount
and integral multiples thereof.
DTC Eligibility............... Except under the limited circumstances
described herein, our 7 1/4% Convertible
Subordinated Notes will be issued only in fully
registered book entry form and will be
represented by one or more permanent Global
Notes without coupons deposited with a
custodian for, and registered in the name of, a
nominee of Depository Trust Company. Beneficial
interests in any such Global Notes will be
shown on, and transfers thereof will be
effected only through, records maintained by
Depository Trust Company and its direct and
indirect participants.
Settlement for our 7 1/4% Convertible
Subordinated Notes will be in same day funds.
Except under limited circumstances, neither we
nor LaSalle National Bank as trustee will
consider owners of beneficial interests in the
Global Notes to be entitled to have any of our
7 1/4% Convertible Subordinated Notes
registered in their names, to be entitled to
receive physical delivery of our 7 1/4%
Convertible Subordinated Notes in certificated
form nor to be the registered owners or holders
of our 7 1/4% Convertible Subordinated Notes
under our Indenture with LaSalle National Bank
for any purpose.
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Our Common Stock
Amount Offered................ We are offering for resale up to 3,457,327
shares of our common stock. This total
includes: up to 3,448,745 shares issuable upon
conversion of our 7 1/4% Convertible
Subordinated Notes, at a conversion price of
$18.34 per share; and 8,582 shares sold to
purchasers in earlier transactions. Our common
stock trades on the Nasdaq National Market
under the symbol "BYND."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEAR ENDED DECEMBER 31,
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1996 1997 1998
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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CONSOLIDATED STATEMENT OF OPERATIONS DATA
Net revenues............................................. $ 5,858 $16,806 $ 36,650
Gross profit............................................. 721 1,933 5,576
Operating expenses:
Research and development............................... 431 1,060 4,201
Sales and marketing.................................... 704 1,696 27,568
General and administrative............................. 450 1,087 4,943
------- ------- --------
Total operating expenses....................... 1,585 3,843 36,712
Loss from continuing operations.......................... (779) (1,743) (31,073)
Net loss................................................. $(1,515) $(5,359) $(31,073)
======= ======= ========
Basic and diluted net loss per share(1).................. $ (0.18) $ (0.61) $ (1.65)
======= ======= ========
Pro forma basic and diluted net loss per share(1)........ $ (0.30) $ (1.28)
======= ======= ========
OTHER FINANCIAL DATA
Ratio of Earnings to Fixed Charges(2).................... N/A N/A N/A
Deficiency of Earnings Available to Cover Fixed
Charges(2)............................................. $ (779) $(1,743) $(31,073)
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DECEMBER 31,
1998
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CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents................................... $ 81,548
Working capital............................................. 80,128
Total assets................................................ 109,904
Long-term obligations, net of current portion............... 63,250
Stockholders' equity........................................ 24,723
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(1) For an explanation of the calculation of per share amounts, see Note 1 of
Notes to Consolidated Financial Statements.
(2) For purposes of this computation, the ratio of earnings to fixed charges has
been calculated by dividing fixed charges into loss from continuing
operations before income taxes plus, fixed charges. Fixed charges consist of
interest expense and a portion of lease rental charges considered to
represent interest cost.
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in Beyond.com. If any of the following risks actually occur,
our business, financial condition or results of future operations could be
materially adversely affected. In such case, the trading price of our common
stock or our 7 1/4% Convertible Subordinated Notes could decline, and you may
lose all or part of your investment. This prospectus contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of many factors, including the risks faced by us described below and elsewhere
in this prospectus.
WE HAVE A LIMITED OPERATING HISTORY, HAVE INCURRED NET LOSSES SINCE
INCEPTION AND EXPECT FUTURE LOSSES. We began selling software on our Web site in
November 1994. As a result, we have only a limited operating history upon which
you may evaluate our business and prospects. We incurred net losses of
approximately $38.7 million from inception through 1998. As of December 31,
1998, we had an accumulated deficit of approximately $42.4 million. We expect to
continue to incur significant net operating losses for the foreseeable future.
WE ANTICIPATE SIGNIFICANT LOSSES AND NEGATIVE CASH FLOW. We expect
significant losses and negative cash flow to continue for the foreseeable
future. We anticipate our significant losses will increase significantly from
current levels because we expect to incur additional costs and expenses related
to:
- brand development, marketing and promotion;
- Web site content development;
- strategic relationship development and maintenance; and
- technology and operating infrastructure development, including improved
digital download capabilities.
Because we have relatively low gross margins, our ability to become
profitable given our planned expenses depends on our ability to generate and
sustain substantially higher net revenues. If we do achieve profitability, we
cannot be certain that we can sustain or increase profitability on a quarterly
or annual basis in the future.
We base our current and future expense levels, which are largely fixed, on
our operating plans and estimates of future revenues. We find sales and
operating results difficult to forecast, because they generally depend on the
volume and timing of the orders we receive. As a result, we may be unable to
adjust our spending in a timely manner to compensate for any unexpected revenue
shortfall. A shortfall in revenues will significantly harm our business and
operating results. In view of the rapidly evolving nature of our business and
our limited operating history in the business of selling software online, we
have little experience forecasting our revenues. Therefore, we believe that
period-to-period comparisons of our financial results are not necessarily
meaningful and you should not rely upon them as an indication of our future
performance. If we cannot achieve and sustain operating profitability or
positive cash flow from operations, we may be unable to meet our debt service
obligations or working capital requirements which would adversely affect our
business.
OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE. Our revenues and operating
results may fluctuate significantly from quarter to quarter due to a number of
factors, not all of which are in our control. These factors include:
- our ability to attract and retain new customers and maintain customer
satisfaction;
- new Web sites, services and products introduced by our competitors;
- price competition;
- decreases in the level of growth, use of the Internet and online services
or
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<PAGE> 10
consumer acceptance of the Internet and other online services for the
purchase of consumer products;
- our inability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;
- traffic levels on our Web site and our ability to convert that traffic
into customers;
- the termination of any strategic marketing alliances such as those we
have with America Online, Excite, Netscape or Network Associates pursuant
to which we receive exposure to traffic on third party Web sites;
- the termination of contracts with major purchasers, particularly United
States government agencies;
- technical difficulties or system downtime affecting the Internet or
online services, generally, or the operation of our Web sites;
- the failure of Internet bandwidth to increase significantly over time
and/or an increase in the cost to consumers of obtaining or using
Internet bandwidth;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure;
- the number of popular software titles introduced during the quarter;
- government regulations related to use of the Internet for commerce or for
sales and distribution of software; and
- general economic conditions and economic conditions specific to the
Internet, online commerce and the software industry.
We must increase software sales through Web Sites and our online sites by
increasing the number of visitors to our online sites or by increasing the
percentage of visitors to our online sites who purchase software. We must also
increase the number of repeat purchasers of software through our online sites,
increase revenues from sales to consumer purchasers and digital download
software product sales in absolute dollars and as a percentage of our total net
revenues. In addition, we must successfully establish, maintain and enhance the
Beyond.com brand. We have implemented strategies we hope will achieve these
goals, such as entering into our strategic relationships with America Online,
Excite, Netscape and Network Associates. We cannot be certain that we can
accomplish these objectives or that our business strategy will be successful.
Seasonal fluctuations in the software industry, Internet and commercial
online service usage, and traditional retail, government and corporate seasonal
spending patterns and advertising expenditures may affect our business. In
particular, Internet and online service usage and its rate of growth may decline
in the summer. These seasonal patterns may cause quarterly fluctuations in our
operating results and could adversely and materially affect our financial
performance.
Our gross margins are likely to fluctuate over time. A number of factors
may impact our gross margins, including:
- the mix of revenues from sales to government, corporate, consumer and
publisher channels;
- the mix of revenues from sales of shrink-wrap products and sales of
products delivered through digital download;
- the mix of software products sold;
- the mix of revenues we derive from our relationships with strategic
partners such as America Online, Excite, Netscape and Network Associates
and from our Web site; and
- the amount of advertising or promotional revenues we receive.
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We realize higher gross margins from:
- advertising and promotional revenues than from software products sales;
- product sales through digital download than on sales of shrink-wrap
software products;
- sales of specialty software products than sales of widely available
commodity software products; and
- sales to consumer purchasers than on sales to government or corporate
purchasers.
We believe that the size of new software products will continue to increase
and that they will be suitable for digital download only if network bandwidth
increases significantly. This trend may limit our ability to distribute such
software products via digital download and limit our ability to realize the
higher gross margins associated with digital download software product sales.
Any change in one or more of these factors could adversely and materially affect
our gross margins and operating results in future periods.
Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is likely that in some future quarter our operating results may
fall below the expectations of securities analysts and investors. In this event,
the trading price of our common stock may fall significantly.
WE NEED ADDITIONAL CAPITAL TO PAY DEBT SERVICE ON THE 7 1/4% CONVERTIBLE
SUBORDINATED NOTES AND FOR OTHER PURPOSES. We require substantial working
capital to fund our business. We expect operating losses and negative cash flow
to continue for the foreseeable future. We anticipate that our existing capital
resources will meet our capital requirements through at least the next twelve
(12) months. However, we may have additional capital needs before this period
ends. Thereafter, we will likely have to raise additional funds, in part to make
interest payments to holders of our 7 1/4% Convertible Subordinated Notes, and
in part to meet our obligations to America Online, Excite, and Network
Associates. We may elect to seek additional funds at any time.
The actual amount and timing of our future capital requirements may differ
materially from our estimates. In particular, our estimates may be inaccurate as
a result of changes and fluctuations in our revenues, operating costs and
development expenses. Our revenues, operating costs and development expenses
will be negatively affected by any inability to:
- effectively and efficiently manage the expansion of our operations;
- obtain favorable co-branding or Internet marketing agreements with third
parties similar to those with America Online, Network Associates and
Excite;
- negotiate favorable contracts with suppliers, including large volume
discounts on purchases of software; and
- improve brand recognition, attract sufficient numbers of customers or the
volume of our software sales.
Our revenues and costs also depend upon factors that we cannot control.
These factors include changes in technology and regulations, increased
competition and factors such as Web integrity, seasonality, and performance by
third parties in connection with our operations. Because of these factors, our
actual revenues and costs are uncertain and may vary considerably. These
variations may significantly affect our future need for capital. Also, if we
accelerate the expansion of our operations or complete any acquisitions, we will
require more funding sooner than we currently expect. We may be unable to raise
financing sufficient for our needs, either on suitable terms or at all. This
will hinder our ability to satisfy our obligations to holders of our 7 1/4%
Convertible Subordinated Notes. This result would substantially harm the trading
price of our common stock and materially harm our business.
WE ARE SIGNIFICANTLY LEVERAGED; WE REQUIRE SUBSTANTIAL AMOUNTS FOR DEBT
SERVICE. By selling the 7 1/4% Convertible Subordinated Notes in November and
December 1998, we
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incurred $63,250,000 million principal amount of indebtedness. This resulted in
a ratio of long-term debt to total capitalization at December 31, 1998 of
approximately .72 to 1. Our increased leverage could limit or reduce our ability
to obtain financing for working capital, acquisitions or other purposes and
could make us more vulnerable to industry downturns and competitive pressures.
We will likely require substantial amounts of cash to fund scheduled
payments of principal and interest on our 7 1/4% Convertible Subordinated Notes,
future capital expenditures and any increased working capital requirements. We
believe we may be unable to meet our cash requirements out of cash flow from
operations and available borrowings. We also may be unable to obtain alternative
financing. A lack of adequate financing may adversely affect our ability to:
- respond to changing business and economic conditions;
- make future acquisitions;
- absorb negative operating results; or
- fund capital expenditures or increased working capital requirements.
We could attempt to refinance our 7 1/4% Convertible Subordinated Notes if
our cash flow from operations is insufficient to repay them at maturity.
However, a refinancing might not be available on terms acceptable to us, or at
all. If we fail to make necessary payments on our 7 1/4% Convertible
Subordinated Notes, we will be in default under the terms of our 7 1/4%
Convertible Subordinated Notes, and may also be in default under agreements
controlling our other indebtedness, if any. Any default by us under our 7 1/4%
Convertible Subordinated Notes or on other indebtedness could adversely affect
our financial condition and operating results.
OUR 7 1/4% CONVERTIBLE SUBORDINATED NOTES WILL RANK BELOW EXISTING AND
FUTURE INDEBTEDNESS. Our 7 1/4% Convertible Subordinated Notes are unsecured and
subordinated in right of payment to all of our existing and future senior
indebtedness. As of December 31, 1998, we had no senior indebtedness
outstanding. Because our 7 1/4% Convertible Subordinated Notes are subordinate
to our senior indebtedness, in the event of our bankruptcy, liquidation,
reorganization or certain other events, we will pay obligations on our 7 1/4%
Convertible Subordinated Notes only after we satisfy all senior indebtedness.
Therefore, we may have insufficient assets remaining to pay amounts on our
7 1/4% Convertible Subordinated Notes. Although we currently have no
subsidiaries, our 7 1/4% Convertible Subordinated Notes will be subordinate to
all existing and future indebtedness and other liabilities (including trade
payables) of any subsidiaries which we may in the future acquire or establish.
Our right to receive assets of our subsidiaries upon their liquidation or
reorganization (and the consequent right of the holders of our 7 1/4%
Convertible Subordinated Notes to share in those assets) would be subordinate to
the claims of that subsidiary's creditors (including trade creditors).
Our Indenture with LaSalle National Bank does not limit our ability, or
that of any of our future subsidiaries, to incur senior indebtedness,
indebtedness and liabilities. We may have difficulty paying our obligations
under our 7 1/4% Convertible Subordinated Notes if we, or any of our future
subsidiaries, incur indebtedness or liabilities, or if we agree to guarantee the
indebtedness of any future subsidiaries. We anticipate that we will incur
additional indebtedness and liabilities, including senior indebtedness. For more
detailed information you should review the section of this prospectus entitled
"Description of Notes -- Subordination of Notes."
Our 7 1/4% Convertible Subordinated Notes will be our obligation
exclusively. If we acquire or establish any subsidiaries, our cash flow and our
ability to pay our debt, including our 7 1/4% Convertible Subordinated Notes,
may depend upon the subsidiaries' operating results and their ability to provide
cash (in the form of dividends, loans or otherwise) to pay amounts due on our
obligations. Any subsidiary will be a separate and distinct legal entity and
will have no obligation to pay any amounts due on our
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7 1/4% Convertible Subordinated Notes. In addition, dividends, loans or other
distributions from any subsidiary to us may be subject to contractual or other
restrictions, would depend upon the subsidiary's operating results and may be
subject to other business considerations.
Our Indenture with LaSalle National Bank does not contain any financial
covenants or restrict our ability to do any of the following:
- pay dividends;
- incur indebtedness, including senior indebtedness; or
- issue or repurchase our securities or those of any subsidiary.
The terms of our Indenture with LaSalle National Bank do not prohibit us
from engaging in a highly leveraged transaction or a change in our control,
except to the extent described under "Description of Notes -- Purchase of Notes
at the Option of Holders Upon a Change in Control." The term "change in control"
is limited in our Indenture with LaSalle National Bank to a small number of
specified transactions.
Although we must offer to repurchase our 7 1/4% Convertible Subordinated
Notes upon a change in control, this fact does not necessarily protect holders
of our 7 1/4% Convertible Subordinated Notes if we conduct a highly leveraged
transaction, reorganization, merger or similar transaction. Similarly,
transactions other than a change in control might adversely affect our financial
condition and leave holders of our 7 1/4% Convertible Subordinated Notes without
protection.
WE MAY BE UNABLE TO REPURCHASE OUR NOTES. If we experience a change in
control, a holder of our 7 1/4% Convertible Subordinated Notes may request that
we buy back all or a portion of our 7 1/4% Convertible Subordinated Notes. If a
change in control occurs, we may be unable to pay the purchase price for all our
7 1/4% Convertible Subordinated Notes tendered to us. We would likely need
additional financing to repurchase our 7 1/4% Convertible Subordinated Notes
tendered to us upon a change in control. We may enter into future agreements
that prohibit us from purchasing your notes, or that consider a change in
control an event of default. If a change in control occurs when we cannot
purchase our 7 1/4% Convertible Subordinated Notes, we could seek our lenders'
consent to purchase our 7 1/4% Convertible Subordinated Notes or attempt to
refinance the borrowings that contain this prohibition. We will be unable to
purchase our 7 1/4% Convertible Subordinated Notes if we do not obtain this
consent or repay these borrowings. In that case, our failure to repurchase any
tendered our 7 1/4% Convertible Subordinated Notes would constitute an event of
default under our Indenture with LaSalle National Bank, which may constitute a
further default under the terms of our other indebtedness. In those
circumstances, the subordination provisions in our Indenture with LaSalle
National Bank would likely prohibit us from purchasing our 7 1/4% Convertible
Subordinated Notes.
WE MUST ESTABLISH OUR NEW BRAND. A growing number of Internet sites, many
of which already have well-established brands, offer products and services that
compete with ours. As a result, we believe we must establish, maintain and
enhance our "Beyond.com" brand. We have been operating under the "Beyond.com"
name only since August 1998. Our success in promoting and maintaining our new
brand will depend largely on our ability to provide a high quality online
experience supported by dedicated customer service. We cannot assure that we
will be able to meet these goals. In addition, to attract and retain online
users and to promote and maintain our new brand, we may need to substantially
increase our marketing expenditures to create and maintain strong brand loyalty
among our customers. Our business could be adversely affected if our marketing
efforts are unproductive or if we cannot increase our brand awareness.
OUR MARKETS ARE HIGHLY COMPETITIVE. The online commerce market is new,
rapidly evolving and intensely competitive. We expect competition to intensify
in the future because barriers to entry are minimal, and current and new
competitors can launch new Web sites at a
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relatively low cost. In addition, the software reselling industry is intensely
competitive. We currently compete primarily with traditional software resellers,
other online software resellers and other vendors.
In the online market, we compete with online software resellers and vendors
that maintain similar commercial Web sites (including CompUSA, BuyDirect.com,
Outpost.com, Egghead.com and Buy.com). We also compete with the growing number
of software publishers that sell their software products directly online.
Barnesandnoble.com and Amazon.com also resell software online. We also
anticipate that we may soon compete in the near future with other software
publishers, including Microsoft, that plan to sell their products directly to
customers online, and indirect competitors that specialize in online commerce or
derive significant revenues from online commerce, including America Online,
Netscape, Amazon.com and Yahoo! These companies may offer software products for
resale, or others may offer software products for resale through these
companies. In addition, the following entities have established, or may soon
establish, commercial Web sites offering software products including:
- mail order and/or direct marketing of computer products (including
cataloguers such as Micro Warehouse and CDW Computer Centers and
manufacturers such as Dell Computer and Gateway);
- major software product distributors (such as Ingram Micro and Tech Data);
and
- major retailers of other related products, such as OfficeMax, Staples and
Office Depot.
Competitive pressures created by any one of these current or future competitors,
or by competitors collectively, could materially hurt our business.
We believe that the following are principal competitive factors in our
market:
- brand recognition;
- selection;
- convenience;
- price;
- speed and accessibility;
- customer service;
- quality of site content; and
- reliability and speed of fulfillment.
In addition to those factors, the large enterprise market also focuses on:
- compatibility of products;
- administration and reporting;
- single source supply
- security; and
- cost-effective deployment.
Many of our current and potential competitors have longer operating histories
and larger customer bases than we do. In addition, many of our current and
potential competitors have greater brand recognition and significantly greater
financial, marketing and other resources than we do.
In addition, as more people use the Internet and other online services, larger,
well established and well financed entities may:
- acquire online competitors or software publishers or suppliers;
- invest in online competitors or software publishers or suppliers; or
- form joint ventures with online competitors or software publishers or
suppliers.
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Certain of our actual or potential competitors, such as Ingram Micro and Tech
Data, may be able to:
- secure merchandise from vendors on more favorable terms;
- devote greater resources to marketing and promotional campaigns;
- adopt more aggressive pricing or inventory availability policies; and
- devote substantially more resources to web site and systems development
than we do.
Competitors such as Software Spectrum, GTSI, ASAP and Corporate Software &
Technology have greater experience in selling software to the large enterprise
market than we do. In addition, new technologies and expansion of existing
technologies, such as price comparison programs that select specific titles from
a variety of web sites, may direct customers to online software resellers which
compete with us and may increase competition. Increased competition may reduce
our operating margins, as well as cause a loss to both our market share and
brand recognition. Further, to strategically respond to changes in the
competitive environment, we may sometimes make pricing, service or marketing
decisions or acquisitions that could materially hurt our business. In addition,
companies controlling access to Internet transactions through network access or
Web browsers could promote our competitors or charge us a substantial fee for
inclusion in their product or service offerings. We cannot assure that we can
compete successfully against current and future competitors. Failure to compete
successfully against our current and future competitors could materially hurt
our business.
WE RELY ON SOFTWARE PUBLISHERS AND DISTRIBUTORS. We are entirely dependent
upon the software publishers and distributors that supply us with software for
resale, and the availability of this software is unpredictable. In 1997 and
1998, sales of software provided by Microsoft and by a major software
distributor accounted for a substantial majority of our revenues. As is common
in the industry, we have no long term or exclusive arrangements with any
publishers or distributors that guarantee the availability of software for
resale. For example, our agreement with Microsoft automatically renews for
successive one year periods but is terminable for any reason by thirty (30) days
written notice prior to the expiration of the given term. Although we believe
that we can replace our relationship with the major software distributor without
much difficulty, if this relationship terminates then the publishers or
distributors that currently supply us with software might cease to continue to
supply us and we might be unable to establish new relationships with other
publishers and distributors.
We also rely on software distributors to ship shrink-wrap software to
customers that do not use digital download. We have limited control over the
shipping procedures of our distributors and shipments by these distributors have
in the past been, and may in the future be, subject to delays. Although most
software we sell carries a warranty from its publisher, publishers or
distributors occasionally fail to reimburse us for returns from customers.
Furthermore, our contract with Microsoft allows Microsoft to review and approve
our creditworthiness. If Microsoft determines that we are not creditworthy or
not in compliance with payment or reporting terms, it may require us to post
security acceptable to them which could negatively impact our financial
condition.
OUR CUSTOMERS ARE CONCENTRATED; WE ARE SUBJECT TO RISKS ASSOCIATED WITH
RELIANCE ON U.S. GOVERNMENT CONTRACTS. We have three contracts with U.S.
government agencies. Two of these agreements accounted for approximately 33% of
our revenues in 1997 and 29% of our revenues in 1998. These agreements expired
in June 1998 and July 1998. We renewed the first of these contracts for an
additional one year term that expires in June 1999. We replaced the second
contract with a new contract with the same government agency on substantially
similar terms. We signed the third agreement in January 1999 and it will expire
in January 2000. We expect that these existing
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contracts will continue to account for a substantial portion of our revenues for
the foreseeable future. Each of these contracts is subject to annual review and
renewal by the government, and may be terminated at any time. Each government
contract, option and extension is only valid if the government appropriates
enough funds for expenditure on such contracts, options or extensions.
Accordingly, we might fail to derive any revenue from sales of software to the
U.S. government in any given future period. If the U.S. government fails to
renew or terminates any of these contracts it would adversely affect our
business and results of operations.
OUR COMMON STOCK PRICE IS VOLATILE. The market price for our common stock
is volatile and has fluctuated significantly to date. The trading price of our
common stock is likely to continue to be highly volatile and subject to wide
fluctuations in response to factors including the following:
- actual or anticipated variations in our quarterly operating results;
- announcements of technological innovations, new sales formats or new
products or services by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and online commerce industries;
- changes in the economic performance and/or market valuations of other
Internet, online service or retail companies;
- announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
- additions or departures of key personnel; and
- sales of common stock.
In addition, the securities market has experienced extreme price and volume
fluctuations and the market prices of the securities of Internet-related and
technology companies have been especially volatile. These broad market and
industry factors may adversely affect the market price of our common stock,
regardless of our actual operating performance. In the past, following periods
of volatility in the market price of stock, many companies have been the object
of securities class action litigation. If we were sued in a securities class
action, it could result in substantial costs and a diversion of management's
attention and resources.
THERE MAY BE NO PUBLIC MARKET FOR OUR 7 1/4% CONVERTIBLE SUBORDINATED
NOTES. Prior to the effectiveness of the registration statement of which this
prospectus is a part, our 7 1/4% Convertible Subordinated Notes have traded on
The PORTAL(SM) Market. We cannot predict whether any public market for our
7 1/4% Convertible Subordinated Notes will develop or, if one does develop, that
it will be maintained. The trading price of our 7 1/4% Convertible Subordinated
Notes could be adversely affected if an active market for our 7 1/4% Convertible
Subordinated Notes fails to develop or be sustained.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH DEPENDENCE ON THE INTERNET AND
INTERNET INFRASTRUCTURE DEVELOPMENT. Our success will depend in large part on
continued growth in, and the use of, the Internet. There are critical issues
concerning the commercial use of the Internet which remain unresolved. The
issues concerning the commercial use of the Internet which we expect to affect
the development of the market for our services include:
- security;
- reliability;
- cost;
- ease of access;
- quality of service; and
- necessary increases in bandwidth availability.
The adoption of the Internet for information retrieval and exchange,
commerce and
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communications, particularly by those enterprises that have historically relied
upon traditional means of commerce and communications, generally will require
that these enterprises accept a new medium for conducting business and
exchanging information. These entities likely will accept this new medium only
if the Internet provides them with greater efficiency and an improved area of
commerce and communication.
Demand and market acceptance of the Internet are subject to a high level of
uncertainty and are dependent on a number of factors, including the growth in
consumer access to and acceptance of new interactive technologies, the
development of technologies that facilitate interactive communication between
organizations and targeted audiences and increases in user bandwidth. If the
Internet fails to develop or develops more slowly than we expect as a commercial
or business medium, it will adversely affect our business.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH ONLINE COMMERCE SECURITY AND CREDIT
CARD FRAUD. A significant barrier to online commerce and communications is the
secure transmission of confidential information over public networks. To
securely transmit confidential information, such as customer credit card
numbers, we rely on encryption and authentication technology that we license
from third parties. We cannot predict whether advances in computer capabilities,
new discoveries in the field of cryptography, or other events or developments
will result in a compromise or breach of the algorithms we use to protect
customer transaction data. A party who circumvents our security measures could
misappropriate proprietary information or cause interruptions in our operations.
If a compromise or breach occurs, it could adversely affect our business. We may
need to expend significant capital and other resources to protect against a
security breach or to alleviate problems caused by any breaches.
To the extent that our activities or those of third party contractors
involve the storage and transmission of proprietary information (such as credit
card numbers), security breaches could damage our reputation and expose us to a
risk of loss or litigation and possible liability. Our business may be adversely
affected if our security measures do not prevent security breaches and we cannot
assure that we can prevent all security breaches. In addition, we have suffered
losses as a result of orders placed with fraudulent credit card data even though
the associated financial institution approved payment of the orders. Under
current credit card practices, a merchant is liable for fraudulent credit card
transactions where, as is the case with the transactions we process, that
merchant does not obtain a cardholder's signature. Fraudulent use of credit card
data in the future could adversely affect our business.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH DIGITAL DOWNLOAD. Our success will
depend in large part on our customers accepting digital download as a method of
buying software. We typically derive higher gross margins from software sales
via digital download than we do on shrink-wrap software sales. Therefore, our
success also depends on our ability to increase the revenues we derive from
product sales through digital download in absolute dollars and as a percentage
of our net revenues. Digital download is a relatively new method of selling
software products and its growth and market acceptance is highly uncertain and
subject to a number of factors, including:
- the availability of sufficient network bandwidth to enable purchasers to
rapidly download software;
- the impact of time-based Internet access fees;
- the number of software titles that are available for purchase through
digital download as compared to those available through traditional
methods;
- the level of consumer comfort with the process of downloading software;
and
- the relative ease of this process and transaction security concerns.
We believe there is a maximum size of a software product that most
consumers are
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willing to purchase via digital download. We also believe that the size of new
software products will continue to increase and that these software products
will be unsuitable for digital download without significant increases in network
bandwidth. It will adversely affect our business if digital download fails to
achieve widespread market acceptance. Even if digital download achieves
widespread acceptance, we might not overcome the substantial existing and future
technical challenges associated with electronically delivering software reliably
and consistently on a long term basis. This would also adversely affect our
business.
WE RELY ON STRATEGIC MARKETING ALLIANCES. Under the terms of our agreement
with America Online, we are the exclusive reseller of software on certain
screens on the America Online service and America Online's Web site, aol.com. We
are a semi-exclusive reseller of software on certain other screens on the
America Online service. America Online also must deliver to us minimum numbers
of impressions (screen views with links to our Web site). Effective March 1998,
we must make fixed payments to America Online totaling approximately $21 million
under this agreement. In addition, we must pay America Online a percentage of
certain transactional advertising revenues we earn above specified minimum
amounts. Our agreement with America Online terminates in August 2001, or earlier
if there is a material breach.
Under the terms of our agreement with Excite, we may display banner
advertisements and links to our Web site on certain screens on Excite Web sites,
and Excite cannot display paid promotional links or banner advertisements of any
other software reseller on specified screens of the Excite Web site related to
software. Excite also must deliver minimum numbers of impressions to us. We must
make substantial payments to Excite during the three year term of that
agreement. Also, we must pay Excite a percentage of certain transactional
revenues we earn. Our agreement with Excite terminates when Excite meets certain
obligations relating to the delivery of impressions, but no earlier than April
2001, unless there is a material breach. We are not aware of how the proposed
acquisition of Excite by @Home will impact our relationship with Excite under
this Agreement or otherwise.
In June 1997, we entered into an agreement with Netscape for a term of 24
months. Under this agreement, we created and manage a Web site, the "Netscape
Software Depot by Beyond.com." This Web site is an online software store
accessible through Netscape's Internet site, created to market and distribute
software products which are compatible with the Netscape ONE platform. Under the
terms of this agreement, we and Netscape allocate sales and advertising revenues
generated from this online store in accordance with negotiated percentages. In
connection with this agreement, we made a substantial initial prepayment to
Netscape for a license to use certain Netscape trademarks. Our agreement with
Netscape terminates on July 31, 1999. However, either party may terminate this
agreement at any time if specific impression and net revenue milestones are not
met. We are not aware of how the proposed acquisition of Netscape by America
Online will impact our relationship with Netscape under this agreement or
otherwise.
We also entered into three contracts with Network Associates. In September
1997, we were authorized to electronically distribute Network Associates'
products on our Web site. In September 1998, we agreed to co-host Web sites with
Network Associates and agreed to resell Network Associates' products on Network
Associates' Web site at www.mcafeestore.com. Under these agreements, we must
make substantial payments to Network Associates for exclusive positioning of
links to our Web site on certain screens on Network Associates' Web sites, and
rights to resell Network Associates products.
Traffic levels on our Web site and sales we generate from that traffic
might be insufficient to justify our significant fixed financial obligations to
America Online, Excite or Network Associates or to satisfy our contractual
obligations necessary to prevent termination of these
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agreements and the Netscape agreement. In addition, neither the America Online,
Excite, Netscape nor Network Associates agreements provide us with automatic
renewal rights upon expiration. Therefore, we may be unable to renew these
agreements on commercially acceptable terms, or at all. Furthermore, we based
our significant investment in the America Online, Excite, Netscape and Network
Associates relationships on a number of factors, including:
- the continued positive market presence of these parties;
- the reputation and anticipated growth of these parties; and
- America Online's and Excite's commitment to deliver specified numbers of
screen views with links to our Web site.
Although we expect our agreements with America Online, Excite, Netscape and
Network Associates to represent significant distribution channels for our
software, we cannot assume that these agreements will meet this expectation. In
addition, any termination of any or all of our agreements with these companies
would likely have a material adverse affect on our business.
WE NEED TO MANAGE POTENTIAL GROWTH; OUR MANAGEMENT TEAM IS NEW. We have
rapidly and significantly expanded our operations, and anticipate this trend
will continue. This expansion placed, and we expect will continue to place, a
significant strain on our managerial, operational and financial resources. The
majority of our senior management, including our President and Chief Executive
Officer and our Chief Financial Officer, joined us within the last twelve
months. The Chairman of our Board of Directors, William S. McKiernan, serves as
the President and Chief Executive Officer of CyberSource Corporation and,
accordingly, plays a limited role in our management. Our new employees include a
number of key managerial, technical and operations personnel who we have not yet
fully integrated into our operations, and we expect to add additional key
personnel in the near future. To manage the expected growth of our operations
and personnel, we will need to improve existing and implement new transaction
processing, operational and financial systems, procedures and controls.
WE ARE DEPENDENT ON KEY PERSONNEL AND NEED ADDITIONAL PERSONNEL. Our future
success depends on the continued service and performance of our senior
management and other key personnel, particularly William S. McKiernan, Chairman
of our Board of Directors, Mark L. Breier, our President and Chief Executive
Officer, and John P. Pettitt, our Executive Vice President and Chief Technology
Officer. Our performance also depends on our ability to retain and motivate our
other officers and key employees. The loss of the services of any of our
executive officers or other key employees could adversely affect our business.
We have no long term employment agreements with any of our key personnel. Our
future success also depends on our ability to identify, attract, hire, train,
retain and motivate other highly skilled technical, managerial, editorial,
merchandising, marketing and customer service personnel. Competition for these
individuals is intense, particularly in the Silicon Valley area, and we may be
unable to successfully attract, assimilate or retain sufficiently qualified
personnel in the future.
WE ARE SUBJECT TO CAPACITY CONSTRAINTS RISKS; RELIANCE ON INTERNALLY
DEVELOPED SYSTEMS AND SYSTEM DEVELOPMENT RISKS. A key element of our strategy is
to generate a high volume of traffic on, and use of, our Web site. Our revenues
depend on the number of customers who use our Web site to purchase software.
Accordingly, our Web site, transaction processing systems and network
infrastructure performance, reliability and availability are critical to our
operating results. These factors also are critical to our reputation and our
ability to attract and retain customers and maintain adequate customer service
levels. The volume of goods we sell and the attractiveness of our product and
service offerings will decrease if there are any systems interruptions that
affect the availability of our Web site or our ability to fulfill orders. We
have experienced these peri-
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odic systems interruptions, which we believe will continue to occur. We are
continually enhancing and expanding our technology and transaction processing
systems, and network infrastructure and other technologies, to accommodate a
substantial increase in the volume of traffic on our Web site. We may be
unsuccessful in these efforts or we may be unable to accurately project the rate
or timing of increases in the use of our Web site. We may also fail to timely
expand and upgrade our systems and infrastructure to accommodate these
increases. In addition, we cannot predict whether additional network capacity
will be available from third party suppliers as we need it. Also, our network or
our suppliers' network might be unable to timely achieve or maintain a
sufficiently high capacity of data transmission to timely process orders or
effectively conduct digital download, especially if our Web site traffic
increases. Our failure to achieve or maintain high capacity data transmission
could significantly reduce consumer demand for our services.
WE MAY HAVE POTENTIAL CONFLICTS OF INTEREST WITH CYBERSOURCE. In connection
with the spin off of our Internet commerce services business to CyberSource in
December 1997, we entered into agreements with CyberSource to define the ongoing
relationship between the two companies. Because five out of six of our directors
are also directors of CyberSource and other members of our management team
joined CyberSource as executive officers, these agreements are not the result of
arm's length negotiations. Further, although we and CyberSource are engaged in
different businesses, the managements of the two companies currently have no
policies to govern the pursuit or allocation of corporate opportunities between
us and CyberSource. Our business could be adversely affected if the overlapping
board members of the two companies pursue CyberSource's interests over ours
either in the course of intercompany transactions or where the same corporate
opportunities are available to both companies.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH DEPENDENCE ON CYBERSOURCE
CORPORATION. We depend upon CyberSource for certain services such as credit card
processing, fraud screening, export control, sales tax computation, electronic
licensing, hosting of electronic downloads and fulfillment messaging. In
addition, under the terms of an Inter-Company Cross License Agreement we have
with CyberSource, we license certain technology, including Sm@rtCert, from
CyberSource. CyberSource also provides these services and licenses this
technology to other customers, including our competitors. It would be disruptive
to our business if any of the following occur:
- any discontinuation of these services;
- any termination of this license;
- any reduction in performance that requires us to replace these services;
- any reduction in performance that causes us to internally develop or
license these technologies from a third party; or
- any failure by CyberSource to ensure that this software complies with
"Year 2000" requirements.
Certain former and current members of our management have joined
CyberSource in executive management positions, including William S. McKiernan,
the Chairman of our Board of Directors, who serves as President and Chief
Executive Officer of CyberSource. Furthermore, five of the six members of our
Board of Directors serve on the CyberSource Board of Directors. Nothing in our
agreements with CyberSource prohibits CyberSource from competing directly with
us or prevents a third party from acquiring CyberSource, either of which could
adversely affect our business.
WE ARE SUBJECT TO RISK OF SYSTEM FAILURE; OUR SYSTEMS ARE LOCATED IN SINGLE
SITE. Our success, in particular our ability to successfully receive and fulfill
orders and provide high quality customer service, largely depends on the
efficient and uninterrupted operation of our computer and communications
systems. Substantially all of our development
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<PAGE> 21
and management systems are in a single facility we lease in Sunnyvale,
California. We contract with a third party for facilities for our production,
computer and communications hardware systems and for our critical connection to
the Internet. These systems are in a single location in Santa Clara, California.
Our systems and operations are vulnerable to damage or interruption from
fire, flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. We have no formal disaster recovery plan and carry insufficient
business interruption insurance to compensate us for losses that may occur.
Furthermore, our security mechanisms or those of our suppliers may not prevent
security breaches or service breakdowns. Despite our implementation of security
measures, our servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. These events could cause
interruptions or delays in our business, loss of data or render us unable to
accept and fulfill customer orders.
RAPID TECHNOLOGICAL CHANGE MAY ADVERSELY AFFECT US. To remain competitive,
we must continue to enhance and improve the responsiveness, functionality and
features of our online store. The Internet and the online commerce industry are
characterized by rapid technological change, changes in user and customer
requirements and preferences and frequent new product and service introductions.
If competitors introduce new products and services embodying new technologies or
if new industry standards and practices emerge, then our existing Web site and
proprietary technology and systems may become obsolete. Our future success will
depend on our ability to do the following:
- both license and internally develop leading technologies useful in our
business;
- enhance our existing services;
- develop new services and technology that address the increasingly
sophisticated and varied needs of our prospective customers; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
To develop our Web site and other proprietary technology entails
significant technical and business risks. We may use new technologies
ineffectively or we may fail to adapt our Web site, proprietary technology and
transaction processing systems to customer requirements or emerging industry
standards. If we face material delays in introducing new services, products and
enhancements then our customers may forego the use of our services and use those
of our competitors.
YEAR 2000 RISK MAY ADVERSELY AFFECT OUR COMPANY. Many existing computer
programs use only two digits to identify a year. These programs were designed
and developed without addressing the impact of the upcoming change in the
century. If not corrected, many computer software applications could fail or
create erroneous results by, at or beyond the year 2000. We utilize software,
computer technology and other services internally developed and provided by
third-party vendors that may fail due to the year 2000 phenomenon. For example,
we are dependent on the institutions involved in processing our members' credit
card payments for Internet services. We are also dependent on telecommunications
vendors and leased point-of-purchase vendors to maintain network reliability.
We are currently assessing the year 2000 readiness of our third-party
supplied software, computer technology and other services. Based upon the
results of this assessment, the Company will develop and implement, if
necessary, a remediation plan with respect to third-party software, computer
technology and services that may fail to be year 2000 compliant. We have
assessed our proprietary software and internal systems and determined them to be
year 2000 compliant. We anticipate that our systems, including components
thereof provided by third-party vendors, will be year 2000 compliant by 2000. At
this time, the expenses associated with this assessment and potential
remediation plan cannot be deter-
20
<PAGE> 22
mined. The failure of our software and computer systems and of our third-party
vendors to be year 2000 complaint could have a material adverse effect on us.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS. We intend to make
investments in complementary companies, products or technologies. If we buy a
company, we could have difficulty in assimilating that company's personnel and
operations. In addition, the key personnel of the acquired company may decide
not to work for us. If we make other types of acquisitions, we could have
difficulty in assimilating the acquired technology or products into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. Furthermore, we may have to
incur debt or issue equity securities to pay for any future acquisition, the
issuance of which would be dilutive to us or our existing stockholders.
WE MAY NOT SUCCESSFULLY PROTECT OUR PROPRIETARY RIGHTS. We regard our
copyrights, service marks, trademarks, trade dress, trade secrets and similar
intellectual property as critical to our success. To protect our proprietary
rights, we rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others. We pursue the registration of our trademarks and service
marks in the U.S., and have applied for the registration of our trademarks and
service marks. We applied for Federal registration of the service marks
"BEYOND.COM" on July 10, 1998, and "BEYOND DOT COM" on July 14, 1998, although
we cannot assume that federal registration of these service marks or any other
service mark will issue. In addition, effective trademark, service mark,
copyright and trade secret protection may be unavailable in every country in
which our products and services are made available online.
We have licensed in the past, and expect to license in the future, certain
of our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that these licensees maintain the quality of
our brand, the licensees could take actions that materially harm the value of
our proprietary rights or reputation. Furthermore, the steps we take to protect
our proprietary rights may be inadequate or third parties might infringe or
misappropriate our trade secrets, copyrights, trademarks, trade dress and
similar proprietary rights. In addition, others could independently develop
substantially equivalent intellectual property. We may have to litigate in the
future to enforce our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and the diversion of our management
and technical resources which could harm our business.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS. Other parties may assert infringement or unfair
competition claims against us. In the past, other parties have sent us notice of
claims of infringement of proprietary rights, and we expect to receive other
notices in the future. In November 1998, a third party that appears to hold a
registered United States trademark for "A Better Way to Buy Software" sent us a
letter asserting that our use of that phrase up to such time infringed its
trademark rights. We dispute the validity of this assertion. However, this third
party might file a lawsuit against us, which could subject us to injunctive
relief or money damages, or both. In November 1998, another third party, based
in Australia, sent us a letter asserting that our use of the name "Beyond.com"
infringes the trademark and domain name rights of this third party. We dispute
the validity of this assertion as well. However, if the investing party were to
be successful with certain of its claims, our ability to use the "Beyond.com"
mark, name or domain name could be materially and adversely affected.
We cannot predict whether others will assert claims of infringement against
us, or whether any past or future assertions or prosecutions will adversely
affect our business. If we are forced to defend against any such claims, whether
they are with or without merit or are
21
<PAGE> 23
determined in our favor, then we may face wasted time, costly litigation,
diversion of technical and management personnel, or product shipment delays. As
a result of such a dispute, we may have to develop non-infringing technology or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may be unavailable on terms acceptable to us, or at
all. If there is a successful claim of product infringement against us and we
are unable to develop non-infringing technology or license the infringed or
similar technology on a timely basis, it could adversely affect our business.
WE MAY BECOME SUBJECT TO ADDITIONAL GOVERNMENT REGULATION. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The most recent session of the United States
Congress resulted in Internet laws regarding children's privacy, copyrights,
taxation and the transmission of sexually explicit material. The European Union
recently enacted its own privacy regulations. The law of the Internet, however,
remains largely unsettled, even in areas where there has been some legislative
action. It may take years to determine whether and how existing laws such as
those governing intellectual property, privacy, libel and taxation apply to the
Internet. In addition, the growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business online. The adoption or modification of laws or regulations
relating to the Internet could adversely affect our business.
WE MAY BE LIABLE FOR INTERNET CONTENT. We believe that our future success
will depend in part upon our ability to deliver original and compelling
descriptive content about the software products we sell on the Internet. As a
publisher of online content, we face potential liability for defamation,
negligence, copyright, patent or trademark infringement, or other claims based
on the nature and content of materials that we publish or distribute. In the
past, plaintiffs have brought such claims and sometimes successfully litigated
them against online services. In addition, in the event that we implement a
greater level of interconnectivity on our Web site, we will not and cannot
practically screen all of the content our users generate or access, which could
expose us to liability with respect to such content. Although we carry general
liability insurance, our insurance may not cover claims of these types or may be
inadequate to indemnify us for all liability that may be imposed on us. If we
face liability, particularly liability that is not covered by our insurance or
is in excess of our insurance coverage, then our reputation and our business may
suffer.
WE MAY BE SUBJECT TO SALES AND OTHER TAXES. We do not currently collect
sales or other similar taxes for physical shipments of goods into states other
than California, Virginia and the District of Columbia. We do not currently
collect sales or other similar taxes for digital download of goods into states
other than the District of Columbia. However, one or more local, state or
foreign jurisdictions may seek to impose sales tax collection obligations on us
and other out of state companies which engage in online commerce. In addition,
any new operation in states outside California and the District of Columbia
could subject our shipments into such states to state sales taxes under current
or future laws. If one or more states or any foreign country successfully
asserts that we should collect sales or other taxes on the sale of our
merchandise, it could adversely affect our business.
MANAGEMENT AND CERTAIN STOCKHOLDERS CAN EXERCISE SIGNIFICANT INFLUENCE OVER
BEYOND.COM. As of December 31, 1998, assuming conversion of all our 7 1/4%
Convertible Subordinated Notes into common stock, and the full exercise of the
America Online warrant into common stock, our directors and executive officers
and their respective affiliates beneficially own in the aggregate approximately
51.8% of our outstanding common stock. In particular, William S. McKiernan, the
Chairman of our Board of Directors, beneficially holds approximately 28.8% of
our outstanding common stock. Therefore, if these stockholders act together,
22
<PAGE> 24
they will be able to exercise significant influence
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. Such concentration
of ownership also may have the effect of delaying, preventing or deterring a
change in our control which could adversely affect the market price of our
common stock.
THERE ARE SUBSTANTIAL SHARES ELIGIBLE FOR SALE; THE SALE OF SUCH SHARES MAY
DEPRESS OUR STOCK PRICE. If our stockholders sell substantial amounts of our
common stock in the public market following this offering, the market price of
our common stock could fall. Such sales also might make it more difficult for us
to sell equity or equity-related securities in the future at a time and price
that we deem appropriate. As of December 31, 1998, there were 27,423,763 shares
of our common stock outstanding (excluding shares issuable upon the conversion
of our 7 1/4% Convertible Subordinated Notes and shares issuable upon the
exercise of outstanding options and warrants). Of these shares, 10,566,700 are
freely tradable. This leaves 16,857,063 shares and 3,448,745 shares issuable
upon conversion of our 7 1/4% Convertible Subordinated Notes eligible for sale
in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ----
<S> <C>
3,457,327............ Upon the
effectiveness of
this registration
statement
15,464,268........... On February 16,
1999, subject in
some cases, to
restrictions under
Rule 144
1,384,213............ At certain times
after March 18,
1999, subject, in
some cases, to
restrictions under
Rule 144
</TABLE>
WE ARE SUBJECT TO RISKS ASSOCIATED WITH GLOBAL EXPANSION. Although we sell
software to customers outside the United States, we have no overseas fulfillment
or distribution facility or arrangement. We also have no Web site content
localized for foreign markets. Therefore, we may be unable to expand our global
presence effectively. In addition, international operations are subject to
inherent risks, including:
- regulatory requirements;
- export restrictions;
- tariffs and other trade barriers;
- difficulties in protecting intellectual property rights;
- longer payment cycles;
- problems in collecting accounts receivable;
- political instability; and
- fluctuations in currency exchange rates.
In addition, the United States imposes export restrictions on certain software
because of its encryption technology and we may face liability if we violate
these restrictions.
WE MAY BE SUBJECT TO RISKS RELATED TO THE INTRODUCTION OF THE EURO
CURRENCY. In January 1999, the new "Euro" currency was introduced in certain
European countries that are part of the European Monetary Union ("EMU"). During
2002, all EMU countries are expected to completely replace their national
currencies with the Euro. A significant amount of uncertainty exists as to the
effect the Euro will have on the marketplace generally and, additionally, all of
the final rules and regulations have not yet been defined and finalized by the
European Commission with regard to the Euro currency. We list the prices for our
products, accounts, and invoices for sales and collect payments in U.S. dollars,
even for sales outside the U.S. We currently utilize third-party vendor
equipment and software products that may or may not be EMU compliant. Although
we are currently taking steps to address the impact, if any of EMU compliance
for such third-party
23
<PAGE> 25
products, the failure of any critical components to operate properly post-Euro
may have an adverse effect on our business or results of operations or require
us to incur expenses to remedy such problems.
OUR CHARTER DOCUMENTS MAY ADVERSELY AFFECT A POTENTIAL TAKEOVER. Provisions
of our Amended and Restated Certificate of Incorporation, Bylaws, and Delaware
law could make it more difficult for a third party to acquire us, even if doing
so would be beneficial to our stockholders. See "Description of Capital Stock."
24
<PAGE> 26
USE OF PROCEEDS
Our 7 1/4% Convertible Subordinated Notes and the shares of our common
stock will be sold by their present holders. We will not receive any proceeds
from such sale.
DIVIDEND POLICY
We have never declared or paid any cash dividends. We currently expect to
retain future earnings, if any, to finance the growth and development of our
business.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market since our
initial public offering on June 17, 1998, and is traded under the symbol "BYND."
Prior to such time, there was no public market for our common stock. The
following table sets forth, for the periods indicated, the high and low sale
prices per share of our common stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1998
Second Quarter (from June 17, 1998)...................... $19.938 $13.188
Third Quarter............................................ $19.938 $ 8.375
Fourth Quarter........................................... $29.063 $ 6.313
FISCAL YEAR 1999
First Quarter (through January 20, 1999)................. $ 31.00 $ 28.00
</TABLE>
On January 20, 1999, the reported last sale price of the common stock on
the Nasdaq National Market was $28.00 per share. As of December 31, 1998, there
were approximately 107 stockholders of record of the common stock.
CORPORATE INFORMATION
We were incorporated in California in 1994 as CyberSource Corporation and
changed our name to software.net Corporation in April 1998. In June 1998, we
were reincorporated in Delaware as software.net Corporation. In December, 1998,
we changed our name from software.net Corporation to Beyond.com Corporation.
References in this prospectus to "Beyond.com", "we", "our" and "us" refer to
Beyond.com Corporation, a Delaware corporation and its predecessor, software.net
Corporation, a California corporation. Our principal executive offices are
located at 1195 West Fremont Avenue, Sunnyvale, California 94087 and our
telephone number is (408) 616-4200. We have applied for federal registration of
the service marks "BEYOND.COM" and "BEYOND DOT COM." Each trademark, trade name
or service mark of any other company appearing in this prospectus belongs to its
holder.
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<PAGE> 27
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
December 31, 1998.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Long term debt:
7 1/4% Convertible Subordinated Notes Due December 1,
2003................................................... $63,250
-------
Total long-term debt.............................. 63,250
Stockholders' equity:
Preferred stock, $0.001 par value; 15,000,000 shares
authorized; no shares issued and outstanding........... --
Common stock, $0.001 par value; 50,000,000 shares
authorized; 27,423,763 shares issued and
outstanding(1)......................................... 69,311
Deferred compensation..................................... (2,226)
Accumulated deficit....................................... (42,362)
-------
Total stockholders' equity........................ 24,723
-------
Total capitalization.............................. $87,973
=======
</TABLE>
- ---------------
(1) Based on shares outstanding as of December 31, 1998. Excludes at December
31, 1998: (i) 4,495,299 shares of common stock issuable upon exercise of
options outstanding under our 1995 and 1998 stock Option Plans at a weighted
average exercise price of $4.16 per share; (ii) 1,000,000 shares of common
stock issuable upon exercise of outstanding options granted outside of the
plans at a weighted average exercise price of $0.004 per share; (iii)
268,849 shares of common stock reserved for future issuance under the plans,
(iv) 358,423 shares of common stock reserved for issuance pursuant to the
exercise of a warrant issued by us to America Online at an exercise price of
$8.37 per share; and (v) 3,448,745 shares of common stock issuable upon
conversion of our 7 1/4% Convertible Subordinated Notes. See "Description of
Capital Stock" and Notes 3, 5 and 8 of Notes to Consolidated Financial
Statements.
26
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The consolidated statement of
operations data for the years ended December 31, 1996, 1997 and 1998 and the
consolidated balance sheet data as of December 31, 1997 and 1998 are derived
from our Consolidated Financial Statements which have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this prospectus,
and are qualified by reference to such Consolidated Financial Statements and the
Notes thereto. The consolidated statement of operations data for the period from
August 12, 1994 (date of incorporation) to December 31, 1994 and for the year
ended December 31, 1995 and the consolidated balance sheet data as of December
31, 1995 and 1996 are derived from our consolidated financial statements not
included herein which have been audited by Ernst & Young LLP, independent
auditors. The consolidated balance sheet data as of December 31, 1994, are
derived from our unaudited financial statements not included herein. The
historical results are not necessarily indicative of future results. We have
paid no cash dividends on our common stock.
<TABLE>
<CAPTION>
PERIOD FOR AUGUST 12,
1994 (DATE OF
INCORPORATION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------
1994 1995 1996 1997 1998
--------------------- ------ ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Net revenues................................. $ 40 $1,003 $ 5,858 $16,806 $ 36,650
Cost of revenues............................. 3 623 5,137 14,873 31,074
------ ------ ------- ------- --------
Gross profit................................. 37 380 721 1,933 5,576
Operating expenses:
Research and development................... 164 388 431 1,060 4,201
Sales and marketing........................ 57 407 704 1,696 27,568
General and administrative................. 43 103 450 1,087 4,943
------ ------ ------- ------- --------
Total operating expenses............ 264 898 1,585 3,843 36,712
------ ------ ------- ------- --------
Loss from operations......................... (227) (518) (864) (1,910) (31,136)
Interest income, net......................... -- 7 85 167 63
------ ------ ------- ------- --------
Loss from continuing operations.............. (227) (511) (779) (1,743) (31,073)
Loss from discontinued operations............ -- -- (736) (3,616) --
------ ------ ------- ------- --------
Net loss..................................... $ (227) $ (511) $(1,515) $(5,359) $(31,073)
====== ====== ======= ======= ========
Basic and diluted net loss per share from
continuing operations(1)................... $(0.03) $(0.07) $ (0.10) $ (0.21) $ (1.65)
------ ------ ------- ------- --------
Basic and diluted net loss per share from
discontinued operations(1)................. -- -- (0.08) (0.40) --
------ ------ ------- ------- --------
Basic and diluted net loss per share(1)...... $(0.03) $(0.07) $ (0.18) $ (0.61) $ (1.65)
====== ====== ======= ======= ========
Number of shares used in computing basic and
diluted net loss per share(1).............. 9,000 9,000 9,000 9,000 18,900
====== ====== ======= ======= ========
Proforma basic and diluted net loss per share
from continuing operations(1).............. $ (0.10) $ (1.28)
Proforma basic and diluted net loss per share
from discontinued operations(1)............ (0.20) --
------- --------
Proforma basic and diluted net loss per
share(1)................................... $ (0.30) $ (1.28)
======= ========
Number of shares used in computing proforma
basic and diluted net loss per share(1).... 17,828 24,276
======= ========
OTHER FINANCIAL DATA
Ratio of Earnings to Fixed Charges(2)........ N/A N/A N/A N/A N/A
Deficiency of Earnings Available to Cover
Fixed Charges(2)........................... $ (227) $ (511) $ (779) $(1,743) $(31,073)
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1994 1995 1996 1997 1998
----- ----- ------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents................. $ 12 $ 255 $ 3,737 $ 2,571 $ 81,548
Working capital (deficiency).............. (89) (106) 3,543 1,093 80,128
Total assets.............................. 36 579 5,691 9,586 109,904
Long-term obligations, net of current
portion................................. 105 105 105 99 63,250
Redeemable convertible preferred stock.... -- 651 6,395 12,565 --
Stockholders' equity (net capital
deficiency)............................. $(181) $(793) $(2,409) $(11,191) $ 24,723
</TABLE>
- -------------------------
(1) For explanation of the calculation of per share amounts, see Note 1 of Notes
to Consolidated Financial Statements.
(2) For purposes of this computation, the ratio of earnings to fixed charges has
been calculated by dividing fixed charges into loss from continuing
operations before income taxes plus fixed charges. Fixed charges consist of
interest expense and a portion of lease rental charges considered to
represent interest cost.
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<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Read the following discussion together with the consolidated financial
statements and related notes included elsewhere in this prospectus. The results
discussed below are not necessarily indicative of the results to be expected in
any future periods. This discussion contains forward-looking statements based on
current expectations and which involve risks and uncertainties. Actual results
and the timing of certain events may differ significantly from those projected
in such forward-looking statements due to a number of factors, including those
set forth herein, in the section entitled "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We are a leading online reseller of commercial off-the-shelf computer
software to the consumer, small business and large enterprise markets. Through
our online store (www.beyond.com), we offer customers a comprehensive selection
of software, customer service and competitive pricing. We believe that our
Beyond.com Web site is one of the most widely known and used sites on the World
Wide Web for the purchase of software. We deliver software to customers one of
two ways: either we physically deliver the shrink-wrap software package or we
deliver the software over the Internet through digital download. We launched our
Web site in November 1994 under the name CyberSource Corporation and maintained
a Web site named software.net. In addition to selling software, we initially
charged software publishers a fee to list their products on our Web site. We
stopped charging publishers in 1996. In July 1996, we expanded our business by
entering into our first contract with a U.S. government agency. This contract,
and other later contracts require us to both sell software products and to
provide related services. In July 1997, we expanded our third party sales
channel by entering into an agreement with Netscape. Under this agreement, we
created and continue to manage and maintain the Netscape Software Depot Web
site.
In March 1998, we further expanded our third party sales channel by
entering into strategic relationships with America Online and Excite. Under the
America Online agreement, we are the exclusive reseller of software on certain
screens on the America Online service and America Online's Web site, aol.com. On
other screens we are a semi-exclusive reseller of software. Under the Excite
agreement, we have the right to display banner advertisements and links to our
Web site on certain Excite screens. In addition, Excite cannot display paid
promotional links or banner advertisements of any other software reseller on
specified Excite screens related to software.
Under these agreements, America Online and Excite are obliged to deliver
minimum numbers of screen views with links to our Web site. We call these screen
views "Impressions." Under the America Online Agreement, we must make fixed
payments totaling approximately $21 million. In addition, under the Excite
agreement, we must make substantial payments to Excite over the three year term
of that agreement. We also have agreed to pay America Online and Excite a
percentage of certain transactional revenues and, in the case of America Online,
advertising revenues we earn in excess of specified thresholds. The America
Online agreement terminates in August 2001, and the Excite agreement terminates
when Excite has delivered a certain number of impressions, but no earlier than
April 2001.
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<PAGE> 31
We expect these arrangements with Netscape, America Online and Excite to
represent significant distribution channels for our products. If we or the other
party to any of these agreements elect to terminate any of the agreement(s) it
likely would have a material adverse effect on our business. We cannot assure
that we will achieve sufficient online traffic or generate sufficient revenue to
justify our payment obligations to America Online and Excite, nor can we assure
that we will achieve sufficient online traffic or generate sufficient revenue to
satisfy our contractual obligations necessary to prevent termination of the
America Online, Excite or Netscape agreements.
Over the past fifteen months we have entered into various agreements with
Network Associates concerning the online sale of software and the management of
Network Associates' Web sites. Network Associates is a developer of electronic
commerce locations and publisher of certain products marketed under the McAfee
and other names. Our agreements include a Co-Hosting Agreement and a Web Site
Services Agreement entered into in September of 1998. Under these agreements, we
agreed to co-host Web sites with Network Associates and agreed to resell Network
Associates' products on Network Associates' Web site at www.mcafeestore.com. We
must make substantial payments to Network Associates for exclusive positioning
of links to our Web site on certain screens on Network Associates' Web sites,
and rights to resell Network Associates products. If we or they terminate one or
all of these agreements, it would likely have a material adverse effect on our
business. We cannot guarantee that the volume of online traffic, customers or
revenues we obtain as a result of this relationship will justify our significant
fixed financial obligations to Network Associates.
In April 1998, we changed our name to software.net Corporation. In June
1998, we completed the initial public offering of our common stock. In August
1998, we began doing business as "Beyond.com" and initiated an aggressive
regional radio and national print advertising campaign to promote the brand. In
November 1998, we completed the offering of $63.25 million aggregate principal
amount of our 7 1/4% Convertible Subordinated Notes. In December 1998, we
initiated a regional television advertising campaign and we changed our legal
corporate name to Beyond.com Corporation. We intend to continue an aggressive
advertising campaign to promote our brand in 1999.
In order to focus on our core business of selling software products online,
in December 1997 we spun-off our Internet commerce services business (which
included credit card processing, fraud screening, export control, territory
management, and electronic fulfillment) to CyberSource Corporation. As a result
of this spin-off, our results of operations reflect a loss from discontinued
operations in the amount of $736,000 during 1996 and $3.6 million during 1997.
Under the terms of our Internet commerce services agreement with CyberSource, we
use services supplied by CyberSource on a nonexclusive basis for credit card
processing, fraud screening, export control, sales tax computation, electronic
licensing, hosting of electronic downloads and fulfillment notification. This
agreement expires on December 31, 1999, and automatically renews for an
additional one year term, unless otherwise terminated by either party. Under
this agreement, we have agreed to indemnify CyberSource for an amount not to
exceed $100,000 against any third party claim that the software we distribute
infringes upon any third party's intellectual property rights. CyberSource has
agreed to indemnify us for an amount not to exceed $100,000 against any third
party claim that the services provided by CyberSource or the use of any software
provided by CyberSource in connection with the services, infringes any third
party's intellectual property rights.
30
<PAGE> 32
Each year since inception, we have incurred increasingly larger net losses.
These annual net losses increased from $1.5 million in 1996 to $5.4 million in
1997 and $31.1 million in 1998. For the foreseeable future, we intend to expend
significant financial and management resources on the following components of
our business:
- brand development, marketing and promotion;
- site content development;
- strategic relationships development and maintenance (such as those with
America Online, Excite, Netscape and Network Associates); and
- technology and operating infrastructure development, including digital
download capabilities.
We expect to incur additional losses and continued negative cash flow from
operations for the foreseeable future. We anticipate these losses will increase
significantly from current levels as we spend more on marketing and promotion,
including new and increased spending for mass media advertising. To become
profitable given our planned investment levels, we must generate and sustain
substantial increases in net revenue. We cannot assure that our revenues will
increase or even continue at their current level or that we will achieve or
maintain profitability or generate cash from operations in future periods. Our
current and future expense levels are, to a large extent, fixed at a significant
level primarily due to marketing agreements. We have based these expense levels
on our operating plans and on our estimates of future revenues, which we cannot
assume we will meet. Our estimates of future revenues depend on sales that we
anticipate resulting from our marketing agreements and increased advertising and
from government sales. We cannot assure that we will meet our estimated revenue
targets. Our revenues and operating results generally depend on the volume and
timing of orders we receive, which are difficult to forecast. Further, as noted
above, we expect our costs to increase above the fixed minimum. We may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues would have an
immediate adverse effect on our business. In view of the rapidly evolving nature
of our business and our limited operating history, we are unable to accurately
forecast our revenues. Further, we believe that period to period comparisons of
our operating results are not necessarily meaningful and you should not rely
upon these comparisons as an indication of future performance.
We derive our revenues primarily from four sources:
- sales of software to customers using credit cards;
- sales of software to corporate customers that are invoiced directly under
credit terms;
- sales of software to various government agencies pursuant to contractual
arrangements; and
- to a lesser extent, amounts received from software publishers for
advertising and promotion.
We recognize our revenues from the sale of software, net of estimated
returns, either upon shipment of the physical product or delivery of the
electronic product via digital download. We defer net revenues associated with
the sale of software pursuant to contracts
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<PAGE> 33
with the U.S. government that require us to provide continuing service, support,
and performance and recognize these revenues over the period that we provide
service, support, and performance. We recognize revenues derived from software
publishers for advertising and promotional activities as the services are
provided. Our U.S. government contracts are subject to annual review and renewal
by the applicable government agency. Although all such contracts presently
remain in full force and effect, the applicable U.S. government agency may
terminate such contracts without cause or prior notice. Because the government
contracts may be terminated without cause or prior notice, we cannot be certain
that we will generate any revenues from U.S. government contracts in any future
period.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's consolidated statement of
operations to total net revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
(UNAUDITED)
<S> <C> <C> <C>
Net revenues............................................... 100.0% 100.0% 100.0%
Cost of revenues........................................... 87.7 88.5 84.8
----- ----- -----
Gross profit............................................... 12.3 11.5 15.2
Operating expenses:
Research and development................................. 7.3 6.3 11.5
Sales and marketing...................................... 12.0 10.1 75.2
General and administrative............................... 7.7 6.5 13.5
----- ----- -----
Total operating expense.......................... 27.0 22.9 100.2
----- ----- -----
Loss from operations....................................... (14.7) (11.4) (85.0)
Interest income, net....................................... 1.4 1.0 0.2
----- ----- -----
Loss from continuing operations............................ (13.3) (10.4) (84.8)
Loss from discontinued operations.......................... (12.6) (21.5) --
----- ----- -----
Net loss................................................... (25.9)% (31.9)% (84.8)%
===== ===== =====
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND 1998
Net Revenues. Our net revenues increased from $16.8 million in the 1997 to
$36.7 million in 1998. This increase primarily resulted from increased sales to
consumer and corporate customers and as a result of new U.S. government
contracts. Our net revenues from digital download software sales increased from
$10.3 million in 1997 to $18 million in 1998.
Cost of Revenues. Our cost of revenues consists primarily of the costs of
software and software licenses sold to consumer and corporate customers, related
credit card processing fees, and the costs of software licenses and software
updates provided to the U.S. govern-
ment. Our total cost of revenues increased from $14.9 million in 1997 to $31.1
million in 1998. This increase resulted from our increased software sales.
Gross Margin. Our gross margin (gross profit as a percentage of net
revenues) increased from 11.5% in 1997 to 15.2% in 1998. This increase primarily
resulted from a
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<PAGE> 34
shift in our revenue mix as we received an increased percentage of higher margin
consumer business, an increased percentage of higher margin digital download and
an increased percentage of higher margin advertising and promotional revenues
from software publishers. In the future, we may expand or increase the discounts
we offer to customers or otherwise alter our pricing structures and policies. If
we take such an action, it may have an adverse impact on gross margin in future
periods. In future periods our gross margin may decline if the revenues we
generate from sales to the U.S. government or sales to large enterprise
customers increase as a percentage of our total net revenues.
Research and Development Expenses. Our research and development expenses
primarily consist of personnel and other expenses associated with developing and
enhancing our Web sites, as well as associated facilities related expenses. Our
research and development expenses increased from $1.1 in 1997 to $4.2 million in
1998. These expenses also increased as a percentage of net revenue from 6.3% in
1997 to 11.5% 1998. This increase both in absolute dollars and as a percentage
of net revenues primarily was the result of increases in our personnel and
equipment related costs. We anticipate that our research and development
expenses will continue to increase in absolute dollars in future periods.
Sales and Marketing Expenses. Our sales and marketing expenses consist
primarily of promotional expenditures and costs associated with operating our
Web sites, including personnel and related expenses. In addition, we include the
expenditures associated with our strategic marketing alliances under sales and
marketing expenses. Our sales and marketing expenses increased significantly
from $1.7 million in 1997 to $27.6 million in 1998. These expenses also
increased significantly as a percentage of net revenues from 10.1% in 1997 to
75.2% in 1998. This increase both in absolute dollars and as a percentage of net
revenues was primarily the result of costs associated with:
- developing and maintaining our strategic marketing alliances;
- a branding and marketing campaign (including expenses associated with our
re-branding efforts); and
- an increase in personnel to support increased sales and marketing and
advertising expenditures.
We intend to continue to pursue aggressive branding, sales and marketing
campaigns. In addition, our current strategic marketing alliances with America
Online, Excite and Netscape require us to make payments totaling approximately
$26 million over the terms of those agreements. As of December 31, 1998,
approximately $20.3 million of this amount remained to be paid. We are expensing
the costs associated with the America Online and Netscape agreements ratably
over the terms of the respective agreements. We are expensing the costs
associated with the Excite agreement as payments become due. We are expensing
the minimum payment amounts over the three-year term of the Co-Hosting Agreement
with Network Associates. We may enter into similar strategic marketing alliances
requiring significant minimum payments in the future and, as a result, we may
substantially increase our sales and marketing expenditures. Due to our planned
aggressive branding, sales and marketing efforts and our current and potential
financial commitments in connection with our strategic marketing alliances, we
expect sales and marketing expenses to increase significantly in absolute
dollars and as a percentage of net revenues in future periods.
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<PAGE> 35
General and Administrative Expenses. Our general and administrative
expenses primarily consist of personnel expenses, legal expenses, and corporate
facility-related expenses. Our general and administrative expenses increased
from $1.1 in 1997 to $4.9 million in 1998. These expenses also increased, as a
percentage of net revenues, from 6.5% in 1997 to 13.5% in 1998. This increase in
both absolute dollars and as a percentage of net revenues was primarily the
result of increased personnel-related costs and facilities-related expenses
associated with the hiring of additional personnel as well as increased
provisions for bad debts.
Interest Income, net. Interest income, net, consists of earnings on our
cash investments, net of interest costs related to our financing obligations.
Interest income, net, decreased from $167,000 in 1997 to $63,000 in 1998. This
decrease was primarily a result of increased interest expenses totaling
approximately $1,293,000 associated with our credit facility and our 7 1/4%
Convertible Subordinated Notes offset by interest income totaling approximately
$1,356,000 from higher average cash balances.
Income Taxes. We incurred a net loss for 1997 and 1998. As a result, no
provision for income taxes has been recorded in these periods. As of December
31, 1998, we had approximately $37 million of net operating loss carryforwards
for federal income tax purposes, which expire between 2009 and 2013. Given our
limited operating history, losses incurred to date and the difficulty in
accurately forecasting our future results, we do not believe that we meet the
criteria required by generally accepted accounting principles to realize the
related deferred income tax assets and, accordingly, we have recorded a full
100% valuation allowance to reduce the deferred income tax assets to $0.
Furthermore, as a result of changes in ownership of our stock from our preferred
stock financings and our initial public offering, any attempt by us to use the
net operating losses and tax credits may be subject to substantial annual
limitations. These annual limitation may result in the expiration of net
operating losses and tax credits before utilization. See Note 11 of Notes to
Consolidated Financial Statements.
YEARS ENDED DECEMBER 31, 1996 AND 1997
Net Revenues. Our net revenues increased from $5.9 million in 1996 to $16.8
million in 1997. This increase was primarily a result of increased sales to
consumer and corporate customers and new U.S. government contracts. Our revenues
from digital download software sales were $10.3 million in 1997.
Cost of Revenues. Our cost of revenues increased from $5.1 million in 1996
to $14.9 million in 1997. This increase was primarily a result of our entering
into additional U.S. government contracts and achieving increased product sales
to consumer and corporate customers.
Gross Margin. Our gross margin decreased from 12.3% in 1996 to 11.5% in
1997. This decrease was primarily a result of a shift in our revenue mix. U.S.
government contract revenues bring a lower margin than our other revenue
sources. During 1997, our revenues from these lower margin U.S. government
contracts increased as a percentage of total net revenues. The decrease we
realized in overall gross margin was partially offset by an increase in higher
margin advertising and promotional revenues we received from software
publishers.
Research and Development Expenses. Our research and development expenses
increased from $431,000 in 1996 to $1.1 million in 1997. Our research and
development
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<PAGE> 36
expenses as a percentage of net revenues decreased from 7.3% in 1996 to 6.3% in
1997. Our increase in research and development expenses in absolute dollars from
1996 to 1997 primarily was the result of an increase in personnel related costs.
Our decrease in research and development expenses as a percentage of net
revenues was primarily the result of our substantial increase in net revenues in
1997.
Sales and Marketing Expenses. Our sales and marketing expenses increased
from $704,000 in 1996 to $1.7 million in 1997. Our sales and marketing expenses
as a percentage of net revenues decreased from 12.0% in 1996 to 10.1% in 1997.
Our increase in sales and marketing expenses in absolute dollars from 1996 to
1997 primarily was the result of an increase in our personnel and advertising
expenditures, as well as costs associated with a strategic marketing alliance.
The decrease in our sales and marketing expenses as a percentage of our net
revenues primarily was the result of our substantial increase in net revenues in
1997.
General and Administrative Expenses. Our general and administrative
expenses increased from $450,000 in 1996 to $1.1 million in 1997. Our general
and administrative expenses as a percentage of net revenues decreased from 7.7%
in 1996 and 6.5% in 1997. Our increase in general and administrative spending in
absolute dollars in 1997 primarily was the result of increased salaries and
facilities related expenses associated with our hiring of additional personnel,
increased legal expenses associated with our settlement of a lawsuit, and
increased bad debt reserves associated with our increase in net revenues. Our
decrease in general and administrative expenses as a percentage of net revenues
primarily was the result of our substantial increase in net revenues in 1997.
Interest Income, Net. Interest income, net, increased from $85,000 in 1996
to $167,000 in 1997 due to earnings on higher average cash balances in 1997.
Income Taxes. We incurred a net loss in both 1996 and 1997. Accordingly, we
did not record provision for income taxes in either of these years.
35
<PAGE> 37
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited quarterly consolidated
statement of operations data for each of the four quarters during the years
ended December 31, 1997 and 1998. In the opinion of our management, this
information has been prepared substantially on the same basis as the audited
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this prospectus.
In addition, in the opinion of our management, all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the unaudited quarterly results. You
should read this quarterly data in conjunction with our audited Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
prospectus. Our operating results for any quarter are not necessarily indicative
of the operating results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................ $3,158 $3,454 $ 4,825 $ 5,389 $ 6,192 $ 7,577
Cost of revenues........................ 2,783 2,892 4,295 4,903 5,254 6,408
------ ------ ------- ------- ------- -------
Gross profit............................ 375 542 530 486 938 1,169
Operating expenses:
Research and development.............. 155 184 302 419 602 1,120
Sales and marketing................... 265 332 442 657 1,953 4,268
General and administrative............ 164 247 265 411 635 1,178
------ ------ ------- ------- ------- -------
Total operating expenses........ 584 763 1,009 1,487 3,190 6,566
------ ------ ------- ------- ------- -------
Loss from operations.................... (209) (221) (479) (1,001) (2,252) (5,397)
------ ------ ------- ------- ------- -------
Interest income, net.................... 40 32 24 71 25 (167)
------ ------ ------- ------- ------- -------
Loss from continuing operations......... (169) (189) (455) (930) (2,227) (5,564)
Loss from discontinued operations....... (583) (455) (1,036) (1,542) -- --
------ ------ ------- ------- ------- -------
Net loss................................ $ (752) $ (644) $(1,491) $(2,472) $(2,227) $(5,564)
====== ====== ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Net revenues............................ $ 9,742 $ 13,139
Cost of revenues........................ 8,281 11,131
------- --------
Gross profit............................ 1,461 2,008
Operating expenses:
Research and development.............. 1,287 1,192
Sales and marketing................... 8,048 13,299
General and administrative............ 1,407 1,723
------- --------
Total operating expenses........ 10,742 16,214
------- --------
Loss from operations.................... (9,281) (14,206)
------- --------
Interest income, net.................... 383 (178)
------- --------
Loss from continuing operations......... (8,898) (14,384)
Loss from discontinued operations....... -- --
------- --------
Net loss................................ $(8,898) $(14,384)
======= ========
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................ 88.1 84.2 89.0 91.0 84.9
------ ------ ------- ------- -------
Gross profit............................ 11.9 15.8 11.0 9.0 15.1
Operating expenses:
Research and development.............. 4.9 5.4 6.3 7.8 9.7
Sales and marketing................... 8.4 9.7 9.2 12.2 31.5
General and administrative............ 5.2 7.2 5.4 7.6 10.3
------ ------ ------- ------- -------
Total operating expenses........ 18.5 22.3 20.9 27.6 51.5
------ ------ ------- ------- -------
Loss from operations.................... (6.6) (6.5) (9.9) (18.6) (36.4)
Interest income, net.................... 1.3 0.9 0.5 1.3 0.4
------ ------ ------- ------- -------
Loss from continuing operations......... (5.3) (5.6) (9.4) (17.3) (36.0)
Loss from discontinued operations....... (18.5) (13.2) (21.5) (28.6) --
------ ------ ------- ------- -------
Net loss................................ (23.8)% (18.8)% (30.9)% (45.9)% (36.0)%
====== ====== ======= ======= =======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
---------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998
-------- ------------- ------------
<S> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0%
Cost of revenues........................ 84.6 85.0 84.7
------- ------- --------
Gross profit............................ 15.4 15.0 15.3
Operating expenses:
Research and development.............. 14.8 13.2 9.1
Sales and marketing................... 56.3 82.6 101.2
General and administrative............ 15.5 14.4 13.1
------- ------- --------
Total operating expenses........ 86.6 110.2 123.4
------- ------- --------
Loss from operations.................... (71.2) (95.2) (108.1)
Interest income, net.................... (2.2) 3.9 (1.4)
------- ------- --------
Loss from continuing operations......... (73.4) (91.3) (109.5)
Loss from discontinued operations....... -- -- --
------- ------- --------
Net loss................................ (73.4)% (91.3)% (109.5)%
======= ======= ========
</TABLE>
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<PAGE> 38
The net revenues we have realized have increased significantly in each
consecutive quarter presented due The net revenues we have realized have
increased significantly in each consecutive quarter presented due to increased
sales to consumer, corporate customers and the U.S. government. Our gross
margins fluctuated on a quarterly basis during these quarters primarily as a
result of changes in our revenue mix. In particular, our gross margin increased
in the second quarter of 1997 and in the first quarter of 1998 primarily as a
result of an increase in our advertising and promotional revenues as a
percentage of our net revenues. Our gross margins decreased in the third and
fourth quarters of 1997 primarily due to two factors: (1) our lower margin U.S.
government contract revenues increased as a percentage of our net revenues; and
(2) our advertising and promotional revenues decreased as a percentage of our
net revenues. Our research and development and general and administrative
expenses increased in absolute dollars in each quarter presented primarily as a
result of increases in our personnel related costs. We anticipate higher
research and development expenses in the first three months of 1999 as a result
of new hires and related costs. Our sales and marketing expenses also increased
on a quarterly basis in each quarter presented as a result of increases in our
personnel and facility-related costs. Sales and marketing expenses and general
and administrative expenses each increased in absolute dollars in the third
quarter of 1997, but declined as a percentage of net revenues because our net
revenues increased more rapidly during such period. Sales and marketing expenses
increased significantly in the first quarter of 1998 because we made significant
payments under our strategic marketing alliances. These expenses also increased
significantly in absolute dollars and as a percentage of net revenues in the
second, third and fourth quarters of 1998 because we significantly increased our
spending on branding, advertising, strategic marketing alliances and personnel.
In the future our operating results may fall below the expectations of
securities analysts and investors. In such event, the trading price of our
common stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1998, we have financed our operations
primarily through private sales of preferred stock and our initial public
offering of 5,750,000 shares of our common stock. We raised cumulative net cash
proceeds totaling $14.8 million through private sales of preferred stock. In
June 1998, we received net proceeds of $46.8 million from our initial public
offering. We raised an additional $2.0 million at the closing of our initial
public offering through the sale of common stock to America Online pursuant to a
Common Stock and Warrant Subscription Agreement entered into in March 1998. In
May 1998, we received $4.8 million through a credit agreement that we entered
into with Deutsche Bank AG. We repaid all monies borrowed under our credit
agreement in November 1998. In November and December 1998, we raised net cash
proceeds totalling approximately $60.4 million through the sale of our 7 1/4%
Convertible Subordinated Notes.
As of December 31, 1998, we had approximately $81.5 million of cash
compared with $2.6 million at December 31, 1997. Our current strategic marketing
alliances provide for payments of approximately $9.0 million in 1999,
approximately $10.2 million in the year 2000 and approximately $1.2 million in
the year 2001. Currently, we have no other material commitments other than those
under our operating leases and the U.S. government contracts.
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<PAGE> 39
We used net cash of $299,000 in operating activities in 1997, and we used
net cash of $29.4 million in operating activities in 1998. Our cash used in
operating activities in 1998 was primarily comprised of the net effect of:
- a net loss of $31.1 million;
- increases in accounts receivable and prepaid expenses totaling $19.1
million related to accounts receivable from government contracts and
prepaid partnership agreements;
- an increase in deferred revenue related to the execution of the new U.S.
government contract; and
- increases in accounts payable and accrued liabilities related to our
growth.
We used net cash in investing activities in 1998 of $3.6 million for
acquisitions of leasehold improvements and computer equipment.
We received net cash of $112.0 million in 1998 from financing activities,
primarily from proceeds of our initial public offering, our sale of common stock
to America Online, our sale of Series D redeemable convertible preferred stock
to certain private investors, from the credit agreement and from the sale of
7 1/4% Convertible Subordinated Notes.
We believe that our cash at December 31, 1998 will be sufficient to meet
our anticipated needs for working capital and capital expenditures for at least
the next twelve months. Thereafter, we expect that the cash we generate from
operations likely will not be sufficient to satisfy our cash needs. We will need
significant amounts of cash to make a variety of payments, including:
- payment of the principal and interest on 7 1/4% Convertible Subordinated
Notes when due;
- payment of our financial obligations to America Online, Network
Associates and Excite; and
- payment of increasing sales and marketing expenses.
We may need to sell additional equity or debt securities to raise cash to
meet these obligations. Such sales likely would result in additional dilution to
our stockholders. In addition, we cannot assure that financing will be available
in amounts or on terms acceptable to us, if at all.
YEAR 2000 RISK MAY ADVERSELY AFFECT OUR COMPANY
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We utilize software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon. For example, we are dependent on the institutions involved in
processing our members' credit card payments for Internet services. We are also
dependent on telecommunications vendors and leased point-of-purchase vendors to
maintain network reliability.
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<PAGE> 40
We are currently assessing the year 2000 readiness of our third-party
supplied software, computer technology and other services. Based upon the
results of this assessment, the Company will develop and implement, if
necessary, a remediation plan with respect to third-party software, computer
technology and services that may fail to be year 2000 compliant. We have
assessed our proprietary software and internal systems and determined them to be
year 2000 compliant. We anticipate that our systems, including components
thereof provided by third-party vendors, will be year 2000 compliant by 2000. At
this time, the expenses associated with this assessment and potential
remediation plan cannot be determined. The failure of our software and computer
systems and of our third-party vendors to be year 2000 complaint could have a
material adverse effect on us.
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<PAGE> 41
BUSINESS
INTRODUCTION
Beyond.com Corporation is a leading online reseller of commercial
off-the-shelf computer software. Through our online store (www.beyond.com), we
offer customers a comprehensive selection of software, customer service and
competitive prices. We believe that the Beyond.com site is one of the most
widely known and used Web sites for the purchase of software. We deliver
software to customers one of two ways: either we physically deliver the
shrink-wrap software package, or we deliver the software over the Internet
through digital download. We believe we provide our customers with superior
value because we offer one of the largest selections of brand-name high quality
software available online as well as the convenience of shopping from home or
office, twenty-four-hours-a-day, seven-days-a-week.
We believe that the Internet is an ideal medium to sell and deliver
software for several reasons:
- the demographics of Internet users overlap one-to-one with the
demographics of potential software purchasers;
- delivery via digital download of many software titles provides the
customer with instant gratification; and
- digital download allows large enterprise customers, such as corporations,
government agencies and universities, to achieve efficient and
cost-effective distribution of software.
We have based our business on scaleable technology that permits the sale,
order processing and delivery of software with limited human intervention. With
our technology, and our significant operational experience, we can address the
complex process of real time digital download. We have developed relationships
with approximately 350 leading software publishers. These publishers have
granted us the right to distribute approximately 5,600 software stock keeping
units to customers via digital download.
We also have entered into agreements with America Online, Excite, Netscape
and Network Associates. Our agreements with these companies provide us with
prominent display space on certain screens on each of these companies' Web
sites. We believe these alliances have helped us to further consolidate our
position as a leading online software reseller. Since we launched our Web site
in November 1994, we have delivered software products to approximately 634,000
cumulative customers (including individual desktops for corporate and government
customers and users to whom we have distributed freeware and trial download
products). Our sales increased from approximately $5.9 million in 1996 to
approximately $16.8 million in 1997 and have further increased to approximately
$36.7 million in 1998.
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<PAGE> 42
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce.
The Web and commercial online services such as America Online allow
millions of people to share information and conduct business electronically.
International Data Corporation estimates that the total value of goods and
services purchased over the Web will increase from approximately $12.4 billion
in 1997 to approximately $426 billion by 2002. A number of factors contribute to
the growth of the Internet and its increased commercial use, including:
- large and growing numbers of personal computers in the home and
workplace;
- improvements in network infrastructure and bandwidth;
- easier and cheaper access to the Internet;
- increased awareness of the Internet among consumer and business users;
and
- the rapidly expanding availability of online content and commerce which
increases the value to users of being connected to the Internet.
According to International Data Corporation, the number of Web users
worldwide will increase from approximately 69 million at the end of 1997 to
approximately 320 million by the end of 2002. The percentage of Web users buying
goods and services on the Internet will increase from approximately 26% at the
end of 1997 to approximately 40% by the end of 2002.
The Internet also is a popular medium for purchasing and distributing
software. Jupiter Communications, Inc. estimates that revenues from online sales
of PC software in 1997 were $84.5 million and projects that these sales will
grow to $2.4 billion in 2002.
Traditional Software Industry
According to International Data Corporation, sales of all software through
indirect sales channels in the United States is expected to grow from $24
billion in 1997 to approximately $52.7 billion in 2000, representing a compound
annual growth rate of 17%.
In addition, we believe that the software reselling industry is highly
fragmented. Industry participants include regional and national chains of
superstores, cataloguers, systems integrators, value-added resellers and small
single location stores. We believe this fragmentation provides us an opportunity
to increase our marketshare.
The two primary categories of software purchasers are consumers and small
businesses, and large enterprises such as corporations, government agencies and
universities. These two market segments have different requirements, and
software resellers use different channels to meet the differing needs of these
purchasers.
Consumers and Small Businesses. Software publishers primarily sell their
software to these purchasers through a network of distributors and resellers
and, to a lesser extent, directly to consumers. There are many software
resellers in the United States which serve the consumer and small business
market. These resellers vary in size. Some resellers are large regional and
national chains of superstores, such as CompUSA, ComputerCity and Office Depot,
which may carry hundreds of software titles in a single store. Some resellers
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are cataloguers, such as Micro Warehouse and CDW Computer Centers, offering
several thousand software titles. Other resellers are small, single location
stores carrying only a limited number of software titles.
Large Enterprise Consumers. Publishers typically sell software to large
enterprise consumers directly or through large corporate and value added
resellers, including Software Spectrum, ASAP and Corporate Software and
Technology. Large distributors, such as Ingram Micro, Merisel and Tech Data,
serve as the primary suppliers for most resellers and carry a variety of
software.
The traditional software reselling industry is inefficient. In the consumer
and small business market, physical store based resellers must make significant
investments in real estate, inventory (due to both space constrains and costs)
and personnel for each retail location.
Cataloguers are constrained by limits on the size of their catalogs (on
both the number of products and the information on those products that can be
included in the catalog), printing expenses, mailing costs and inherent delays
in reacting rapidly to price and product changes. In each case, these
constraints limit the software product selection available to consumers. The
traditional software reselling model also creates inefficiencies for
participants in the large enterprise market. Publishers, resellers and the
purchasing enterprises are all challenged by the logistical complexity,
financial costs, administrative burden and the difficulties of distributing and
tracking software, titles and updates across a large and dispersed user base.
Under the traditional model, publishers also face additional inefficiencies,
including:
- the limited amount and type of software products sold in retail stores
and catalogs;
- the need to grant resellers and distributors generous rights of return to
cover costs of inventory and risks that the software would no longer be
used;
- the risk of predicting what software customers will demand in the future;
and
- the risk of significant revenue recognition and restatement issues
associated with any difference between projected and actual sales.
Finally, publishers, distributors and traditional software resellers all
face difficulty in obtaining demographic and behavioral information about
software customers, making it hard for software publishers to offer personalized
services and to directly market their products to certain consumer groups.
THE BEYOND.COM SOLUTION
Beyond.com is a leading online reseller of software to consumers, small
businesses and large enterprise customers. We offer a solution to many of the
inefficiencies inherent in the traditional software reselling model. Key
components of our solution include:
Customer Convenience. We offer convenient services to customers because we
enable them to purchase software online twenty-four-hours-a-day,
seven-days-a-week, from home or the office. Additionally, we are flexible on how
we can distribute software: in shrink-wrap packages or by using digital
download. Digital download can enable large enterprise customers internally
distribute and track software and software updates more efficiently than
alternative distribution methods.
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Selection. We have the capacity for unlimited online shelf space. We offer
our customers an extensive selection of software titles as well as related stock
keeping units and product information. However, we do not face the expense of
monitoring a physical store-based infrastructure. We carry approximately 39,000
software stock keeping units and approximately 5,600 stock keeping units that
can be delivered to customers via digital download.
Customized Service. We capture significant customer preference data during
each customer session on our Web site. With this information, we can customize a
user's shopping experience on subsequent visits. As an online reseller, we can
better educate the customer about software products through:
- online product reviews and customer rankings;
- product recommendations;
- trial downloads;
- additional product information; and
- online customer support.
Publisher Benefits. As an online reseller of software products, we are not
constrained by the inherent limitations of a physical store. Therefore, we can
allow publishers to offer all of their available titles to customers in our
online store. In addition, because we offer products for digital download,
publishers reduce the risk of customer demand forecasting. As a result, we
reduce the administrative costs and mitigate the significant revenue recognition
and restatement concerns publishers face when they forecast demand. Finally,
publishers can work with us to obtain demographic and behavioral data about end
users. This data expands publishers' opportunities for marketing and targeted
services.
STRATEGY
Our objective is to be the dominant reseller of software to consumers,
small businesses and large enterprises. We intend to capitalize on and extend
our market position as one of the first movers in online software reselling
through the following key strategies:
Enhance New Brand Recognition. We must build awareness of our Web site to
attract and expand our Internet customer base. In August 1998, we began doing
business under the name Beyond.com. Simultaneously, we also redesigned our Web
site to improve our offerings to consumers and make our online store easier to
use. We intend to promote, advertise and increase recognition of our brand
through a variety of marketing and promotional techniques, including:
- co-marketing agreements with major online sites and services;
- expanding online content and ease of use of our Web site;
- enhanced customer service and technical support (including issues unique
to software reselling);
- advertising on radio, television, leading web sites and other media;
- conducting an ongoing public relations campaign; and
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- developing other business alliances and partnerships.
Promote Digital Download. We are currently a leader in digital download
with approximately 5,600 software stock keeping units available for digital
download from our online store direct to the end user's personal computer.
Digital download offers convenience to customers and economic advantage to us
and to software publishers that we believe are superior to those offered by
traditional methods of software delivery. We intend to increase the number of
software stock keeping units available for purchase by digital download and the
number of customers who use digital download by:
- simplifying the use of digital download for consumers;
- working with software publishers on digital download initiatives;
- enhancing our own technology and systems; and
- implementing digital download promotional activities.
Leverage and Further Develop Strategic Relationships. We intend to continue
to leverage our strategic marketing alliances with America Online, Excite,
Netscape and Network Associates to enhance our brand recognition and to increase
customer acquisitions and sales. We also intend to expand our online visibility.
As a result, we may enter into relationships with additional leading software
publishers, Internet access providers, search engines and other high traffic Web
sites. For example, in September 1998, we entered into agreements with Network
Associates, granting us, among other things, the right, with several
limitations, to be the exclusive reseller of certain retail software products on
certain Network Associates' Web sites.
Capitalize on Large Enterprise Opportunities. In addition to targeting
consumer and small business customers, we also will market our services to large
enterprise customers, such as major corporations, government agencies and
universities. We believe that the speed, convenience and cost advantages of
digital download make digital download an attractive alternative method of
purchasing software for large enterprises. We intend to become the online
reseller of choice for large enterprise customers by capitalizing on our success
in meeting the needs of our government customers.
Maintain Technology Focus and Expertise. We intend to leverage our
scaleable, state of the art, interactive commerce platform to enhance the
services we offer and to expand the benefits of online software reselling. Our
internal development group will continue to expend substantial efforts to
develop, purchase, license and make technological advancements to our Web site
and our transaction processing systems.
Leverage Superior Economic Model; Focus on Online Environment. We believe
we have an inherent economic advantages relative to software resellers operating
through stores or catalogs because we are not burdened with the personnel costs
or overhead of operating a physical store or the costs and limitations of
selling through printed catalogs. We can also effectively target potential
software customers because the demographics of Internet users overlap one-to-one
with the demographics of potential software purchasers. We intend to leverage
our online model and focus on delivering an increasing number of software
products through digital download. Leveraging our online model and delivering
products through digital download will allow us to achieve cost and margin
advantages compared to traditional software resellers.
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Strengthen First Mover Advantages. We believe significant barriers exist
that make it increasingly difficult to enter the online software marketplace in
a cost effective manner. These barriers include:
- the necessary up front investment in technology and technical
infrastructure, such as that required for real time processing of both
payment and order fulfillment;
- the time and expense required to develop an online store that effectively
draws customers to a Web site;
- the time, expense and expertise necessary to develop publisher and
distributor relationships; and
- the need to develop strategic alliances with high traffic, high profile
Web sites.
We intend to extend our first mover advantage in each of these areas.
OUR ONLINE SOFTWARE STORE
In August 1998, we redesigned our Web site. We incorporated additional
features to enhance our Web site's search, recommendation, and customization
functionality. We believe these improvements, along with our new advertising and
promotional activities and enhancements to our digital download process, will
enhance the shopping experience for potential software purchasers.
Customers enter our online store through our simple, intuitive and easy to
use Web site. Our Web site instantly recognizes the customer's browser type and
tailors the format of our online store to that system with customized pages for
particular browsers. Our goal is to make the shopping process as easy as
possible for customers. Users accessing our online store generally fall into one
of two categories: individuals who know what product they want to buy and seek
to purchase it immediately in a highly convenient manner; or individuals who
browse the store, seeking an entertaining and informative shopping experience.
We designed our online store to satisfy both types of users in a simple,
intuitive fashion.
Presently, customers who use our online store can:
- conduct targeted searches through a catalog of approximately 39,000
software stock keeping units;
- browse among featured software titles and special offers;
- read customer reviews and customer production ratings;
- participate in promotions;
- check the status of their orders;
- access our customer support representatives by telephone, fax and e-mail
twenty-four-hours-a-day, seven-days-a-week;
- read about a variety of highlighted subject areas and special features,
including current event features and features arranged by topic, such as
the Microsoft Showcase, the Macintosh Center and the Games Center; and
- preview new or upcoming releases.
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We expect to further improve our online store to include specialty sections
within the site, product reviews, greater interactivity and product
presentations that we design based on customer preferences.
Shoppers purchase products by simply clicking on a button to add products
to their virtual shopping baskets. Just as in a physical store, customers can
add and subtract products from their shopping baskets as they browse prior to
making a final purchase decision. To execute orders, customers click on the buy
button. A message on the screen prompts customers to supply shipping and, in the
case of consumers, credit card details, either by email or by telephone. Our
store design allows customers to buy several products at once rather than having
to repeat the same purchase process for each desired product. All customer
information is stored on our secure server. We furnish customized order forms
for repeat customers. Our system automatically confirms each physically shipped
order by email to the customer within minutes after the customer places the
order and advises customers by email shortly after our distributors ship the
product. Our representatives handle customer service and support, answer general
questions and provide product information by telephone, fax and email.
We believe that our representatives provide valuable feedback regarding
customer satisfaction which we use to improve our services. We do not currently
charge our customers for service and support services.
PRODUCTS
We offer approximately 39,000 software stock keeping units from leading
software publishers for physical delivery. Because of the efficiencies related
to online inventory, we can offer a broad selection of hard to find and
specialty software titles which may not be available in traditional software
stores. A single software title often has multiple stock keeping units depending
upon:
- operating systems (i.e., Macintosh, Windows, Windows NT);
- media (i.e., CD Rom, floppy disk); or
- license type (i.e., single or multi-user licenses).
We also offer approximately 5,600 stock keeping units from approximately 350
publishers for immediate delivery via digital download. These stock keeping
units include popular titles by Adobe, Cybermedia, Electronic Arts, FileMaker
Pro Inc. (formerly Claris), IBM, JavaSoft, Lotus, Microsoft, Network Associates
(formerly McAfee), QUALCOMM, Sun Microsystems and Symantec.
We have focused on offering as many major software titles as practical
through digital download. Because of the limited bandwidth and relatively slow
modem speeds now available, the size of many popular software titles currently
prevents them from being delivered via digital download. We believe that ten
megabytes is the maximum size of a software stock keeping unit that most
consumers currently will purchase through digital download. A ten megabyte
software stock keeping unit, such as Norton Utilities for Windows NT, takes
approximately one hour for a complete digital download at 28.8 Kpbs. We believe
that the size of new software products with continue to increase. Unless there
is a significant increase in network bandwidth, customers may not want to
download new software products because they are too large. However, we believe
that as improvements in Internet infrastructure and bandwidth emerge, such as
cable modems and digital subscriber
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line technologies, customer demand for products delivered through digital
download and the speed at which we can electronically deliver them will
increase. However, if digital download is not accepted by most customers, then
our business will suffer. Our revenues from software products sold through
digital download amounted to $10.3 million in 1997 and $18 million in 1998. Even
if most consumers use and accept digital download, the substantial existing and
future technical challenges of electronically delivering software reliably and
consistently in the long term may persist. Failure to overcome these challenges
would materially hurt our business.
We use traditional distributors to distribute our products for physical
delivery. To distribute our products via digital download we download the
substantive majority of the product directly from the software publishers. We do
not carry significant inventory and we primarily rely on distributors rapidly to
distribute physical products directly to customers. When a customer places an
order for shrink-wrap software, we promptly transmit the order information to
the distributor for processing and rapid distribution to customers. A major
software distributor supplied us with software that accounted for a substantial
portion of our total software sales in 1997 and 1998. We have developed
customized information systems and automated ordering processes to allow us to
pursue our goals:
- to offer an extensive selection of products;
- to avoid the high costs and capital requirements associated with owning
and warehousing product inventory; and
- to escape the significant operational effort associated with same day
processing and shipment.
Although we believe that we can replace our relationship with the major software
distributor without much difficulty, if this relationship terminates then the
publishers or distributors that currently supply us with software might cease to
continue to supply us and we might be unable to establish new relationships with
other publishers and distributors. We cannot assure our current vendors will
continue to supply stock keeping units to us.
We have three contracts with departments of United States government
agencies. The first two of these agreements accounted for approximately 33% of
our revenues in 1997 and approximately 29% in 1998. Microsoft supplies us with a
substantial majority of the software sold under these agreements. These
agreements with the U.S. government are renewable on an annual basis and may be
terminated for any reason at any time. Therefore, it is possible that we may not
receive any revenue from sales of software to the U.S. government in the future.
Our contract with Microsoft may be terminated for any reason by providing
written notice at least 30 days before a given term expires. If the U.S.
government terminates or fails to renew any one of these agreements or if
Microsoft fails to supply its software products to us for resale, our business
would suffer materially. We have also entered into an agreement with certain
GTSI pursuant to which we perform digital download of certain software resold by
GTSI to the U.S. government. We have no other customers who account for more
than 10% of our revenues in 1997 or in 1998. Furthermore, our contract with
Microsoft permits Microsoft to approve our credit worthiness by evaluating
publicly available information. In addition, as long as the request is
reasonable, Microsoft may reasonably require us to provide sufficient additional
information to determine our credit worthiness. If Microsoft determines that we
are no longer creditworthy or that we failed to comply with the payment or
reporting terms of our agreement, then it may require us to post security that
it deems acceptable.
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MARKETING AND SALES
Strategic Relationships. We pursue strategic relationships to expand our
online presence, increase our access to online customers and build our brand
recognition. In pursuing these relationships, we seek to be the exclusive or
semi-exclusive reseller of software on key screens of major Web sites. To date,
we have established the following strategic relationships:
America Online. In March 1998, we entered into an agreement with America
Online, the leading online service provider with approximately 14 million
members, for a term of 42 months. Under the agreement, America Online will:
- promote our web site as the exclusive and semi-exclusive reseller of
software products on certain screens in the America Online service and
America Online's Web site;
- deliver a specified number of screen views with links to our web site
over the term of our agreement;
- advertise Beyond.com as the exclusive software reseller on certain
screens included in the Computing Channel, the America Online Personal
Finance Channel, and the Games Channel, subject to certain limitations or
payment adjustments required of us; and
- promote Beyond.com as a software reseller on a semi-exclusive basis on
certain screens on the Computing Channel, and the Entertainment Web
Channel, among others.
There are important exceptions to the exclusivity rights discussed above,
including software products sold by or on behalf of publishers and by America
Online through "pop up" advertisements.
Under the agreement with America Online, we must make minimum payments
totaling $21 million to America Online by March 1, 2000. In addition, we must
pay a percentage of revenues that we earn on software sales to America Online
members above specified minimum amounts. We can sell advertising on our
promotional screens on the America Online service and Web site as long as we pay
a percentage of certain advertising revenues above specified minimum amounts to
America Online.
Under the agreement, America Online in its sole discretion may reduce or
cease placements of our promotions. America Online also may restrict access from
its service to our Web site in certain circumstances if the functional integrity
of the America Online service is compromised or America Online's ability to
provide service to its users is adversely affected. America Online also may
change its business model so that a substantially larger number of America
Online members pay hourly charges for general access and use of the America
Online service, which may have a material adverse effect on the sale of the
Company's products. If America Online changes its business model in this way, we
will adjust the payments we make to America Online. Our agreement with America
Online expires in August 2001, or earlier in the event of a material breach, and
America Online has the right to renew this agreement for two successive one-year
terms, during which time America Online has no exclusivity obligations to us.
Excite. In March 1998, we entered into an agreement with Excite, a leading
search engine provider with over fifty million page views a day, for a term of
at least 36 months.
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Under the agreement, Excite agreed not to display paid promotional links or
advertisements of other specified types of software resellers on certain screens
within certain channels of Excite's "excite.com" Web site. These screens include
certain screens in Excite's Computers and Internet Channel and the Computers and
Software Department of its Shopping Channel. In addition, we have the right to
display links to our Web site on certain other screens on Excite's web site.
Over the term of this agreement, Excite must deliver a specified number of
screen views with links to our Web site. Over the first three years of this
agreement we must make substantial payments to Excite and pay a percentage of
certain transactional revenues that we earn above specified minimum amounts. Our
agreement with Excite ends when Excite satisfies its obligations to deliver
screen views with links to our Web site. However, the agreement will not
terminate before April 2001, except if either party materially breaches the
contract.
Netscape. In June 1997, we entered into an agreement with Netscape, a
leading provider of open software for linking people and information over
intranets, extranets and the Internet, for a term of 24 months from August 1,
1997. Under the agreement, we created an online store -- the "Netscape Software
Depot by Beyond.com" -- to market and distribute software products which are
compatible with the Netscape ONE platform Internet site. Under the agreement, we
allocate sales and advertising revenues generated from this online store based
on specified percentages. Under the agreement, we paid Netscape for a license to
use certain Netscape trademarks. The agreement terminates on July 31, 1999, and
either party also can terminate this agreement if either the specified screen
views with links to our Web site or net revenue milestones have not been met.
Network Associates. Since September 1997, we have entered into various
agreements with Network Associates, a developer of electronic commerce locations
and producer of certain products marketed under the McAfee name. These
agreements concern the online sale of software and the management of certain web
sites. Under these agreements, we act as a:
- reseller of Network Associates' products on our Web site;
- co-host of certain Internet sites developed by Network Associates; and
- reseller of Network Associates' products on our Web site.
We cannot assure that enough people will visit our online store or that we
will make enough sales to meet our financial obligations to America Online,
Excite or Network Associates. We continue to maximize benefits derived from each
of these agreements. However, we are also uncertain whether we will satisfy our
obligations under our strategic contracts so that America Online, Excite,
Netscape or Network Associates will not terminate our agreements. Our failure to
do any of the above will likely materially hurt our business. In addition, we
may not automatically renew our agreements with America Online, Excite, Netscape
and Network Associates when they expire. We cannot assume that we can renew any
of the agreements at all or on terms that are acceptable to us. Furthermore, we
based our significant investment in our strategic relationships on several
factors, including:
- the continued positive market presence of Excite, Netscape and Network
Associates;
- the reputation and anticipated growth of America Online, Excite, Netscape
and Network Associates; and
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- the commitment by each of America Online and Excite to deliver specified
numbers of screen views with links to our Web site.
If the significant market presence, business or reputation of our strategic
partners declines, or America Online and Excite fail to deliver the specified
numbers of screen views with links to our web site, then our agreements with
them will be less valuable. A significant decrease in the value of these
agreements will likely materially hurt our business. In addition, we, along with
America Online, may separately pursue and sell advertising in our content areas
distributed through America Online. We cannot assure that America Online will
not compete with us for limited software reseller advertising revenues. We
expect our agreements with America Online, Excite, Netscape and Network
Associates to represent significant distribution channels for our software
sales. If any of these agreements are terminated, then our business will likely
be materially hurt.
TRADITIONAL ADVERTISING
In August 1998, we began to promote our online stores through a proactive
advertising program. This program initially targeted potential customers through
national media outlets such as magazines, newspapers and radio broadcasts. In
December 1998, we began advertising on television. We plan to continue our
expenditures for advertisements in traditional media in the future. We believe
our ongoing advertising program will facilitate the continued growth of our
brand, increase the reach of our name recognition and drive new customers to our
online store.
ONLINE ADVERTISING
In addition to our strategic agreements and traditional advertising, we use
many online sales and marketing techniques to increase brand recognition and
drive traffic to our online stores including purchasing banner advertising on
search engine Web sites and Internet directories, and direct links from
publisher home pages.
We can display banner advertisements for certain set periods of time or
when a user searches for information relating to certain keywords (such as
"software") and programs, as well as the names of publishers. We also have
established direct links with the Web sites for certain software publishers.
These links allow a potential customer visiting that publisher's Web site to
automatically link to our order from and purchase software.
DIRECT MARKETING
We believe that the demographics of Internet users overlap one-to-one with
the demographics of potential software purchasers and that the Internet provides
additional opportunities for direct marketing to the Company's customers through
a variety of mechanisms. We are exploring such direct marketing opportunities as
store customization to present each customer with a customized merchandise
assortment based on historic purchasing patterns and equipment type. We use
direct marketing techniques to target new and existing customers with customized
offers such as an email newsletter that includes purchase recommendations based
on demonstrated customer preferences or prior purchases. We intend to enhance
such techniques in the future.
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AFFILIATES PROGRAM
Our Affiliates Program increases our market presence by allowing affiliate
Web sites to offer software to their audience for which we provide fulfillment.
The affiliate embeds a hyperlink to our site, together with software recommended
for that affiliate's targeted customers base. This hyperlink automatically
connects the customer to our online store where the affiliate's customer may
place an order. The affiliate can offer enhanced services and recommendations,
while avoiding ordering and fulfillment costs. Under these short term
arrangements, we must pay the affiliate a small percentage of the sales they
generate. We can terminate these agreements with limited notice.
CUSTOMER SERVICE AND SUPPORT
We believe that we can establish and maintain long-term relationships with
our customers and encourage repeat visits and purchases if, among other things,
we have good customer support and service. We believe that the resale of
software presents complex customer service and support challenges that we have
the expertise to address. Our customer support and service personnel handle
general customer inquiries, answer customer questions about the ordering
process, and investigate the status of orders, shipments and payments. We have
automated certain of the tools used by our customer support and service staff,
such as tracking screens that let our support staff track a transaction by any
of a variety of information sources. At any time in the purchasing process, a
customer can access our support staff by fax or email by following prompts
located throughout our online store, or by calling our toll free telephone line.
Customers who do not wish to enter their credit card numbers through the Web
site also may use the toll free line for purchases. We currently employ a staff
of twenty-four-hours-a-day, seven-days-a-week customer support and service
personnel. We outsource our first level of customer support and services through
a leading provider of customer support services.
The U.S. government and corporate consumers purchase a substantial portion
of our software sales. Therefore, we maintain specialized support staffs for
these departments. Also, our government and corporate support staffs provide
standard support services as well as targeting particular government and
corporate customers for specific new products and version enhancements. We
intend to increase our sales and marketing efforts with respect to both
government and corporate purchasers.
We maintain a structured return policy. A customer may return products for
replacement or credit if we authorize the credit. A customer may return
shrink-wrap product with a return material authorization number. We issue the
customer a corresponding credit when we receive a credit from the appropriate
distributor indicating receipt of the returned product. We issue the customer a
credit for electronically distributed products only when we receive by facsimile
a signed "letter of destruction" from the customer. Historically, we have not
incurred outstanding return material authorization exposure necessitating
reserves. Our credit card chargebacks during 1998 represent less than 2% of our
total revenue.
TECHNOLOGY
We use complex proprietary and commercially licensed technology to make
both the customer experience and our management reporting process as seamless
and simple as possible. To this end, we developed technologies and systems to
support scaleable, flexible and simple online reselling in a secure and easy to
use manner. By using a combination of
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proprietary solutions and commercially available licensed technologies, we have
developed systems for online content dissemination, online transaction
processing, customer service, market analysis and electronic data interchange.
We integrated these proprietary and commercially available systems into a
unified software sales and reporting system. Research and development costs in
1996, 1997 and 1998 were $431,000, $1.1 million and $4.2 million, respectively.
Scaleability and Flexibility. We built our hardware and software
architecture on a transaction-processing model which allows us to distribute the
processing load among multiple parallel servers. This architecture allows us to
scale by either adding new servers or increasing the capacity of existing
servers. We designed our hardware and software configuration to scale to support
growth while maintaining user performance and minimizing the cost per
transaction. In the rapidly changing Internet environment, it is important that
we are able to update our system to stay current with new technologies. Our
system's template technology and modular database design allow us to easily add
or replace software components, page layout templates and search and retrieval
engines with minimal effort and disruption. We designed our hardware and
software architecture to allow us to inexpensively and rapidly add co-branded
Web sites that integrate with our online store.
Seamlessness. Our multiple hardware and software systems integrate
seamlessly to manage real time transactions with limited human intervention. Our
systems automatically process orders for downloadable software to completion,
automatically route electronically orders for products that we must ship to one
of our distributors as well as charge the customer's credit card after there is
confirmation that one of our distributors shipped the products and automatically
route orders requiring human intervention to our customer service
representatives.
Components of Our Technology. We use commercially available software as
well as software we developed internally. We have a policy of limiting the
number of hardware and software vendors whose products are used in our
production systems. This policy facilitates integration, maintenance,
performance and upgrades.
Store Engine Architecture. We base our hardware and software systems on a
distributed transaction-processing model. This model allows us to distribute
applications and data among multiple parallel servers. We developed many of the
software components and the pages of our Web site in a manner that lets us
separate the page look and feel from the individual data elements and their
associated database lookups. This separation permits frequent changes to product
pricing information, reduces software updates for web site changes and minimizes
the engineering required to maintain a growing amount of items and content. We
use proprietary technology that allows Web sites with different formats to
integrate our online store elements, such as search, vendor and product pages.
This technology allows us to maintain several Web storefronts over a single
order processing and customer service system.
Enterprise Download Manager. For the large enterprise environment, we
developed technology to aid in the distribution of large software products (in
terms of number of bytes) and large numbers of software products. This
technology includes server software, which maintains a cache of software
downloaded to key locations behind a customer's firewall and an enhanced version
of the Sm@rtCert technology licensed on a non-exclusive basis from CyberSource
which we offer as an integrated service. We call this integrated service the
"Enterprise Download Manager." By distributing caches of software (many of
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which may be too large to download) to key locations within an enterprise, a
large enterprise can ensure that the current release of software is available to
its staff with minimal supervision. We can overcome problems of failed download
and lost connections by providing a dedicated server with our Enterprise
Download Manager service to manage and receive the download. By using a local
cache, the Enterprise Download Manager satisfies most requests for software
updates internally. This significantly reduces the amount of network traffic. We
use this technology to deliver products electronically together with marketing
and promotional information. In addition, our Enterprise Download Manager
service tracks the transmission of software via digital download. If there is a
disruption of the transmission, Enterprise Download Manager restarts the
transmission and completes the interrupted download without the need to restart
the entire download.
Back Office Processing. The real time nature of fulfilling downloaded
software orders adds significant complexity to the design of our back office
system. Typical transaction processing systems assume that a physical process
must take place to deliver the product. The time required for physical delivery
eliminates the need to process orders in real time (as well as the customer's
expectation of real time processing). When a customer wants to download the
software it purchases via digital download, the customer expects to be able to
start downloading within seconds of confirming the transaction. This need for
almost instant initiation of delivery impacts the design and operation of our
entire back office system. We must automate every element of a sale because we
do not have the time needed for human intervention.
We believe that our sophisticated back office transaction processing
system, which successfully processes, manages and fulfills software orders for
digital download with limited human intervention in real time, is a significant
competitive advantage. Our transaction processing system incorporates
commercially available database components purchased from leading vendors,
proprietary software products we developed and Internet commerce services
supplied by CyberSource. This system accepts orders captured by the store engine
and processes them according to pre-coded rules, validates each order, screens
the order for possible fraud, authorizes the payment method and transmits an
electronic message to our distributors for physical delivery or allows the
customer to download the product through digital download following approval of
an order. Our customer service representatives can access the entire history of
any order or customer online through a Web-based interface. Representatives also
can manage an order entirely from within this interface. Our system logs all
actions by a customer service representative including the identity of the
representative, the actions taken and a time stamp of the action.
Data Warehouse. We use a database management system to index, retrieve and
manipulate product information, content, product catalogs, orders and
transactions, customer information and perform rapid searching, sorting, viewing
and distribution of a large volume of content. The data warehouse lets us access
detailed transaction and customer interaction data and perform proprietary
market analysis. Our data warehouse incorporates commercially available hardware
and software combined with our proprietary software in a configuration that we
developed. This data warehouse provides a unified platform for our store engine
and back office systems. Any reduction in performance, disruption in Internet
access or discontinuation of services provided to us by CyberSource might
materially hurt our business. We cannot assure that:
- our transaction processing systems and network infrastructure can
accommodate increases in network traffic in the future;
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- we will accurately project the rate or timing of such increases;
- we will upgrade our systems and infrastructure to accommodate future
traffic levels on our online sites;
- we will effectively upgrade and expand our transaction processing
systems;
- we will successfully integrate any newly developed or purchased modules
with our existing systems;
- we will successfully use new technologies; or
- we will successfully adapt our online sites, proprietary technology and
transaction processing systems to meet customer requirements or emerging
industry standards.
SECURITY
Customer Reassurance. To be a successful online retailer, we must maintain
the integrity of information, particularly the security of information such as
credit card numbers. We believe that our existing security systems are at least
as secure as those used for traditional transactions (i.e., in store or mail
order purchases). We also believe that we have a comprehensive security
strategy. Our system automatically monitors each purchase, confirms each order
by email to the customer within minutes after the customer places the order and
advises customers by email shortly after our distributors ship physical orders.
Fault Tolerance and Scaleable Internet Access. We designed our systems for
automatic transfer to "hot" spare systems in the event of a failure. We also
equipped our systems with fully automated reporting tools. These tools provide
automated trouble notification and detailed event logging. We maintain a minimum
of two of each critical production system. For distributed systems such as web
servers, as many as 30 systems may be active. A load distribution system
monitors traffic to each server. Should a system fail to respond to a request,
the automated distribution system will redistribute traffic among the remaining
machines with no loss of user functionality. Standby systems that monitor the
health of the live machine automatically take over in the event of a failure of
our firewall and load distribution system. After correcting the problem, these
automated systems then notify technical staff by pager so our staff can replace
or repair the failed system.
We contract with a Web site provider that specializes in providing
scaleable business solutions to high volume Internet sites for mission critical
Internet connectivity. We contracted with the provider to deliver a secure
platform for server hosting with uninterruptible power supply and back up
generators, fire suppression, raised floors, heating ventilation and
air-conditioning, separate cooling zones, seismically braced racks, operations
twenty-four-hours-a-day, seven-days-a-week and high levels of physical security.
We connected our systems to a high speed Internet connection with multiple,
redundant interconnects to key backbone locations.
Notwithstanding these precautions, we cannot assume that the security
mechanisms used by us, our suppliers or our Internet provider will prevent
security breaches or service breakdowns. Despite the network security measures
we have implemented, our servers may be vulnerable to computer viruses, physical
or electronic break-ins and similar disruptions. Such a description could lead
to interruptions or delays in our service, loss of data, or our
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inability to accept and fulfill customer orders. Any of these events would
materially hurt our business, results of operations and financial condition.
RELATIONSHIP WITH CYBERSOURCE CORPORATION
In December 1997, in order to focus on our core business of selling
software over the Internet, we spun off our Internet commerce services business
to a new Delaware corporation, now called CyberSource Corporation. In connection
with this spin off, we entered into certain agreements with CyberSource to
define the ongoing relationship between our two companies. Five out of six of
our directors are also directors of CyberSource. Certain other members of our
management team joined CyberSource as executive officers. Accordingly, these
agreements may not be deemed the result of arm's length negotiations.
Under our conveyance agreement with CyberSource dated December 31, 1997, we
transferred to CyberSource:
- technology (including rights to patent applications, trademarks and other
of our intellectual property rights);
- contracts and licenses with third parties; and
- certain tangible assets that we use for credit card processing, fraud
screening, export control, territory management and electronic
fulfillment notification.
In addition, we transferred our employees who worked on our Internet commerce
services business to CyberSource.
Under the terms of our inter-company cross license agreement with
CyberSource, which we entered into in April 1998 and amended in May 1998, we
granted to CyberSource a non-exclusive, worldwide, perpetual, irrevocable,
royalty-free license to internally use our Cache Manager technology, and use and
sublicense our customer database for certain limited purposes relating to fraud
verification and detection. In exchange, CyberSource granted us a worldwide,
perpetual, irrevocable, royalty-free license to internally use CyberSource's
Sm@rtCert technology with the right to modify the technology so we may embed
such technology into our Cache Manager (either alone or in combination with
other software) for subsequent sublicense and for use by enterprises and
government agencies. This agreement also provides that we jointly own certain
utility tools. It allocates between us and CyberSource ownership of certain
inventions made by each party on or before June 30, 1998, and ownership of
certain improvements, enhancements and modifications by the parties to the
Sm@rtCert and Cache Manager technologies made through 1999. Each party agreed to
indemnify the other against any third party claim against the licensor resulting
from the licensee using the licensed technology, except to the extent such a
third-party claim is based upon a claim that the licensed technology infringes
upon its intellectual property rights.
We also entered into an Internet commerce services agreement with
CyberSource. Under this agreement, CyberSource agreed to provide certain
services to us including credit card processing, fraud screening, export
control, territory management and electronic fulfillment, in a "back office"
capacity. CyberSource agreed to indemnify us for an amount not to exceed
$100,000 if a third party claims that the services CyberSource provides to us,
or the use of any software that CyberSource provides in connection with the
services, infringes upon the third party's intellectual property rights. We
agreed to indemnify
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CyberSource for an amount not to exceed $100,000 if a third party claims that
the software we distribute infringes upon its intellectual property rights. This
services agreement expires on December 31, 1998, and automatically renews for an
additional one-year term, unless either party terminates it.
Based on our relationship with CyberSource, our business would be disrupted
if:
- CyberSource discontinues any of the services that it provides to us under
the services agreement;
- either party terminates the cross license agreement; or
- CyberSource reduces its performance so we must replace such services or
internally develop or license such technology from a third party.
CyberSource provides to other customers, including our competitors, the
same services that it provides to us. Under our agreements with CyberSource,
CyberSource may compete directly with us, acquire a third party which competes
with us, or be acquired by a third party which competes with us. Any of those
actions could materially hurt our business.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future because barriers
to entry are minimal, and current and new competitors can launch new Web sites
at relatively low cost. In addition, the software reselling industry is
intensely competitive. We currently compete primarily with traditional software
resellers, other online software resellers and other vendors. In the online
market, we compete with online software resellers and vendors that maintain
commercial web sites, including CompUSA, BuyDirect.com, Outpost.com, Egghead.com
and Buy.com, and a growing number of software publishers that sell their
software products directly online. Barnesandnoble.com and Amazon.com also
recently began reselling software online. We also anticipate that we may soon
compete with other software publishers, including Microsoft, that plan to sell
their products directly to customers online, and indirect competitors that
specialize in online commerce or derive significant revenues from online
commerce, including America Online, Netscape, Amazon.com and Yahoo! These
companies may offer software products for resale, or others may offer software
products for resale through these companies. In addition, the following entities
have established, or may soon establish, commercial Web sites offering software
products:
- mail order and/or direct marketers of computer products (including
cataloguers such as Micro Warehouse and CDW Computer Centers and
manufacturers such as Dell Computer and Gateway);
- major software product distributors such as Ingram Micro and Tech Data;
and
- major retailers of other related products, such as OfficeMax, Staples and
Office Depot.
Competitive pressures created by any one of these current or future
competitors, or by our competitors collectively, could materially hurt our
business.
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We believe that the principal competitive factors in our market are:
- brand recognition;
- selection;
- convenience;
- price;
- speed and accessibility;
- customer service;
- quality of site content; and
- reliability and speed of fulfillment.
In addition to those factors, the large enterprise market also focuses on:
- compatibility of products;
- administration and reporting;
- single source supply;
- security; and
- cost-effective deployment.
Many of our current and potential competitors have longer operating histories
and larger customer bases than we do. In addition, many of our current and
potential competitors have greater brand recognition and significantly greater
financial, marketing and other resources than we do.
In addition, as more people use the Internet and other online services,
larger, well established and well financed entities may:
- acquire online competitors or software publishers or suppliers;
- invest in online competitors or software publishers or suppliers; or
- form joint ventures with online competitors or software publishers or
suppliers.
Certain of our actual or potential competitors, such as Ingram Micro and
Tech Data, may be able to:
- secure merchandise from vendors on more favorable terms;
- devote greater resources to marketing and promotional campaigns;
- adopt more aggressive pricing or inventory availability policies; and
- devote substantially more resources to web site and systems development
than we do.
Competitors such as Software Spectrum, GTSI, ASAP and Corporate Software &
Technology have greater experience in selling software to the large enterprise
market than we do. In addition, new technologies and expansion of existing
technologies, such as price
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comparison programs that select specific titles from a variety of web sites, may
direct customers to online software resellers which compete with us and may
increase competition. Increased competition may reduce our operating margins, as
well as cause a loss to both our market share and brand recognition. Further, to
strategically respond to changes in the competitive environment, we may
sometimes make pricing, service or marketing decisions or acquisitions that
could materially hurt our business. In addition, companies controlling access to
Internet transactions through network access or Web browsers could promote our
competitors or charge us a substantial fee for inclusion in their product or
service offerings. We cannot assure that we can compete successfully against
current and future competitors. Failure to compete successfully against our
current and future competitors could materially hurt our business.
LEGAL PROCEEDINGS
From time to time, we may litigate claims arising in the ordinary course of
our business. We are not presently subject to any material legal proceedings.
PROPRIETARY RIGHTS
We rely on a combination of copyright, trademark, patent and trade secret
laws and contractual restrictions to establish and protect our technology and
proprietary rights and information. We require employees and consultants to sign
confidentiality agreements. However, we cannot assure you that our steps will be
sufficient to prevent misappropriation of our technology and proprietary rights
and information or that our competitors will not independently develop
technologies that are substantially equivalent or superior to ours.
From time to time, third parties have alleged that certain of our
trademarks infringe their trademarks. In November 1998, we received a letter
from a third party that appears to hold a registered United States trademark for
"A Better Way to Buy Software." This third party asserted that our use of such
phrase infringes its trademark rights in such phrase. We dispute the validity of
this assertion. However, we are uncertain whether this third party will file a
lawsuit against us or would prevail in such litigation. If it prevails, then it
could obtain injunctive relief and/or money damages. We have ceased using this
phrase. In November 1998, we also received a letter from a third party asserting
that our use of the name "Beyond.com" infringes the trademark and domain name
rights of such third party. We dispute the validity of this assertion. However,
we are uncertain whether the outcome of this matter will not materially hurt our
ability to use the "Beyond.com" mark, name or domain name. Our inability to use
the "Beyond.com" mark, name or domain name would materially hurt our business,
results of operations and financial conditions. However, we cannot assure you
that these claims will not have an adverse effect in the future or that others
will not assert infringement claims against us in the future.
EMPLOYEES
As of December 31, 1998, we employed 137 employees. We also employ
independent contractors and other temporary employees. Labor unions do not
represent any of our employees. We consider our employee relations to be good.
Competition for qualified personnel in our industry is intense, particularly for
software development and other technical staff. We believe that we need to
continue to attract, hire and retain qualified personnel to be successful in the
future.
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FACILITIES
Our principal administrative, engineering, marketing and customer service
facilities total approximately 75,197 square feet. We subleased facilities which
are located in Sunnyvale, California. Our sublease expires in September 2003,
unless sooner terminated. We made a security deposit payment of $892,000 cash.
We must make monthly payments of approximately $149,000 increasing to $174,000
over the term of the sublease. We do not have an option to renew or extend the
sublease.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information about our executive
officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
William S. McKiernan 42 Chairman of the Board of Directors
Mark L. Breier 39 President, Chief Executive Officer
and Director
John P. Pettitt 35 Executive Vice President and Chief
Technology Officer
James R. Lussier 42 Vice President, Business Operations
and Corporate Strategy
Michael J. Praisner 52 Vice President, Finance &
Administration and Chief Financial
Officer
Alan C. DeClerck 44 Vice President, Worldwide Sales
Brian J. Sroub 39 Vice President, Marketing
Mala Anand 31 Vice President, Engineering
John D. Vigouroux 38 Vice President, Business Development
Bert Kolde(1)(2) 44 Director
Linda Fayne Levinson(1)(2) 57 Director
Steven P. Novak(1)(2) 51 Director
Richard Scudellari(1)(2) 42 Secretary and Director
</TABLE>
- -------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
WILLIAM S. MCKIERNAN is a co-founder of Beyond.com and has served as
Chairman of its Board of Directors since March 1998. Since Beyond.com's
inception in 1994 to March 1998, Mr. McKiernan served as its President and Chief
Executive Officer. Mr. McKiernan also currently serves as a director, President
and Chief Executive Officer of CyberSource Corporation. From 1992 to 1994, Mr.
McKiernan held a number of positions at McAfee Associates, Inc. (now known as
Network Associates), including President and Chief Operating Officer, the
positions he held during its initial public offering in October 1992. Prior to
joining McAfee Associates in 1992, Mr. McKiernan was Vice President of Princeton
Venture Research, Inc., an investment banking and venture consulting firm from
1990 to 1992. Mr. McKiernan has also held management positions with IBM/ROLM and
Price Waterhouse. Mr. McKiernan holds an M.B.A. from the Harvard Business
School.
MARK L. BREIER joined Beyond.com in March 1998, as a director, President
and Chief Executive Officer. From January 1997 until he joined Beyond.com, Mr.
Breier served as Vice President of Marketing of Amazon.com, Inc. From April 1995
to January 1997, Mr. Breier served as Vice President of Marketing of Cinnabon
World Famous Cinnamon Rolls. Mr. Breier was involved in product management and
introduction at Dreyer's Grand Ice Cream from 1990 to April 1995, at Kraft
Foods, Inc., a multinational consumer products company, from April 1986 to
October 1988, and at Parker Brothers, a worldwide manufacturer of toys and
games, from August 1985 to March 1986. Mr. Breier holds a B.A. in Economics from
Stanford University and an M.B.A. from the Stanford University Graduate School
of Business.
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JOHN P. PETTITT is a co-founder of Beyond.com and has served as Executive
Vice President and Chief Technology Officer since its inception in 1994. From
1992 to 1994, Mr. Pettitt consulted on a number of Internet and intranet
projects, including a national medical imaging network. From 1986 to 1992, Mr.
Pettitt served as Group Vice President and Technical Director of Specialix PLC,
a leading supplier of communications controllers for UNIX systems. While at
Specialix, Mr. Pettitt received the 1992 British Design Award for designing a
new distributed, fault tolerant data switch. Mr. Pettitt also co-founded the
United Kingdom Internet Consortium.
MICHAEL J. PRAISNER joined Beyond.com as Vice President, Finance and
Administration and Chief Financial Officer in April 1998. From 1995 to February
1998, Mr. Praisner served as Vice President, Finance and Administration, Chief
Financial Officer and Secretary of Silicon Storage Technology, Inc., a supplier
of flash memory devices. From 1994 to 1995, he served as Vice President, Finance
and Chief Financial Officer of MicroModule Systems, Inc., a manufacturer of
multichip modules for computer and telecommunications applications. From 1992 to
1993, he served as Vice President, Finance and Chief Financial Officer of
Electronics for Imaging, Inc., a manufacturer of color desktop publishing
computer systems. During part of 1991, he served as Vice President, Finance and
Chief Financial Officer of Digital Link Corp., a computer communications
equipment company. From 1989 to 1991, he served as Corporate Controller of
Applied Materials Inc., a manufacturer of semiconductor wafer fabrication
equipment. Mr. Praisner holds a B.A. in Liberal Arts and an M.B.A. from Southern
Methodist University and is a Certified Public Accountant.
JAMES R. LUSSIER joined Beyond.com in April 1998 as Vice President,
Business Operations and Corporate Strategy. From September 1992 to April 1998,
Mr. Lussier served as an Associate Partner of Andersen Consulting where he was
responsible for the Electronics and High Technology Strategy Practice Group and
was a member of the Commerce Core Team. Mr. Lussier holds a B.S. in Finance from
the Wharton School, University of Pennsylvania, an M.A. in Sociology, with an
emphasis in Statistics, from the University of California at Berkeley and an
M.B.A. from the Stanford University Graduate School of Business.
ALAN C. DECLERCK joined Beyond.com in April 1998 as Vice President, Sales.
From August 1995 until he joined Beyond.com, Mr. DeClerck served as
International Director, ISVs & Integrators, for Sun Microsystems Computer
Corporation. From January 1989 until August 1995, Mr. DeClerck served other
roles at Sun Microsystems, including Director, Corporate Business Development,
Director of Marketing and Business Development at FirstPerson, a Sun
Microsystems subsidiary that developed the initial Java technology, and various
sales and sales management roles. Mr. DeClerck was involved in marketing and
sales roles from 1980 until 1989 at Network Equipment Technologies, Industrial
Networking, Inc. and General Motors Corporation. Mr. DeClerck holds an A.B. in
International Relations from Brown University, a M. Phil. in International
Relations from Oxford University and an M.B.A. from the Stanford University
Graduate School of Business.
BRIAN J. SROUB joined Beyond.com in April 1998 as Vice President,
Marketing. From June 1995 to April 1998, Mr. Sroub served as Vice President,
Marketing of Hearst New Media & Technology, a worldwide media company. From
November 1993 to May 1995, Mr. Sroub served as Vice President, Sales & Marketing
of Sony Electronics. Prior to October 1993, Mr. Sroub co-founded Home
Environmental Products, a start up horticultural corporation, and was a Brand
Manager at Procter & Gamble Company.
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Mr. Sroub holds a B.A. in Economics & Communications from Boston College, an
M.A. in Economics from Boston College and an M.B.A. from the Stanford University
Graduate School of Business.
MALA ANAND joined Beyond.com in June 1998 as Vice President, Engineering.
From 1994 until she joined Beyond.com, Ms. Anand served as Director of Product
Development with the Internet application services division at Oracle
Corporation. From 1990 to 1994, Ms. Anand was a technical architect and a
principal engineer of Digital Equipment Corporation's software supply business.
Ms. Anand holds an M.S. in Computer Science from Brown University and a B.S. in
Computer Science from the University of Massachusetts.
JOHN D. VIGOUROUX joined Beyond.com in November 1998 as Vice President,
Business Development. From June 1997 until he joined Beyond.com, Mr. Vigouroux
served as Vice President of Business Development of Net Objects, Inc. From
August 1996 to June 1997, Mr. Vigouroux served as a Director of Business
Development of Cisco Systems, Inc. From August 1993 to August 1996, Mr.
Vigouroux served as Manager of Strategic Opportunities of Adobe Systems, Inc.
Mr. Vigouroux holds an M.B.A. from New Hampshire College and a B.S. in
Organizational Behavior and Development from Averett College.
BERT KOLDE, a director of Beyond.com since July 1996, serves as a director,
Vice President, Treasurer and Secretary of Vulcan Ventures Inc., Vice Chairman
of the Portland Trail Blazers, Seattle Seahawks, Oregon Arena Corporation and
First and Goal Corporation. In addition, Mr. Kolde serves as President of the
Paul G. Allen Virtual Education Foundation and the Paul G. Allen Forest
Protection Foundation. Mr. Kolde co-founded Asymetrix Learning Systems, Inc. in
1985, and serves as Chairman of its Board of Directors. Mr. Kolde also serves as
a director of MetaCreations Corporation, Precision Systems, Inc. and CyberSource
Corporation. Mr. Kolde holds a B.A. in Business Administration from Washington
State University and an M.B.A. from the University of Washington.
LINDA FAYNE LEVINSON, a director of Beyond.com since September 1997, has
served as a principal of Global Retail Partners, Inc. since April 1997. From
1994 to 1997, she served as President of Fayne Levinson Associates, an
independent general management consulting firm that advised major corporations
and start up entrepreneurial ventures. In 1993, Ms. Levinson was an executive
with Creative Artists Agency, Inc. From 1989 to 1992, Ms. Levinson was a partner
of Wings Partners, Inc., a merchant banking firm, and was actively involved in
taking Northwest Airlines private. From 1984 to 1987, Ms. Levinson was a Senior
Vice President of American Express Travel Related Services, Inc. Prior to that,
Ms. Levinson was a partner at McKinsey & Co. Ms. Levinson presently serves as a
Director of Administaff, Inc., Genentech, Inc., Jacobs Engineering Group, Inc.
and NCR Corporation as well as several privately held companies including
CyberSource Corporation. Ms. Levinson holds an A.B. from Barnard College in
Russian Studies, an M.A. from Harvard University in Russian Literature and an
M.B.A. from New York University.
STEVEN P. NOVAK, a director of Beyond.com since January 1995, is a Managing
Director and Director of Research of C.E. Unterberg, Towbin. From February 1993
to January 1998, Mr. Novak served as Co-founder, President, and Chief Investment
Officer of C.E. Unterberg, Towbin Advisors, a registered investment advisor. Mr.
Novak also serves as a director of several privately held companies, including
CyberSource Corporation. Mr. Novak's prior affiliations include, among others,
Forstmann Leff
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Associates, Sanford C. Bernstein & Company, Inc., and Harris Bankcorp. Mr. Novak
holds a B.S. from Purdue University and an M.B.A. from the Harvard Business
School.
RICHARD SCUDELLARI has served as a director and Secretary of Beyond.com
since its inception in 1994. Mr. Scudellari has been a partner at Jackson Tufts
Cole & Black, LLP, since 1990. Mr. Scudellari serves as a director of several
privately held companies, including CyberSource Corporation. Mr. Scudellari
holds a B.S. and J.D. from Boston College.
BOARD OF DIRECTORS AND COMMITTEES
Beyond.com currently has authorized six directors. Our executive officers
are appointed by, and serve at the discretion of, our Board of Directors. Each
of our officers and directors, excluding non-employee directors and Mr.
McKiernan, who serves as Chief Executive Officer of CyberSource, devotes
substantially full time to our affairs. Our non-employee directors devote such
time to our affairs as is necessary to discharge their duties. There are no
family relationships among any of our directors, officers or key employees. Five
of the six members of our Board of Directors also serve as directors of
CyberSource.
Our Audit Committee reviews, acts on and reports to our Board of Directors
with respect to various auditing and accounting matters, including the selection
of our independent accountants, the scope of the annual audits, fees to be paid
to the independent accountants, the performance of our independent accountants
and our accounting practices.
Our Compensation Committee establishes salaries, incentives and other forms
of compensation for officers and other employees. This Committee also
administers our incentive compensation and benefit plans.
DIRECTOR COMPENSATION
We do not pay directors cash compensation for their services as directors
or members of committees of the Board of Directors. We do reimburse them for
their reasonable expenses incurred in attending meetings of the Board of
Directors. In April 1995, we granted each of Messrs. Novak and Scudellari
nonqualified stock options to purchase 20,000 and 40,000 shares of common stock,
respectively, at an exercise price of $0.008 per share. In January 1996, we
granted each of Messrs. Novak and Scudellari nonqualified stock options to
purchase 20,000 shares of common stock at an exercise price of $0.033 per share.
In January 1997, we granted each of Messrs. Novak, Scudellari and Kolde options
to purchase 10,000 shares of common stock at an exercise price of $0.1125 per
share. In January 1998, we granted Ms. Levinson and each of Messrs. Novak,
Scudellari and Kolde options to purchase 10,000 shares of common stock at an
exercise price of $0.50 per share. In March 1998, we granted Mr. Breier an
option to purchase 1,000,000 shares of common stock at an exercise price of
$2.60 per share. In January 1999, we granted Ms. Levinson and each of Messrs.
Novak, Scudellari and Kolde options to purchase 10,000 shares of common stock at
an exercise price of $20.75 per share. Until April 4, 1998, under the terms of
our 1995 Stock Option Plan, we granted each non-employee director options to
purchase 10,000 shares of common stock upon initial election or appointment to
the Board of Directors and thereafter annually on January 1 of each year.
Following April 4, 1998, our 1998 Stock Option Plan continues these grants.
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EXECUTIVE COMPENSATION
The following table sets forth certain estimated compensation we paid or
awarded during our fiscal years ended December 31, 1997 and 1998 to our
President and Chief Executive Officer and our six next highly compensated
executive officers and employees (such individuals are referred to in this
section as the "Named Executives and Employees"). In March 1998, Mr. McKiernan
resigned as our President and Chief Executive Officer and commenced service as
the Chairman of our Board of Directors, where he presently earns a salary of
$100,000 per annum. In March 1998, Mr. Breier was hired as our President and
Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
---------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
--------------------------- ---- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
William S. McKiernan.............. 1997 $165,000 -- -- --
Chairman of the Board 1998 $100,000 -- -- --
Mark L. Breier(1)................. 1998 $200,000 $50,000 1,000,000 $70,000
President and Chief Executive
Officer
Michael J. Praisner(2)............ 1998 $165,000 -- 200,000 --
Vice President, Finance and
Administration and Chief
Financial Officer
John P. Pettitt................... 1997 $130,000 $ 100 -- --
Executive Vice President and Chief 1998 $185,000 -- -- --
Technology Officer
James Lussier(3).................. 1998 $185,000 -- 180,000 --
Vice President, Business
Operations and Corporate
Strategy
Brian Sroub(4).................... 1998 $185,000 -- 180,000 --
Vice President, Marketing
Mala Anand(5)..................... 1998 $185,000 -- 180,000 --
Vice President, Engineering
Kendall Fargo..................... 1997 $ 50,000 $31,600 50,000 $15,500
Vice President, Enterprise and 1998 $ 69,000 $37,000 120,000 $97,000
Government Sales
</TABLE>
- -------------------------
(1) Mr. Breier was hired in March 1998. Mr. Breier received a relocation
allowance payment of $70,000 in 1998.
(2) Mr. Praisner was hired in April 1998.
(3) Mr. Lussier was hired in April 1998.
(4) Mr. Sroub was hired in April 1998.
(5) Ms. Anand was hired in June 1998.
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<PAGE> 66
STOCK OPTION INFORMATION
The following table sets forth certain information with respect to stock
options granted in fiscal 1998 to the Named Executives and Employees.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(3)
OPTIONS TO EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------------
NAME GRANTED(#) DURING PERIOD(1) ($/SHARE)(2) DATE 5% 10%
---- ----------- ---------------- -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William S. McKiernan....... -- -- -- -- -- --
Mark L. Breier............. 1,000,000 25.8% $ 2.60 03/30/2008 $4,235,126 $6,743,730
Michael J. Praisner........ 200,000 5.2% $ 4.36 04/07/2008 1,420,396 2,261,743
John P. Pettitt............ -- -- -- -- -- --
James Lussier.............. 180,000 4.7% $ 5.44 04/25/2008 1,595,014 2,539,793
Brian Sroub................ 180,000 4.7% $ 5.44 04/25/2008 1,595,014 2,539,793
Mala Anand................. 180,000 4.7% $ 9.00 06/15/2008 2,638,809 4,201,863
Kendall Fargo.............. 40,000 1.0% $19.61 12/23/2008 1,277,868 2,034,791
</TABLE>
- -------------------------
(1) Based on an aggregate of 3,868,946 options granted by Beyond.com during the
fiscal year ended 1998 to employees of and consultants to Beyond.com,
including the Named Executives.
(2) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by the Board of
Directors.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of the common stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price.
The following table sets forth certain information regarding stock options
held at December 31, 1998 by the Named Executives.
OPTION VALUES AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY OPTIONS AS OF
DECEMBER 31, 1998(#) DECEMBER 31, 1998($)(1)
-------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXCERCISABLE UNEXERCISABLE
---- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
William S. McKiernan....... --
Mark L. Breier............. -- 1,000,000 $ 0 $18,150,000
Michael J. Praisner........ -- 200,000 $ 0 $ 3,278,000
John P. Pettitt............ 1,250,000 -- $25,932,500 $ 0
James Lussier.............. -- 180,000 $ 0 $ 2,755,800
Brian Sroub................ -- 180,000 $ 0 $ 2,755,800
Alan DeClerck.............. -- 180,000 $ 0 $ 2,842,200
Mala Anand................. -- 180,000 $ 0 $ 2,115,000
John Vigouroux............. -- 145,000 $ 0 $ 1,894,063
Kendall Fargo.............. 39,583 80,417 $ 818,617 $ 879,799
</TABLE>
- -------------------------
(1) The value of unexercised "in-the-money" options represents the difference
between the exercise price of stock options and $20.75, the closing sales
price of the common stock on December 31, 1998.
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<PAGE> 67
STOCK OPTION PLANS
In January 1995, we adopted our 1995 Stock Option Plan. We reserved
3,000,000 shares of common stock for stock option grants under the plan. In
addition, in April 1998, we adopted our 1998 Stock Option Plan. We reserved
2,000,000 shares of common stock for stock option grants under the plan. The
purpose of each plan is to enhance our long-term stockholder value by offering
our employees, directors, officers, consultants, agents, advisors and
independent contractors the opportunity to promote and participate in our growth
and success, and to encourage these people to remain in our service and acquire
and maintain stock ownership in us.
As of December 31, 1998, options to purchase 4,495,299 shares of common
stock were outstanding under the 1995 and 1998 Stock Option Plans with exercise
prices ranging from $0.004 to $29.06 per share. As of December 31, 1998, options
to purchase 268,849 shares were available for grant under the 1995 and 1998
Stock Option Plans and options for 235,852 shares had been exercised.
Our Board of Directors or a committee appointed by the Board may administer
the Plans.
1998 Plan. The Administrator has the authority to select individuals who
are to receive options under the 1998 Stock Option Plan and to specify the terms
and conditions of options granted (including whether or not such options are
incentive or nonstatutory stock options), the vesting provisions, the option
term and the exercise price. The 1998 Plan provides that we may grant incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986 to employees, including our officers and employee directors, and we may
grant nonstatutory stock options to employees and consultants, including
non-employee directors.
The exercise price of incentive stock options granted under the 1998 Plan
shall equal the fair market value of our common stock on the date of grant
(except in the case of grants to any person holding more than 10% of the total
combined voting power of all classes of our, or any of our parent's or
subsidiary's, stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant). The exercise price of nonqualified
stock options shall not be less than 85% of the fair market value on the date of
grant. Option holders may pay for an exercise in cash or other consideration,
including a promissory note, as approved by the administrator. The administrator
may not grant options under the 1998 Plan to an individual in any one fiscal
year which would permit that individual to purchase more than 1,000,000 shares
of common stock. However, the administrator may grant a newly-hired optionee a
one-time grant of an option to purchase up to an additional 500,000 shares of
common stock.
Generally, options granted under the 1998 Plan (other than those granted to
non-employee directors) vest at a rate of 25% of the shares underlying the
option after one year and the remaining shares vest in equal portions over the
following 36 months, such that all shares are vested after four years. Unless
otherwise provided by the administrator, an option granted under the 1998 Plan
generally expires 10 years from the date of grant (five years in the case of an
incentive stock option granted to a any person holding more than 10% of the
total combined voting power of all classes of our, or any of our parent's or
subsidiary's, stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant) or, if earlier, 30 days after the
optionee's termination of employment or service with us or any of our affiliates
for any reason other than
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<PAGE> 68
termination for death or disability, or one year after termination for death or
total and permanent disability and six months in the case of other types of
disability. Options granted under our 1998 Plan are not generally transferable
by the optionee except by will or the laws of descent and distribution and
generally are exercisable during the lifetime of the optionee only by such
optionee.
In the event of (i) the merger or consolidation as a result of which the
holders of our voting securities prior to the transaction hold shares
representing less than 51% of our voting securities after giving effect to the
transaction (other than a merger or consolidation with a wholly-owned subsidiary
or where there is no substantial change in our stockholders and the options
granted under the 1998 Plan are assumed by the successor corporation), or (ii)
the sale of all or substantially all of our assets the successor corporation
will assume or substitute the options we have granted under the 1998 Plan or
shall provide substantially similar consideration to optionees as is provided to
the stockholders. In the event the successor corporation refuses to assume or
substitute outstanding options as provided above, or in the event of our
dissolution or liquidation, outstanding options shall expire on a date specified
in a written notice the Compensation Committee shall send to all optionees
(which date shall be at least 20 days after the date of such notice).
The 1998 Plan also provides for automatic grants to non-employee directors.
Each non-employee director, upon initial election or appointment to the Board of
Directors, is entitled to receive options to purchase 10,000 shares of common
stock, provided that such election or appointment does not occur within the last
quarter of a given year. Thereafter, each non-employee director is entitled to
receive options to purchase 10,000 shares of common stock annually on January 1
of each year, provided he or she is a non-employee director on the date of grant
and has continuously been an active member of the Board of Directors for the
year prior to the grant date. Options granted to non-employee directors pursuant
to the automatic grant provisions of the 1998 Plan are nonqualified stock
options with an exercise price equal to the fair market value of our common
stock as of the date of grant and fully vest nine months after the date of
grant. Grants to non-employee directors are subject to the general requirements
of the 1998 Plan.
1995 Plan. The terms of options which we may grant under the 1995 Plan are
generally the same as those we may grant under the 1998 Plan. However, the 1995
Plan imposes a maximum number of shares subject to an option we grant to any
individual of 1,000,000 shares. In addition, under the 1995 Plan, in the event
of our merger or consolidation in which we are not the surviving corporation, or
a sale of all or substantially all of our assets, the successor corporation will
assume or substitute the options outstanding under the 1995 Plan. However, in
the event the successor corporation refuses to assume or substitute the options
or in the event of our dissolution or liquidation, outstanding options shall
expire on a date specified in a written notice sent by the Compensation
Committee to all optionees (which date shall be at least 20 days after the date
of such notice).
Stock options previously granted under the Plans to the executives and
directors are described above under "Executive Compensation." At this time we
cannot determine the number of shares of common stock that may be subject to
options we grant in the future to our executive officers and other officers, key
employees and directors.
401(K) RETIREMENT PLAN
Effective January 1997, we established a 401(k) defined contribution
retirement plan (the "Retirement Plan") covering all salaried/full-time
employees with greater than one
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<PAGE> 69
months' service. The Retirement Plan provides for voluntary employee
contributions from 1% to 15% of annual compensation, subject to a maximum limit
allowed by Internal Revenue Service guidelines ($10,000 for 1998). We may
contribute such amounts to the accounts of participants' in the Retirement Plan
as our Board of Directors determines. To date, we have not contributed any
amounts to the 401(k) Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our Compensation Committee is an officer or employee
of Beyond.com. Five of the six members of our Board of Directors also serve as
members of the Board of Directors of CyberSource. Other than with respect to
CyberSource, no interlocking relationship exists between our Board of Directors
or Compensation Committee and the board of directors or compensation committee
of any other company, nor has such an interlocking relationship existed in the
past.
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<PAGE> 70
CERTAIN TRANSACTIONS
STOCK AND WARRANT ISSUANCES
Since January 1, 1995, we have issued shares of common stock to certain
insiders and shares of preferred stock in private placement transactions each as
set forth below.
In January 1995 and February 1996, we issued shares of Series A preferred
stock in private placements to certain investors including 500,000 shares to
C.E. Unterberg Towbin Capital Partners I, L.P. at a purchase price of $0.33 per
share in January 1995, and 253,131 shares to C.E. Unterberg Towbin Capital
Partners I, L.P. at a purchase price of $0.76 per share in February 1996. In
this section of this prospectus, we refer to C.E. Unterberg Towbin Capital
Partners I, L.P. as "Unterberg Partners I." The shares of Series A preferred
stock held by Unterberg Partners I converted into 1,506,262 shares of common
stock upon consummation of our initial public offering. Steven P. Novak, one of
our directors, is a Managing Director of C.E. Unterberg, Towbin, an affiliate of
the general partner of Unterberg Partners I. Mr. Novak disclaims beneficial
ownership of the shares of common stock held by Unterberg Partners I, except for
his proportional interest therein, if any.
In July 1996, we issued shares of Series B preferred stock in a private
placement to certain investors, including 925,926 shares to Vulcan Ventures
Incorporated, at a purchase price of $2.25 per share. In this section of this
prospectus we refer to Vulcan Ventures Incorporated as "Vulcan." Bert E. Kolde,
one of our directors, serves as a director, Vice President, Treasurer and
Secretary of Vulcan, as well as President of the Paul G. Allen Virtual Education
Foundation and the Paul G. Allen Forest Protection Foundation, and as a director
of several other companies controlled by Mr. Allen, who maintains a controlling
interest of Vulcan. Mr. Kolde disclaims beneficial ownership of the shares of
common stock issued to Vulcan, except for his proportional interest therein, if
any. All of the outstanding shares of Series B preferred stock converted on a
two-for-one basis into 4,074,076 shares of common stock upon the consummation of
our initial public offering.
In September and December 1997, we issued shares of Series C preferred
stock in private placements to certain investors at a purchase price of $1.70
per share. We issued Series C preferred stock to the following entities:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
PURCHASER NUMBER OF SHARES
- ----------------------------------------------------------------------
<S> <C>
GRP 1,470,588
- ----------------------------------------------------------------------
UT Capital Partners International, LDC 59,914
- ----------------------------------------------------------------------
UT Technology Partners, LDC 185,184
- ----------------------------------------------------------------------
Unterberg Harris Private Equity Partners, LP 201,961
- ----------------------------------------------------------------------
Unterberg Harris Private Equity Partners, CV 43,137
- ----------------------------------------------------------------------
Vulcan 716,666
- ----------------------------------------------------------------------
</TABLE>
In this section of this prospectus we refer to UT Capital Partners
International, LDC, UT Technology Partners, LDC, and Unterberg Harris Private
Equity Partners, CV collectively as the "Unterberg Affiliates." Linda Fayne
Levinson, one of our directors, is a principal of Global Retail Partners, Inc,
an affiliate of Donaldson, Lufkin & Jenrette Securities
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<PAGE> 71
Corporation and of Global Retail Partners Funding, Inc. In this section of this
prospectus we collectively refer to Global Retail Partners Funding, Inc. and its
affiliates (each an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation) that are stockholders of Beyond.com as "GRP." All shares of Series
C preferred stock converted into 3,000,000 shares of common stock upon
consummation of our initial public offering. Messrs. Novak and Kolde and Ms.
Levinson disclaim beneficial ownership of the shares of common stock held by the
Unterberg Affiliates, Vulcan and GRP, respectively, except for any proportional
interest held therein, if any.
In March and April 1998, we issued shares of Series D preferred stock in private
placements to certain investors at a purchase price of $2.60 per share. We
issued Series D preferred stock to the following entities, among others:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
PURCHASER NUMBER OF SHARES
- ------------------------------------------------------------------------
<S> <C>
GRP 458,106
- ------------------------------------------------------------------------
Certain of the Unterberg Affiliates 229,052
- ------------------------------------------------------------------------
Vulcan 458,106
- ------------------------------------------------------------------------
</TABLE>
These shares converted into 1,145,264 shares of common stock upon the
consummation of our initial public offering. Messrs. Novak and Kolde and Ms.
Levinson, each one of our directors, disclaim beneficial ownership of the shares
of common stock now held by the Unterberg Affiliates, Vulcan and GRP and certain
of its affiliates, respectively, except for any proportional interest held
therein. Pacific Asset Partners, a former holder of our Series D preferred stock
and a current holder of our common stock, has exercised registration rights to
include 8,582 shares of common stock held by it in the registration statement of
which this prospectus is a part.
In March 1998, we entered into an agreement with America Online pursuant to
which, subject to certain limited exceptions, America Online agreed to buy
shares of our common stock at a price per share equal to the initial public
offering price less underwriters' discount. Under this agreement, immediately
prior to the consummation of our initial public offering in June 1998, America
Online purchased 238,949 shares of common stock for an aggregate purchase price
of $2,000,000. Concurrent with the purchase of the shares of common stock by
America Online in June 1998, we issued to America Online a warrant for 358,443
shares of common stock at a per share exercise price of $8.37, which vests in
increments of 1/36th per month commencing March 1, 1998.
In November and December 1998, we issued $63.25 million aggregate principal
amount of our 7 1/4% Convertible Subordinated Notes Due December 1,2003 to
Credit Suisse First Boston Corporation, C.E. Unterberg, Towbin and Donaldson,
Lufkin & Jenrette Securities Corporation, as the initial purchases of such
Notes. Mr. Novak and Ms. Levinson disclaim beneficial ownership of our 7 1/4%
Convertible Subordinated Notes, if any, and/or the shares of our common stock
into which our 7 1/4% Convertible Subordinated Notes convert, if any, held by
C.E. Unterberg, Towbin and Donaldson, Lufkin & Jenrette Securities Corporation,
respectively.
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OPTION GRANTS AND AGREEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS
In March 1995, we granted options to purchase 1,000,000 shares of common
stock to John P. Pettitt, our Executive Vice President and Chief Technology
Officer, in consideration of services he provided to us. Mr. Pettitt's options
have an exercise price of $0.004 and are fully vested. Mr. Pettitt's option
rights expire upon the earlier to occur of the date we cease to employ Mr.
Pettitt or December 31, 2000. If Mr. Pettitt's employment terminates for any
reason except death or disability, he must exercise his options within 30 days
of the termination date or such options will be forfeited. In the event of
termination due to death or disability, Mr. Pettitt's options shall be forfeited
unless he or his estate exercises them within six months of the termination
date. In the event of certain corporate reorganizations or other specific
corporate transactions affecting the common stock, proportional adjustments may
be made to the number of shares available for Mr. Pettitt's grant and to the
number of shares and price awards made prior to the event. Mr. Pettitt's grant
is intended as non-qualified stock option. In April 1995, we granted options to
purchase 250,000 shares of common stock to Mr. Pettitt under the 1995 Stock
Option Plan. These options have an exercise price of $0.004 per share, are fully
vested and are subject to the general requirements of such plan.
In December 1997, Richard Scudellari, a director and Secretary of the
Company and a partner of Jackson Tufts Cole & Black, LLP, the Company's counsel,
exercised options granted under the 1995 Stock Option Plan to purchase 70,000
shares of our common stock for an aggregate purchase price of $1,950. In
addition, we granted Mr. Scudellari an option to purchase 10,000 shares of
common stock in January 1998 at an exercise price of $0.50 per share, and an
option to purchase 10,000 shares in January 1999 at an exercise price of $20.75
per share.
Under the terms of an oral agreement between us and William S. McKiernan,
the Chairman of our Board of Directors, we repaid, in two installments in
December 1997 and January 1998, an aggregate of $105,000 for unpaid salary that
we had accrued on Mr. McKiernan's behalf for services Mr. McKiernan provided to
us from the date of our inception through December 1997.
On March 30, 1998, we granted an option to purchase 1,000,000 shares of
common stock to Mark L. Breier, our President and Chief Executive Officer, under
the 1995 Stock Option Plan. This option has an exercise price of $2.60 per share
and is governed generally by the terms of the 1995 Stock Option Plan, with
certain limited exceptions. In the event that an accelerating event occurs prior
to September 30, 1999, Mr. Breier may exercise a number of shares equal to the
number exercisable one year after the accelerating event. The following are
accelerating events:
- we are sold or we are party to a merger with another company resulting in
our stockholders immediately prior to such transaction owning less than
50% of the successor company's voting capital stock immediately following
such transaction; or
- Mr. Breier resigns due to a material reduction in title or
responsibilities, or we require Mr. Breier's ongoing and regular duties
to be performed at a location more than 60 miles from our current
headquarters.
In the event an accelerating event occurs after September 30, 1999, Mr. Breier
may exercise a number of shares equal to the sum of the number of shares
exercisable and one-half of the shares not exercisable as of the accelerating
event. In the event that we
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<PAGE> 73
terminate Mr. Breier prior to March 30, 1999 for any reason, 125,000 shares will
be immediately exercisable.
In March 1998, Steven P. Novak, one of our directors and a Managing
Director of C.E. Unterberg, Towbin, exercised options under our 1995 Stock
Option Plan to purchase 20,000 shares of our common stock for an aggregate
purchase price of $200. In September 1998, Mr. Novak exercised options under a
1995 Stock Option Plan to purchase 20,000 shares of our common stock for an
aggregate purchase price of $600. In addition, we granted Mr. Novak an option to
purchase 20,000 shares of common stock at an exercise price of $0.0333 per share
in January 1996; an option to purchase 10,000 shares in January 1997 at an
exercise price of $0.1125 per share; an option to purchase 10,000 shares in
January 1998 at an exercise price of $0.50 per share and an option to purchase
10,000 shares in January 1999 at an exercise price of $20.75.
In April 1998, we granted an option to purchase 200,000 shares of common
stock to Michael J. Praisner, our Vice President, Finance & Administration and
Chief Financial Officer under the 1998 Stock Option Plan. These options have an
exercise price of $4.36 per share and are governed generally by the terms of the
1998 Stock Option Plan.
In April 1998, Alan C. DeClerck, our Vice President, Sales, was granted an
option to purchase 180,000 shares of common stock under the 1998 Stock Option
Plan. These options have an exercise price of $4.96 per share and are governed
generally by the terms of the 1998 Stock Option Plan.
In April 1998, we granted Brian J. Sroub, our Vice President, Marketing, an
option to purchase 180,000 shares of common stock under the 1998 Stock Option
Plan. These options have an exercise price of $5.44 per share and are governed
generally by the terms of the 1998 Stock Option Plan.
In April 1998, we granted James R. Lussier, our Vice President, Business
Operations, an option to purchase 180,000 shares of common stock under our 1998
Stock Option Plan at an exercise price of $5.50 per share. We have agreed to
provide Mr. Lussier with six months' advance notice of termination, if such
termination occurs on or before April 27, 1999.
In June 1998, we granted Mala Anand, our Vice President, Engineering, an
option to purchase 180,000 shares of our common stock under the 1998 Stock
Option Plan. These options have an exercise price of $9.00 per share and are
governed generally by the terms of the 1998 Stock Option Plan.
In July 1998, we loaned Brian J. Sroub, our Vice President, Marketing,
$300,000 to assist Mr. Sroub's relocation to the Silicon Valley area. This loan
is memorialized in a promissory noted issued by Mr. Sroub to us, which provides
for repayment on or before January 31, 1999, and bears interest at a rate of
6.5% compounded annually. As of December 31, 1999, Mr. Sroub had repaid $270,000
of the principal amount and a balance of $30,000 remained outstanding.
In October 1998, we granted John D. Vigouroux, our Vice President, Business
Development, an option to purchase 145,000 shares under the 1998 Stock Option
Plan. These options have an exercise price of $7.96 per share and are governed
generally by the terms of the 1998 Stock Option Plan.
RELATIONSHIP WITH CYBERSOURCE CORPORATION
In December 1997, in order to focus on our core business of selling
software over the Internet, we spun-off our Internet commerce services business
to a new Delaware corporation now called CyberSource Corporation. In connection
with the spin-off,
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<PAGE> 74
CyberSource issued its capital stock to our stockholders such that, following
consummation of the spin-off, each of our stockholders held shares of capital
stock of CyberSource in equal number and ownership proportion and with the same
rights as such stockholder had as our stockholder. On the date of the spin-off,
our employees maintained their outstanding options to purchase our common stock
and were granted additional stock options in CyberSource based on the extent to
which the employees' original options were vested. Employees of CyberSource
immediately following the spin-off maintained their outstanding vested stock
options in us and were granted additional stock options in CyberSource. The
exercise prices of the original and additional option grants were adjusted to
reflect the allocation of the current fair market per share price between our
and CyberSource's common stock, respectively, at the time of the spin-off.
Options held by the CyberSource employees that had not vested as of the date of
the spin-off were canceled.
We have entered into certain agreements with CyberSource for the purpose of
defining the ongoing relationship between the two companies. Because five out of
six of our directors are also directors of CyberSource and other members of our
management team joined CyberSource as executive officers, these agreements are
not the result of arm's length negotiations. We qualify the following
description of these agreements in their entirety by reference to the
agreements, which have been filed as exhibits hereto.
Under our Conveyance Agreement dated December 31, 1997, we transferred to
CyberSource:
- technology (including rights to all patent applications, trademarks and
other of our intellectual property rights);
- contracts and licenses with third parties; and
- certain tangible assets in connection with credit card processing, fraud
screening, export control, territory management and electronic
fulfillment services.
In addition, we transferred our employees Internet commerce services business to
CyberSource.
In connection with such transfer, we entered into an InterCompany
Cross-License Agreement with CyberSource in April 1998, which was amended in May
1998, pursuant to which we granted CyberSource a non-exclusive, worldwide,
perpetual, irrevocable, royalty-free license to (1) internally use our Cache
Manager technology, and (2) use and sublicense our customer database for certain
limited purposes in connection with fraud detection and verification. Under this
agreement, CyberSource granted us a worldwide, perpetual, irrevocable,
royalty-free license to internally use CyberSource's Sm@rtCert technology. We
also received the right to modify such technology for purposes of embedding into
our Cache Manager technology (either alone or in combination with other
software) for subsequent sublicense to enterprises and governmental agencies.
The Cross License Agreement further provides that the parties shall have joint
ownership of certain utility tools made by the parties and allocates between us
and CyberSource the ownership of improvements, enhancements and modifications
made by the parties to the Sm@rtCert and Cache Manager Technology during 1999.
The Cross License Agreement also allocates between us and CyberSource the
ownership of certain inventions each party made on or before June 30, 1998. Each
party has agreed to indemnify the other against any third party claims regarding
such licensee's the use of the licensed technology that results in a claim
against the licensor, except to the extent that such claim is based upon a claim
that the licensed technology infringes upon any third party's intellectual
property rights.
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<PAGE> 75
We also entered into an Internet Commerce Services Agreement with
CyberSource, pursuant to which CyberSource has agreed to provide certain
services including credit card processing, fraud screening, export control,
territory management and electronic fulfillment, in a "back office" capacity.
This Agreement expires on December 31,1998, and automatically renews for an
additional one year term, unless otherwise terminated by either party. Pursuant
to the terms of this agreement, we have agreed to indemnify CyberSource for an
amount not to exceed $100,000 against any claim based upon an allegation that
the software we distributed infringes upon any third party's intellectual
property rights. CyberSource has agreed to indemnify us for an amount not to
exceed $ 100,000 against any claim based upon an allegation that CyberSource's
services, or the use of any software it provided in connection with its
services, infringes any third party's intellectual property rights.
In connection with the spin-off, we approved loans in amounts equal to the
adverse incremental income tax any stockholder incurred as a result of the
spin-off and the transactions contemplated thereby. In April 1998, we loaned
$270,000 to William S. McKiernan, the sole stockholder incurring such adverse
tax consequences, so as to offset Mr. McKiernan's incremental 1997 income tax.
The loan to Mr. McKiernan is secured by 129,808 shares of common stock held by
Mr. McKiernan and will be due and payable no later than December 17, 1999.
Interest accrues on the loan to Mr. McKiernan at the rate of six and two
hundredths percent (6.02%), compounded annually, and shall be payable only at
such time the principal is due and payable.
We have entered into indemnification agreements with each of our executive
officers and directors.
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PRINCIPAL AND SELLING STOCKHOLDERS
SELLING HOLDERS OF 7 1/4% CONVERTIBLE SUBORDINATED NOTES
We originally issued and sold our 7 1/4% Convertible Subordinated Notes to
the initial purchasers in a transaction exempt from the registration
requirements of the Securities Act. Subsequently, the initial purchasers of our
7 1/4% Convertible Subordinated Notes may have sold some or all of our 7 1/4%
Convertible Subordinated Notes to persons reasonably believed to be Qualified
Institutional Buyers as defined in Rule 144A under the Securities Act. The
present holders of our 7 1/4% Convertible Subordinated Notes may from time to
time offer and sell pursuant to this prospectus any or all of our 7 1/4%
Convertible Subordinated Notes and common stock into which our 7 1/4%
Convertible Subordinated Notes may convert.
Set forth below is the name of each selling holder of our 7 1/4%
Convertible Subordinated Notes, the nature of any position, office, or other
material relationship it has had with us or any of our predecessors or
affiliates within the past three years, the principal amount of our 7 1/4%
Convertible Subordinated Notes that it may offer and sell pursuant to this
prospectus and (if one percent or more) the percentage of our 7 1/4% Convertible
Subordinated Notes the holder owned as of January , 1999, the number of shares
that it may offer and sell pursuant to this prospectus and (if one percent or
more) the percentage of common stock represented by the common stock after
conversion of our 7 1/4% Convertible Subordinated Notes.
Accordingly, we cannot estimate the amount of our 7 1/4% Convertible
Subordinated Notes or shares that each present holder will hold upon
consummation of any such sales. In addition, the holders identified below may
have sold, transferred or otherwise disposed of all or a portion of their Notes
since the date on which we received the information regarding their 7 1/4%
Convertible Subordinated Notes.
<TABLE>
<CAPTION>
SHARES ISSUABLE UPON
CONVERSION OF THE PERCENTAGE OF
PRINCIPAL AMOUNT PERCENT OF NOTES THAT MAY BE COMMON STOCK
OF NOTES THAT NOTES SOLD PURSUANT TO AFTER CONVERSION
NAME MAY BE SOLD($) OUTSTANDING THIS PROSPECTUS(1) OF THE NOTES(2)
---- ---------------- ----------- -------------------- -----------------
<S> <C> <C> <C> <C>
American Express Trust Company.............. 4,500,000 7.11% 245,365 *
1200 Northstar West
Minneapolis, MN 55440
Bear Stearns Securities Corp. .............. 11,565,000 18.28% 630,589 2.30%
One Metrotech Center North, 4th Floor
Brooklyn, NY 11201
Deutsche Morgan Grenfell.................... 4,550,000 7.19% 248,092 *
175 Nater Street
New York, NY 10004
Goldman, Sachs & Co. ....................... 4,460,000 7.05% 243,184 *
1 New York Plaza, 45th Floor
New York, NY 10004
Mercantile-Safe Deposit & Trust Company..... 1,360,000 2.15% 74,155 *
766 Old Hammonds Ferry Road
Lihthicum, MD 21890
PHC Bank, National Association.............. 95,000 * 5,180 *
1055 Market Street
11 Penn Center, 15th Floor
Philadelphia, PA 19103
Morgan Stanley & Co. Incorporated........... 1,972,000 3.12% 107,525 *
One Pierdepont Plaza, 7th Floor
Brooklyn, NY 11201
</TABLE>
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<PAGE> 77
<TABLE>
<CAPTION>
SHARES ISSUABLE UPON
CONVERSION OF THE PERCENTAGE OF
PRINCIPAL AMOUNT PERCENT OF NOTES THAT MAY BE COMMON STOCK
OF NOTES THAT NOTES SOLD PURSUANT TO AFTER CONVERSION
NAME MAY BE SOLD($) OUTSTANDING THIS PROSPECTUS(1) OF THE NOTES(2)
---- ---------------- ----------- -------------------- -----------------
<S> <C> <C> <C> <C>
State Street Bank and Trust Company......... 21,345,000 33.75% 1,163,850 4.24%
Global Corp. Action Dept. JA85H
P.O. Box 1631
Boston, MA 02105
The Bank of New York........................ 2,430,000 3.84% 132,497 *
925 Patterson Plank Road
Secaucus, N.J. 07094
Boston Safe Deposit and Trust Company....... 1,520,000 2.40% 82,879 *
c/o Mellon Bank, N.A.
Three Mellon Bank Center, Room 153-3015
Pittsburg, PA 15259
Credit Suisse First Boston Corporation...... 6,110,000 9.66% 333,152 1.21%
c/o ADP Proxy Services
51 Mercedes Way
Eddehood, NY 11717
Donaldson, Lufkin & Jenrette Securities
Corporation............................... 500,000 * 27,263 *
1 Pershing Plaza
Jersey City, NJ 07399
Investors Bank & Trust/M.F. Custody......... 285,000 * 15,540 *
200 Clarendon Street
15th Floor Hancock Tower
Boston, MA 02116
PaineWebber Incorporated.................... 500,000 * 27,263 *
101 Hudson Street
Jersey City, NJ 07302
Prudential Securities Incorporated.......... 100,000 * 5,453 *
c/o ADP Proxy Services
51 Mercedes Way
Eddehood, NY 11717
Merrill Lynch Professional Clearing
Corp. .................................... 958,000 1.51% 52,236 *
1000 Harbor Blvd.
Weehanken, NJ 07302
Chase Manhattan Bank........................ 1,000,000 1.58% 54,526 *
4 New York Plaza, 15th Floor
New York, NY 10084
</TABLE>
- -------------------------
* Less than one percent.
(1) Assumes conversion of the full amount of our 7 1/4% Convertible Subordinated
Notes held by the holder at the initial conversion price of $18.34 per
share.
(2) Based on shares outstanding as of December 31, 1998. Excludes at December
31, 1998: (i) 4,495,299 shares of common stock issuable upon exercise of
options outstanding under our 1995 and 1998 stock Option Plans at a weighted
average exercise price of $4.16 per share; (ii) 1,000,000 shares of common
stock issuable upon exercise of outstanding options granted outside of the
plans at a weighted average exercise price of $0.004 per share; (iii)
268,849 shares of common stock reserved for future issuance under the plans;
(iv) 358,423 shares of common stock reserved for issuance pursuant to the
exercise of a warrant issued by us to America Online at an exercise price of
$8.37 per share; and (v) 3,448,745 shares of common stock issuable upon
conversion of our 7 1/4% Convertible Subordinated Notes. See "Description of
Capital Stock" and Notes 3 and 8 of Notes to Consolidated Financial
Statements.
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<PAGE> 78
In connection with any transaction involving the sale of securities offered
hereby, broker-dealers or others may receive from holders thereof compensation
in the form of commissions, discounts or concessions in amounts to be negotiated
at the time.
Our 7 1/4% Convertible Subordinated Notes are a new issue of securities
with no established trading market. We have been advised by one of the initial
purchasers of our 7 1/4% Convertible Subordinated Notes, Credit Suisse First
Boston Corporation, that it intends to make a market in our 7 1/4% Convertible
Subordinated Notes. However, Credit Suisse First Boston Corporation is not
obligated to do so and may stop or interrupt doing so without notice at any
time.
Credit Suisse First Boston Corporation also may engage in certain
activities that stabilize, maintain or otherwise affect the price of our 7 1/4%
Convertible Subordinated Notes and the common stock. Credit Suisse First Boston
Corporation is not required to engage in these activities and may stop any of
these activities at any time. Its actions in this regard are subject to certain
limitations imposed by the Securities Act and the Exchange Act. Neither we nor
any initial purchaser of our 7 1/4% Convertible Subordinated Notes makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of our 7 1/4% Convertible
Subordinated Notes or the common stock. In addition, neither we nor Credit
Suisse First Boston Corporation makes any representation that Credit Suisse
First Boston Corporation will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
We have agreed to indemnify Credit Suisse First Boston Corporation against
certain liabilities, including liabilities under the Securities Act. We have
also agreed to contribute to payments Credit Suisse First Boston Corporation may
be required to make in that regard.
In connection with the initial sale of our 7 1/4% Convertible Subordinated
Notes, we, our directors and executive officers and certain stockholders have
agreed that for a period of 90 days from November 23, 1998, the date of the
initial sale of our 7 1/4% Convertible Subordinated Notes, without the prior
written consent of Credit Suisse First Boston Corporation none will directly or
indirectly sell or dispose, hedge or otherwise transfer, any shares of common
stock or any securities convertible into or exchangeable or exercisable for
shares of common stock or enter into any swap or any other agreement that
transfers, in whole or in part, the economic consequences of ownership of the
common stock. However, the following transactions are not covered by this
limitation:
- sale of our 7 1/4% Convertible Subordinated Notes;
- issuance of shares as payment of any part of the purchase price for
businesses or capital stock of businesses which we acquire;
- the issuance of shares upon the exercise of options granted pursuant to
our 1995 and 1998 Stock Option Plans, and any options or warrens granted
outside such plans prior to the date hereof; and
- the grant of options, restricted shares, restricted stock units, stock
unit awards payable in the form of common stock or performance shares
issued or granted pursuant to our option plans.
Any or all of the sales or other transactions involving the securities
described above, whether effected by the security holders, any broker dealer or
others, may be made
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<PAGE> 79
pursuant to this prospectus. In addition, any shares of common stock that
qualify for sale pursuant to Rule 144 under the Securities Act may be sold under
Rule 144 rather than under this prospectus.
In order to comply with the securities laws of certain states, if
applicable, the securities may be sold in these states only through registered
or licensed brokers or dealers. In addition, the holders may not sell these
securities unless the securities have been registered or qualified for sale or
an exemption from registration or qualification requirements is available and is
complied with under applicable state securities laws.
SELLING HOLDERS OF COMMON STOCK
The following table contains information concerning (i) those persons whom
we know own beneficially more than 5% of our outstanding common stock, (ii) our
directors, (iii) the Named Executives, (iv) all of our directors and officers as
a group, and (v) the selling stockholders. Unless indicated in the footnotes
below, this information is provided as of December 31, 1998.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
THIS OFFERING(1) BEING SOLD THIS OFFERING(1)
-------------------- ---------- ---------------------
NAMED EXECUTIVE OFFICERS AND DIRECTORS NUMBER PERCENT NUMBER PERCENT
-------------------------------------- --------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
William S. McKiernan(2)...................... 8,996,154 32.8% -- 8,996,154 29.2%
John P. Pettitt(3)........................... 1,250,000 4.3% -- 1,250,000 3.8%
Vulcan Ventures Incorporated(4).............. 3,051,624 11.1% -- 3,051,624 9.9%
110 110th Avenue NE, Suite 550
Bellevue, WA 98004
Global Retail Partners, L.P. and its
affiliates(5).............................. 1,938,694 7.1% -- 1,938,694 6.3%
2121 Avenue of the Stars, Suite 1630
Los Angeles, CA 90067
Entities affiliated with C.E. Unterberg,
Towbin(6).................................. 2,285,510 8.3% -- 2,285,510 7.4%
Swiss Bank Tower
10 East 50th Street, 22nd Floor
New York, New York 10002
Bert Kolde(7)................................ 3,051,624 11.1% -- 3,051,624 9.9%
Linda Fayne Levinson(8)...................... 1,938,694 7.1% -- 1,938,694 6.3%
Steven P. Novak(9)........................... 2,285,510 8.3% -- 2,895,510 7.4%
Richard Scudellari(10)....................... 80,000 * -- 80,000 *
Kendall H. Fargo(11)......................... 43,833 * -- 43,833 *
Pacific Asset Partners....................... 134,400 * 8,582 125,818 *
222 Kerney St., Suite 204
San Francisco, CA 94108
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP (13 PERSONS)(12)..................... 17,645,815 61.4% -- 17,465,815 54.8%
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1% of our common stock.
(1) Number of shares beneficially owned is determined based on 27,424,763
shares outstanding as of December 31, 1998. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. The number of shares beneficially owned by a person includes
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of December 31, 1998.
Such shares issuable pursuant to such options are deemed outstanding for
computing the percentage ownership of the person holding
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<PAGE> 80
such options but not deemed outstanding for the purposes of computing the
percentage ownership of each other person. To the our knowledge, the
persons named in this table have sole voting and investment power with
respect to all shares of common stock shown as owned by them, subject to
community property laws where applicable and except as indicated in the
other footnotes to this table. Unless otherwise indicated, the address of
each of the individuals named above is: c/o Beyond.com Corporation, 1195
West Fremont Avenue, Sunnyvale, California 94087.
(2) Includes 8,938,464 shares held by Mr. McKiernan and 57,690 shares held by
members of Mr. McKiernan's immediate family. Mr. McKiernan disclaims
beneficial ownership of the shares held by his immediate family.
(3) Represents options to purchase 1,250,000 shares of common stock,
exercisable immediately, held by Mr. Pettitt.
(4) Represents 3,026,624 shares held by Vulcan Ventures Inc. ("Vulcan") and
5,000 shares of common stock and options to purchase 30,000 shares of
common stock, of which 20,000 are exercisable immediately, held by Bert
Kolde, one of our directors, Vice President, Secretary and Treasurer of
Vulcan. Mr. Kolde disclaims beneficial ownership of the shares owned by
Vulcan, except for his proportional interest therein, if any.
(5) Represents 1,928,694 shares of common stock held by Global Retail Partners,
L.P. and its affiliates (each an affiliate of Donaldson, Lufkin & Jenrette
Securities Corporation) (collectively, "GRP") and options to purchase
20,000 shares of common stock, of which 10,000 are exercisable immediately,
held by Linda Fayne Levinson, one of our directors and a principal of
Global Retail Partners, Inc. Ms. Levinson disclaims beneficial ownership of
the shares owned by GRP, except for any proportional interest held therein.
(6) Includes 59,914 shares of common stock held by UT Capital Partners
International, LDC (formerly UH Capital Partners International, LDC),
368,426 shares held by UT Technology Partners, LDC (formerly UH Technology
Partners, LDC); 1,506,262 shares held by C. E. Unterberg Towbin Capital
Partners I, L.P. (formerly Unterberg Harris Capital Partners I, L.P.);
239,708 shares held by Unterberg Harris Private Equity Partners, L.P. and
51,200 shares held by Unterberg Harris Private Equity Partners, CV
(collectively, the "Unterberg Affiliates") and 40,000 shares of common
stock, and options to purchase 30,000 shares of common stock, of which
20,000 are exercisable immediately, held by Steven P. Novak, one of our
directors and a Managing Director of Unterberg. Mr. Novak disclaims
beneficial ownership of all shares owned by the Unterberg Affiliates, if
any.
(7) Represents 5,000 shares of common stock and options to purchase 30,000
shares of common stock, of which 20,000 are exercisable immediately, held
by Bert Kolde, one of our directors, the Vice President, Secretary and
Treasurer of Vulcan, all of which are exercisable immediately, and
3,026,624 shares held by Vulcan. Mr. Kolde disclaims beneficial ownership
of the shares owned by Vulcan, except for his proportional interest
therein, if any.
(8) Represents 1,928,694 shares of common stock held, in the aggregate, by GRP
and options to purchase 20,000 shares of common stock, of which 10,0000 are
exercisable immediately, held by Linda Fayne Levinson. Ms. Levinson is one
of our directors and a principal of Global Retail Partners, Inc. Ms.
Levinson disclaims beneficial
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<PAGE> 81
ownership of all shares owned by GRP, except for any proportional interest
held therein.
(9) Represents 40,000 shares of common stock and options to purchase 30,000
shares of common stock, of which 20,000 are exercisable immediately, held
by Mr. Novak and 2,225,510 shares held, in the aggregate, by the Unterberg
Affiliates. Mr. Novak, is one our directors, is a Managing Director of
Unterberg. Mr. Novak disclaims beneficial ownership of all shares owned by
the Unterberg Affiliates, if any.
(10) Represents 70,000 shares of common stock and options to purchase 20,000
shares of common stock, of which 10,000 are exercisable immediately, held
by Mr. Scudellari.
(11) Represents 500 shares of common stock and options to purchase 120,000
shares of common stock, of which 43,333 are exercisable within 60 days of
December 31, 1998.
(12) Includes options to purchase 17,645,815 shares of common stock that vest
within 60 days of December 31, 1998, held by all directors and executive
officers of the Company.
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<PAGE> 82
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
We are authorized to issue up to 50,000,000 shares of common stock and
15,000,000 shares of preferred stock. The following description of our capital
stock is not complete and is qualified in its entirety by our Certificate of
Incorporation and Bylaws, both of which were included as exhibits to the
registration statement of which this prospectus forms a part, and by applicable
Delaware laws.
COMMON STOCK
As of December 31, 1998, there were 27,423,763 shares of common stock
outstanding held of record by approximately 107 stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the Board of Directors may declare a dividend out of funds legally available and
the holders of common stock are entitled to receive ratably any such dividends.
In the event of our liquidation, dissolution or winding up, holders of our
common stock are entitled to share ratably in all of our assets remaining after
we pay our liabilities and liquidation preferences of any outstanding shares of
preferred stock. Holders of our common stock have no preemptive rights or other
subscription rights to convert their shares into any other securities. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock and the shares of common stock to be issued
upon conversion of our 7 1/4% Convertible Subordinated Notes will be fully paid
and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 6,823,596 shares of preferred stock in one or more
series and to fix the privileges and rights of each series. These privileges and
rights may be greater than those of the common stock. The Board of Directors,
without stockholder approval, can issue preferred stock with voting, conversion
or other rights that could adversely affect the voting power and other rights of
the holders of common stock. Therefore, we could issue preferred stock quickly
with terms calculated to delay or prevent a change in control of the Company or
make removal of management more difficult. Additionally, if we issue preferred
stock, then the market price of common stock may decrease, and voting and other
rights may decrease. We have no plans to issue any preferred stock.
WARRANTS
In March 1998, we entered into an agreement with America Online pursuant to
which, subject to certain limited exceptions, America Online agreed to buy
shares of our common stock at a price per share equal to the initial public
offering price less underwriters' discount. Under this agreement, immediately
prior to the consummation of our initial public offering in June 1998, America
Online purchased 238,949 shares of common stock for an aggregate purchase price
of $2,000,000. Concurrent with the purchase of the shares of common stock by
America Online in June 1998, we issued to America Online a non-forfeitable
warrant for 358,423 shares of common stock at a per share exercise price of
$8.37, which vests in increments of 1/36th per month commencing March 1, 1998.
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<PAGE> 83
CERTAIN CHARTER AND BYLAW PROVISIONS
We are subject to the "business combination" statute of the Delaware
General Corporation Law. This statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner, such as the approval of a
majority of certain members of the Board of Directors. The term "business
combination" includes mergers and stock and asset sales. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock. The
effect of this statute could, among other things, make it more difficult for a
third party to gain control of us, discourage bids for the common stock at a
premium or otherwise adversely affect the market price of the common stock.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION
Our Certificate of Incorporation includes provisions that limit the
personal liability of our officers and directors for monetary damages for breach
of their fiduciary duties as directors, except for liability that cannot be
eliminated under the Delaware General Corporation Law. The Certificate of
Incorporation provides that, to the fullest extent provided by the Delaware
General Corporation Law, our directors will not be personally liable for
monetary damages for breach of their fiduciary duty as directors. The Delaware
General Corporation Law does not permit a provision in a corporation's
certificate of incorporation that would eliminate such liability (i) for any
breach of their duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for any unlawful payment of a dividend or
unlawful stock repurchase or redemption, as provided in Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of such corporation and
is acting in his or her capacity as director, and do not apply to the officers
of the corporation who are not directors.
Our Bylaws provide that, to the fullest extent permitted by the Delaware
General Corporation Law, we may indemnify our directors, officers and employees.
The Bylaws further provide that we may similarly indemnify its other employees
and agents. In addition, we anticipate that each director will enter into an
indemnification agreement pursuant to which we will indemnify such director to
the fullest extent permitted by the Delaware General Corporation Law. At
present, there is no pending litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
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<PAGE> 84
REGISTRATION RIGHTS
The holders of an aggregate of approximately 21,434,065 shares of common
stock, have rights with respect to the registration of such shares under the
Securities Act. One stockholder has exercised these rights and elected to
include 8,582 shares of common stock in the registration statement of which this
prospectus is a part. All of the holders of our 7 1/4% Convertible Subordinated
Notes have the right to have their 7 1/4% Convertible Subordinated Notes and the
common stock issuable upon conversion of such 7 1/4% Convertible Subordinated
Notes registered in the registration statement of which this prospectus is a
part. After the SEC declares this registration statement effective, and assuming
we comply with various other requirements, the holders of approximately
21,434,065 shares of common stock will continue to hold registration rights.
These rights are held under the terms of several agreements between us and
various stockholders. Under the terms of these agreements, if we propose to
register any of our securities under the Securities Act, either for our own
account or for other security holders, we must give the holders of registration
rights notice of such registration and include a portion of their shares of
common stock in such registration at our expense. In addition, certain holders
of registration rights may require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock. We
are required to use our commercially reasonable efforts to effect such
registration. All of these registration rights are subject to certain conditions
and limitations, among them the right of the underwriters of any offering to
limit the number of shares included in such registration and our right not to
effect a registration in certain specific situations. Under these agreements, we
have agreed to bear all registration expenses (other than underwriting discounts
and commissions and fees, and certain fees and disbursements of counsel of the
holders of registration rights subject to certain limitations). We have agreed
to indemnify the holders of registration rights against certain liabilities
under the Securities Act. We are bearing all such costs related to the
registration statement of which this prospectus is a part.
Pursuant to a registration rights agreement with America Online, we granted
America Online certain registration rights with respect to the 238,949 shares of
common stock held by America Online as well as the 358,423 shares of common
stock issuable upon exercise of its warrant. We are required to bear
registration expenses (other than underwriting discounts and commissions and
fees) up to a specified limit and thereafter to bear our pro rata share of such
costs to the extent that we are selling shares in such offering. We have also
agreed to indemnify America Online against, and provide contribution with
respect to, certain liabilities under the Securities Act in connection with
incidental and demand registrations. America Online has agreed that it shall not
sell or otherwise dispose or transfer any of our securities for a period of 90
days from November 23, 1998, the date of our initial sale of 7 1/4% Convertible
Subordinated Notes.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is BankBoston, N.A.
The transfer agent's address is 150 Royall Street, Canton, Massachusetts 02021
and telephone number is (781) 575-2000.
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<PAGE> 85
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this Section, "Beyond.com" only
refers to us and not to any subsidiaries we may establish. We are registering
our 7 1/4% Convertible Subordinated Notes for resale under the registration
statement of which this prospectus forms a part. We issued our 7 1/4%
Convertible Subordinated Notes under our Indenture with LaSalle National Bank,
as trustee. The terms of our 7 1/4% Convertible Subordinated Notes include those
stated in our Indenture with LaSalle National Bank and those made part of our
Indenture with LaSalle National Bank by the Trust Indenture Act of 1939. Our
7 1/4% Convertible Subordinated Notes are subject to all such terms, and you
should review our Indenture with LaSalle National Bank for a statement of its
terms. We will give you a copy of our Indenture with LaSalle National Bank and
the form of certificate evidencing our 7 1/4% Convertible Subordinated Notes
upon request.
The following description is a summary of material provisions of our
Indenture with LaSalle National Bank and our 7 1/4% Convertible Subordinated
Notes. This summary is not complete and we qualify it in its entirety by
reference to the forms of our 7 1/4% Convertible Subordinated Notes and our
Indenture with LaSalle National Bank. We urge you to read our Indenture with
LaSalle National Bank and our 7 1/4% Convertible Subordinated Notes because
they, and not this description, define the rights of a holder of our 7 1/4%
Convertible Subordinated Notes. We have filed copies of our Indenture with
LaSalle National Bank and our 7 1/4% Convertible Subordinated Notes as exhibits
to the registration statement of which this prospectus is a part.
GENERAL
Our 7 1/4% Convertible Subordinated Notes:
- are general unsecured obligations of ours;
- mature on December 1, 2003;
- bear interest at a rate of 7 1/4% per year from November 23, 1998;
- rank behind all existing and future senior indebtedness (as defined
below) of Beyond.com and any of our subsidiaries in right of payment;
- will be issuable in denominations of $1,000 principal amount and integral
multiples thereof; and
- have been issued only in fully registered book entry form, without
coupons, and will be represented by one or more permanent Global Notes
(referred to in this Section as "Global Notes").
A holder of our 7 1/4% Convertible Subordinated Notes may serve notices and
demands to or upon us in respect of our 7 1/4% Convertible Subordinated Notes
and our Indenture with LaSalle National Bank at our office or agency maintained
for that purpose in Chicago, Illinois. In the event that Depository Trust
Company issues physical or "definitive" notes (referred to in this Section as
"Definitive Notes"), holders of our 7 1/4% Convertible Subordinated Notes may
surrender their 7 1/4% Convertible Subordinated Notes for payment, conversion,
registration of transfer or exchange at our office or agency maintained for that
purpose in Chicago, Illinois. In addition, in our Indenture with LaSalle
National Bank we have agreed to, if Definitive Notes are issued, maintain an
office or
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<PAGE> 86
agency for the foregoing purposes in the Borough of Manhattan, The City of New
York. In our Indenture with LaSalle National Bank, we agreed to at all times
maintain a paying agent, Conversion Agent and Registrar for our 7 1/4%
Convertible Subordinated Notes in Chicago, Illinois, and, if Definitive Notes
are issued under the limited circumstances described below, in the Borough of
Manhattan, The City of New York. The Trustee will initially act as paying agent,
Conversion Agent (as defined below) and Registrar (as defined below) in Chicago,
Illinois.
INTEREST
$63,250,000 principal amount of our 7 1/4% Convertible Subordinated Notes
bear interest from November 23, 1998 at 7 1/4% per year. We will pay interest
semi-annually on December 1 and June 1 of each year, commencing June 1, 1999. We
will make interest payments to holders of record at the close of business on
November 15 or May 15 preceding each interest payment date. We will compute the
interest on the basis of a 360 day year composed of twelve 30 day months. We
will pay principal of and interest on our 7 1/4% Convertible Subordinated Notes
at the office of the paying agent. The Trustee will initially act as the paying
agent. At our option, we may pay interest either by check mailed to the address
of the person entitled thereto as it appears in the Note register or by transfer
to an account located in the United States such person maintains. However, we
will make any payments to The Depository Trust Company, New York, New York by
wire transfer of immediately available funds to the account of the Depository
Trust Company or its nominee. For purposes of this discussion, we refer to the
Depository Trust Company as "DTC" and LaSalle National Bank as "Trustee."
FORM, DENOMINATION AND REGISTRATION
Except under the limited circumstances described below, the Trustee will
issue our 7 1/4% Convertible Subordinated Notes only in fully registered book
entry form which will be represented by one or more permanent Global Notes
without coupons deposited with a custodian for and registered in the name of a
nominee of DTC. Our 7 1/4% Convertible Subordinated Notes will be issuable in
denominations of $1,000 principal amount and integral multiples thereof. The
records of DTC will reflect holdings of beneficial interests in any Global Note.
DTC will effectuate any transfer of a beneficial interest through its records,
or through records of DTC's direct and indirect participants. Beneficial
interests may not be exchanged for Definitive Notes except under the limited
circumstances described below. Except as described below, the record ownership
of Global Notes may be transferred, in whole or in part, only to DTC, another
nominee of DTC, or to a successor of DTC or its nominee.
We will not charge for any registration of transfer or exchange of our
7 1/4% Convertible Subordinated Notes but we may require you to pay an amount
sufficient to cover any applicable tax or other governmental charge.
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In case any of our 7 1/4% Convertible Subordinated Notes you own becomes
mutilated or defaced, we will execute and, on our request, the Trustee will
authenticate and deliver a new substantially identical 7 1/4% Convertible
Subordinated Note, dated the date of its authentication in exchange and
substitution for your canceled original 7 1/4% Convertible Subordinated Note. In
case any of our 7 1/4% Convertible Subordinated Notes you own becomes destroyed,
lost or stolen:
- you must give us and the Trustee such security or indemnity as we may
require to hold us both harmless; and
- you must furnish to us satisfactory evidence of the destruction, loss or
theft of such 7 1/4% Convertible Subordinated Note and your ownership
thereof.
When we issue any substituted 7 1/4% Convertible Subordinated Note, we may
require you to pay us an amount sufficient to cover applicable fees and
expenses.
BOOK ENTRY NOTES
If and when DTC issues Global Notes, DTC will credit, on its internal
system, the respective principal amounts of the individual beneficial interests
represented by such Global Notes to the accounts of persons who have accounts
with DTC. Only the following persons may own beneficial interests in a Global
Note:
- persons who have accounts with DTC;
- persons who hold beneficial interests through participants; or
- certain banks, brokers, dealers, trust companies and other parties that
clear their transactions through or maintain a custodial relationship
with a participant, either directly or indirectly, and have indirect
access to the DTC system.
Ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of these ownership interests will be effected through, records DTC
maintains (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
So long as DTC or its nominee is the registered owner or holder, as defined
on our Indenture with LaSalle National Bank, of a Global Note, DTC or the
nominee will be considered the sole owner or holder of our 7 1/4% Convertible
Subordinated Notes represented by the Global Note for all purposes under our
Indenture with LaSalle National Bank and our 7 1/4% Convertible Subordinated
Notes. With limited exceptions, if you own beneficial interests in the Global
Notes, then you:
- will not be entitled to have certificates registered in your name;
- will not receive or be entitled to receive physical delivery of
certificates in definitive form; and
- will not be considered the owner or holder of our 7 1/4% Convertible
Subordinated Notes represented by such Global Notes.
If you are the beneficial owner of an interest in a Global Note, you will
not be able to transfer that interest except in accordance with DTC's applicable
procedures (in addition to those under our Indenture with LaSalle National
Bank).
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DTC may discontinue providing its services as depository with respect to
our 7 1/4% Convertible Subordinated Notes at any time. As an owner of beneficial
interests in the Global Note, you will be entitled to receive physical delivery
of Definitive Notes in certificated form under the following limited
circumstances:
- DTC or any successor depository notifies us that it is unwilling or
unable to continue as depository for a Global Note;
- DTC ceases to be a "clearing agency" registered under the Exchange Act
and we do not appoint a successor depository within 90 days; or
- an Event of Default, as defined on our Indenture with LaSalle National
Bank, has occurred and is continuing
If DTC issues Definitive Notes in certificated form under such
circumstances, then the certificates shall be registered in the names DTC shall
direct. We expect that such instructions will be based upon directions received
by DTC from its participants.
We will make payments on Global Notes to DTC or its nominee as the
registered owner thereof. Neither we, the Trustee nor any paying agent will have
any responsibility or liability for:
- any aspect of the records relating to beneficial ownership interest in
the Global Notes;
- payments made on account of beneficial ownership interests in the Global
Notes; or
- maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment regarding a
Global Note held by it or its nominee, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown on the records of DTC or its
nominee. We also expect that payments by participants to indirect participants
and by participants and indirect participants to owners of beneficial interests
in such Global Note will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in the names of nominees. Such payments, however, will be the
responsibility of the applicable participants and indirect participants.
To convert your beneficial ownership of interests in Global Notes into
common stock, you should contact your broker or other participant or indirect
participant through whom you hold beneficial interests. Your broker, participant
or indirect participant, as the case may be, shall provide you with information
on procedures, including proper forms and cut off times, for submitting requests
for conversion.
DTC will effect transfers between participants in accordance with DTC rules
and will settle these transfers in same day funds. However, the laws of some
states may require that certain persons take physical delivery of securities in
definitive form. Such laws may impair your ability to transfer or pledge your
beneficial interests in the Global Notes.
DTC will take any action a holder of our 7 1/4% Convertible Subordinated
Notes is permitted to take (including the presentation of our 7 1/4% Convertible
Subordinated Notes for conversion) only at the direction of one or more
participants to whose account DTC has credited the interests in the Global
Notes. DTC will only take such action in respect
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of that portion of principal amount of our 7 1/4% Convertible Subordinated Notes
as to which the participant, or participants, has given direction.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions between participants through electronic book entry changes to
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants in DTC include securities brokers and dealers,
banks, trust companies and clearing corporations and may include certain other
organizations such as the initial purchasers of our 7 1/4% Convertible
Subordinated Notes. Some participants (or their representatives), together with
other entities, own DTC. Other entities such as banks, brokers, dealers and
trust companies that clear through, or maintain a custodial relationship with, a
participant, either directly or indirectly have indirect access to the DTC
system.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and indirect participants to beneficial
owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements that may be in effect from time to time. If we intend to
redeem our 7 1/4% Convertible Subordinated Notes, we will send redemption
notices with respect to Global Notes to DTC or its nominee. If we intend to
redeem less than all of our 7 1/4% Convertible Subordinated Notes evidenced by a
Global Note, DTC will reduce the amount of the interest of each participant in
such 7 1/4% Convertible Subordinated Notes in accordance with its procedures.
Although voting with respect to our 7 1/4% Convertible Subordinated Notes
is limited, in those cases that require a vote, neither DTC nor its nominee will
itself consent or vote with respect to Global Notes. Under its usual procedures,
DTC would mail an omnibus proxy to us as soon as possible after the record date.
The omnibus proxy assigns DTC or its nominee consenting or voting rights to
those participants to whose accounts our 7 1/4% Convertible Subordinated Notes
are credited on the record date listed in the omnibus proxy. We believe that the
arrangements among DTC, its participants and indirect participants, and
beneficial owners will enable the beneficial owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a holder
of our 7 1/4% Convertible Subordinated Notes.
We obtained the information in this section concerning DTC and DTC's book
entry system from sources we believe to be reliable, but we take no
responsibility for the accuracy of this information.
CONVERSION RIGHTS
You may, at any time prior to the close of business on December 1, 2003,
convert the principal amount of any of our 7 1/4% Convertible Subordinated Notes
(or any portion thereof equal to $1,000 or any integral multiple thereof) into
shares of our common stock at the conversion price of $18.34 per share, subject
to adjustment as described below. However, your right to convert a 7 1/4%
Convertible Subordinated Note previously called for redemption will terminate at
the close of business on the business day immediately preceding the redemption
date for the 7 1/4% Convertible Subordinated Notes. Your right to
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convert a 7 1/4% Convertible Subordinated Note also will terminate on any
earlier date on which you present the 7 1/4% Convertible Subordinated Note for
redemption (unless we have defaulted in making the redemption payment when due,
in which case your conversion right shall terminate at the close of business on
the date the default is cured and the 7 1/4% Convertible Subordinated Note is
redeemed).
If you exercise your option to require us to purchase any of our 7 1/4%
Convertible Subordinated Notes and you deliver a "change in control purchase
notice," you may convert your 7 1/4% Convertible Subordinated Note only if you
withdraw your notice by a "written notice of withdrawal" delivered to a paying
agent prior to the close of business on the business day prior to the change in
control purchase date in accordance with our Indenture with LaSalle National
Bank.
We will make no payment or adjustment for dividends or distributions with
respect to shares of our common stock issued upon conversion of a 7 1/4%
Convertible Subordinated Note. Except as otherwise provided in our Indenture
with LaSalle National Bank, we will not pay interest accrued on converted 7 1/4%
Convertible Subordinated Notes. However, we will pay interest accrued to but
excluding December 6, 2001, on any of our 7 1/4% Convertible Subordinated Notes
called for redemption and converted on or before the close of business on the
business day immediately preceding December 6, 2001. If you surrender any of our
7 1/4% Convertible Subordinated Notes for conversion between the record date for
the payment of an installment of interest and the related interest payment date,
then notwithstanding such conversion, we will pay the person in whose name such
7 1/4 Convertible Subordinated Note was registered at the close of business on
the record date. In such event, unless your Note has been called for redemption,
when you surrender your 7 1/4 Convertible Subordinated Note for conversion you
must also pay us an amount equal to the interest payable on such interest
payment date on the principal amount of your converted 7 1/4% Convertible
Subordinated Note. We will not issue fractional shares upon conversion, but we
will pay cash for any fractional interest based upon the closing price (as
defined in our Indenture with LaSalle National Bank) of the common stock on the
trading day immediately prior to the date of conversion.
We will adjust the conversion price our 7 1/4% Convertible Subordinated
Notes if certain events occur. These events include:
- our issuance of shares of common stock as a dividend or distribution on
our common stock;
- our subdivision or combination of our outstanding common stock;
- our issuance to all or substantially all holders of our common stock of
rights or warrants entitling them to subscribe for or purchase our common
stock at a price per share less than the then current market price per
share (as defined in our Indenture with LaSalle National Bank);
- our distribution to all or substantially all of our common stockholders
of shares of our capital stock (other than common stock), evidence of
indebtedness, or other non cash assets;
- our distribution to all or substantially all of our common stockholders
of rights or warrants to subscribe for our securities (other than those
rights and warrants referred to above and other limited rights);
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- our distribution to all or substantially all of our common stockholders
of cash in an aggregate amount that exceeds an amount equal to 12.5% of
our market capitalization (determined as provided in our Indenture with
LaSalle National Bank); and
- our purchase of common stock pursuant to a tender offer made by us, or
any of our Subsidiaries, to the extent that the tender offer involves
aggregate consideration that exceeds an amount equal to 12.5% of our
market capitalization (determined as provided in our Indenture with
LaSalle National Bank) on the expiration date of the tender offer.
Notwithstanding the foregoing, we will not adjust the conversion price for a
transaction of the nature described above if all holders of our 7 1/4%
Convertible Subordinated Notes are entitled to participate in the transaction on
a basis and with notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which common stockholders
participate in the transaction.
We need not adjust the conversion price for any issuance of common stock
pursuant to a plan for reinvestment of dividends or interest or for a change in
the par value of common stock. To the extent that our 7 1/4% Convertible
Subordinated Notes become convertible into the right to receive cash, we need
not adjust the conversion price thereafter as to the cash, and interest will not
accrue on the cash. From time to time we may reduce the conversion price by any
amount for any period of time if the period is at least 20 days or such longer
period as may be required by law and if the reduction is irrevocable during the
period.
However, in no event may we reduce the conversion price to less than the
par value of a share of common stock. We need not adjust the conversion price
until the cumulative adjustments require an increase or decrease of at least 1%
in the conversion price as last adjusted.
We or our successor, purchaser or transferee corporation must execute a
supplemental indenture if we experience any of the following:
- a reclassification or change of shares of common stock (other than a
change in par value, or as a result of a subdivision or combination, or
any other change for which a conversion price adjustment is provided in
our Indenture with LaSalle National Bank);
- a consolidation or merger to which we are a party other than a merger in
which we are the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name or par value,
or as a result of a subdivision or combination) in, outstanding shares of
common stock; or
- a sale or conveyance of all or substantially all of our property and
assets to any person.
This supplemental indenture must provide that the holders of our 7 1/4%
Convertible Subordinated Notes shall have the right to convert such 7 1/4
Convertible Subordinated Note into the kind and amount of shares of stock and
other securities and property (including cash) receivable upon such transaction
by a holder of the number of shares of common stock deliverable upon conversion
of such 7 1/4 Convertible Subordinated Note immediately prior to such
transaction. This provision is subject to any applicable right of the holders
upon a Change in Control (as defined below). Such supplemental indenture
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shall provide for adjustments to the conversion price which shall be as nearly
equivalent as may be practicable to the adjustments of the conversion price
provided by our Indenture with LaSalle National Bank.
The term "all or substantially all" as used in the previous two paragraphs
will likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances, and there may be a degree of uncertainty in
interpreting such phrase. As a consequence, in the event the holders of our
7 1/4% Convertible Subordinated Notes were to assert that an adjustment to the
conversion price, or the conversion privilege of our 7 1/4% Convertible
Subordinated Notes or the execution of a supplemental indenture was required
under our Indenture with LaSalle National Bank, and we were to contest such
assertion, then we cannot assure you as to how a court would interpret the
phrase. This uncertainty may prevent the Trustee or the holders of our 7 1/4%
Convertible Subordinated Notes from successfully asserting that the conversion
price or the conversion privilege is subject to adjustment, or our 7 1/4%
Convertible Subordinated Notes are convertible into other shares of stock and
other securities and property that the holders would have owned immediately
after the transaction if the holders had converted our 7 1/4% Convertible
Subordinated Notes immediately before the effective date of the transaction.
If we issue certain rights, warrant, evidences of indebtedness, securities
or other property (including cash) to holders of the common stock and we make a
corresponding adjustment to the conversion price, then you may face a
constructive distribution taxable as a dividend.
OPTIONAL REDEMPTION
We may redeem our 7 1/4% Convertible Subordinated Notes at our option on or
after December 6, 2001, in whole or, from time to time, in part, upon not less
than 30 nor more than 60 days' notice by mail.
PERIOD REDEMPTION PRICE
The redemption prices (expressed as a percentage of principal amount) are
as follows for our 7 1/4% Convertible Subordinated Notes we redeem during the
periods set forth below:
<TABLE>
<S> <C>
December 6, 2001 through November 30, 2002............ 101.813%
December 1, 2002 and thereafter....................... 100.000%
</TABLE>
In each case these redemption amounts include accrued interest up to but not
including the redemption date. However, we will pay installments of interest
which are due and payable on interest payment dates falling on or before the
relevant redemption date to holders in whose names such 7 1/4% Convertible
Subordinated Notes are registered at the close of business on the relevant
record dates.
If we redeem less than all of our outstanding 7 1/4% Convertible
Subordinated Notes, the Trustee shall select our 7 1/4% Convertible Subordinated
Notes to be redeemed in principal amounts of $1,000 or multiples thereof by lot,
pro rata or by another method the Trustee considers fair and appropriate. If a
portion of a holder's 7 1/4% Convertible Subordinated Notes is selected for
partial redemption and such holder converts a portion of our 7 1/4% Convertible
Subordinated Notes, the converted portion shall be deemed to be of the portion
selected for redemption.
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All of our 7 1/4% Convertible Subordinated Notes which we or any of our
Subsidiaries redeem or otherwise acquire prior to maturity will be immediately
canceled and may not be held, reissued or resold.
PURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON A CHANGE IN CONTROL
In the event of a Change in Control, each holder will have the option,
subject to the terms and conditions of our Indenture with LaSalle National Bank,
to require us to purchase all or any part of such holder's 7 1/4% Convertible
Subordinated Notes. However, the principal amount of our 7 1/4% Convertible
Subordinated Notes we repurchase must be $1,000 or an integral multiple thereof.
We must then purchase the holder's 7 1/4% Convertible Subordinated Notes as of
the date that is 30 business days after the occurrence of such Change in Control
(referred to in this Section as the "Change in Control Purchase Date"). The
purchase price we pay must be equal to 100% of the principal amount thereof,
plus accrued interest up to but not including the Change in Control Purchase
Date.
Within 10 business days after the occurrence of a Change in Control, we
shall mail to the Trustee and to each holder and cause to be published a written
notice of the Change in Control, setting forth, among other things, the terms
and conditions, and the procedures required for exercise of, such holder's right
to require the purchase of such holder's 7 1/4% Convertible Subordinated Notes.
To exercise the purchase right upon a Change in Control, a holder must
deliver written notice of such exercise to a paying agent at any time prior to
the close of business on the business day prior to the Change in Control
Purchase Date, specifying our 7 1/4% Convertible Subordinated Notes with respect
to which the purchase right is being exercised. The holder may withdraw such
notice of exercise by a written notice of withdrawal delivered to a paying agent
at any time prior to the close of business on the business day prior to the
Change in Control Purchase Date.
A Change in Control shall be deemed to have occurred if any of the
following occurs after the initial sale of our 7 1/4% Convertible Subordinated
Notes:
- any "person" or "group" is or becomes the "beneficial owner" (as such
terms are defined below), directly or indirectly, of shares of our Voting
Stock representing 50% or more of the total voting power of all
outstanding classes of our Voting Stock (as defined below) or has the
power, directly or indirectly, to elect a majority of the members of the
Board of Directors, or
- we consolidate with, or merge with or into, another person or we sell,
assign, convey, transfer, lease or otherwise dispose of all or
substantially all of our assets, or any person consolidates with, or
merges with or into us, in any such event other than pursuant to a
transaction in which the persons that "beneficially owned" directly or
indirectly, shares of our Voting Stock immediately prior to such
transaction "beneficially own," directly or indirectly, shares of our
Voting Stock representing at least a majority of the total voting power
of all outstanding classes of Voting Stock of the surviving or transferee
person; or
- we liquidate or dissolve.
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For purposes of this definition:
(1) "person" and "group" have the meanings given such terms under Sections
13(d) and 14(d) of the Exchange Act, and the term "group" includes any
group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d 5-(b)(I) under the Exchange
Act;
(2) a "beneficial owner" shall be determined in accordance with Rule 13d-3
under the Exchange Act, except that the number of shares of our Voting
Stock shall be deemed to include, in addition to all outstanding shares
of our Voting Stock and unissued shares deemed to be held by the
"person" or "group" (as such terms are defined above) or other person
with respect to which the Change in Control determination is being
made, all unissued shares deemed to be held by all other persons;
(3) the term "beneficially owned" shall have a meaning correlative to that
of beneficial owner; and
(4) "unissued shares" means shares of Voting Stock not outstanding that are
subject to options, warrants, rights to purchase or conversion
privileges exercisable within 60 days of the date of determination of a
Change in Control.
Notwithstanding the foregoing, we will deem a Change in Control not to have
occurred if:
- the closing price (as defined in our Indenture with LaSalle National
Bank) of our common stock for any five trading days during the ten
trading days immediately preceding the Change in Control is at least
equal to 105% of the conversion price in effect immediately preceding the
Change in Control;
- at least 90% of the consideration (excluding cash payments for fractional
shares or cash payments for appraisal rights) in the transaction or
transactions constituting the Change in Control consists of shares of
common stock or securities convertible into shares of common stock that
are, or upon issuance will be, traded on a national securities exchange
in the United States of America or through the Nasdaq National Market.
We believe the term "all or substantially all" as used in the definition of
Change in Control will likely be interpreted under applicable state law and its
meaning will be dependent upon particular facts and circumstances. We believe
there may be a degree of uncertainty in interpreting such phrase. As a
consequence, in the event that holders of our 7 1/4% Convertible Subordinated
Notes elect to exercise their rights under our Indenture with LaSalle National
Bank following the occurrence of a transaction which they believe constitutes a
transfer of "all or substantially all of the assets" within the meaning above
and we elect to contest such attempted exercise, there can be no assurance as to
how a court would interpret the phrase. This uncertainty may prevent the Trustee
or the holders of our 7 1/4% Convertible Subordinated Notes from successfully
asserting that a Change in Control has occurred.
We will comply with the provisions of Rule 13e-4 and Rule 14e-1, if
applicable, under the Exchange Act, will file Schedule 13E-4 or any successor or
similar schedule if required thereunder, and will otherwise comply with all
federal and state securities laws in connection with any offer we make to
purchase Notes at the option of the holders upon a Change in Control.
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The Change in Control purchase feature of our 7 1/4% Convertible
Subordinated Notes may in certain circumstances make more difficult or
discourage a takeover of Beyond.com and the removal of incumbent management. We
are not aware of any specific effort to accumulate shares of common stock or to
obtain control of Beyond.com by means of a merger, tender offer, solicitation or
otherwise, nor is the Change in Control purchase feature part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the Change in
Control purchase feature is a result of negotiations between us and the initial
purchasers of our 7 1/4% Convertible Subordinated Notes.
Subject to the limitation on mergers and consolidations discussed below, we
could, in the future, enter into transactions, including recapitalizations, that
would not constitute a Change in Control under our Indenture with LaSalle
National Bank, but that would increase the amount of indebtedness (including
Senior Indebtedness) outstanding or otherwise adversely affect the holders of
our 7 1/4% Convertible Subordinated Notes. The Indenture does not restrict our
ability, or that of our subsidiaries, to create additional indebtedness
(including Senior Indebtedness). If we take on significant amounts of additional
indebtedness, it could have an adverse effect on our ability to repay the
principal and interest on our indebtedness, including our 7 1/4% Convertible
Subordinated Notes.
If a Change in Control were to occur, we cannot assure that we would have
sufficient funds to pay the Change in Control Purchase Price for the tendered
7 1/4% Convertible Subordinated Notes. In addition, other indebtedness which we
may incur in the future may have similar change of control provisions permitting
the holders thereof to accelerate or require us to repurchase such indebtedness
upon the occurrence of events similar to a Change in Control. If we fail to
repurchase our 7 1/4% Convertible Subordinated Notes when required following a
Change in Control, it will result in an Event of Default under our Indenture
with LaSalle National Bank whether or not such repurchase is permitted by the
subordination provisions thereof.
Other than granting holders the option to require us to purchase all or
part of their 7 1/4% Convertible Subordinated Notes upon the occurrence of a
Change in Control as described above, our Indenture with LaSalle National Bank
does not contain any covenants or other provisions designed to afford holders
protection in the event of takeovers, recapitalizations, highly leveraged
transactions or similar restructurings we may undertake.
In the event that DTC issues Definitive Notes under the limited
circumstances herein, holders electing to exercise the option to have their
Notes repurchased following a Change in Control must surrender such Definitive
Notes, together with such additional documents as are required by our Indenture
with LaSalle National Bank, at the office of a paying agent. Where not all of
our 7 1/4% Convertible Subordinated Notes represented by a Definitive Note are
submitted for purchase, a new Definitive Note in respect of the principal amount
of our 7 1/4% Convertible Subordinated Notes that have not been so submitted for
purchase will be issued to the holder.
SUBORDINATION OF NOTES
As set forth in our Indenture with LaSalle National Bank, our 7 1/4%
Convertible Subordinated Notes are subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of Beyond.com, whether outstanding on
the date of our Indenture with LaSalle National Bank or thereafter created,
assumed or guaranteed. If we pay or distribute any assets in any dissolution,
winding up, liquidation or reorganization (whether
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in insolvency or bankruptcy proceedings or otherwise), we must repay all Senior
Indebtedness in full before we make any payment in respect of our 7 1/4%
Convertible Subordinated Notes. In the event we default in payment (whether at
maturity or at a date fixed for prepayment or by acceleration or otherwise) of
principal, premium, if any, or interest on Senior Indebtedness, we cannot make
any payment in respect of our 7 1/4% Convertible Subordinated Notes until we
have paid in full the Senior Indebtedness then due or the cure, waiver or
cessation of the default. Unless and until such default has been cured, waived
or has ceased to exist, we may not make any payment on our 7 1/4% Convertible
Subordinated Notes if an event of default occurs with respect to any Senior
Indebtedness (other than a default in the payment of principal, premium, if any,
or interest on Senior Indebtedness) which permits a holder thereof to accelerate
its maturity, and the holder delivers written notice of such default to the
Trustee and to us. However, nothing in the sentence will prevent us from making
previous payment (which is not otherwise prohibited) on our 7 1/4% Convertible
Subordinated Notes for a period of more than 180 days after the date such
written notice of default is given unless the maturity of such Senior
Indebtedness has been accelerated. If the holder accelerates the Senior
Indebtedness, we cannot make any payment on our 7 1/4% Convertible Subordinated
Notes until such acceleration has been waived, rescinded or annulled or such
Senior Indebtedness has been paid in full. Notwithstanding the provisions
described in the preceding sentences, not more than one written notice of
default shall be given with respect to the same issue of Senior Indebtedness
within a period of 360 consecutive days, and no event of default which existed
on the date of any written notice of default and was known to the holders of any
issue of Senior Indebtedness shall be made the basis for the giving of a
subsequent written notice of default by the holders of such issue of Senior
Indebtedness.
We may not make any payment or distribution of assets of any kind to the
Trustee, any paying agent or any holder of our 7 1/4% Convertible Subordinated
Notes in violation of any of the subordination provisions of our Indenture with
LaSalle National Bank, whether in cash, property or securities, in respect of
our 7 1/4% Convertible Subordinated Notes before we have repaid all Senior
Indebtedness in full. If we do so, then such payment or distribution will be
held by the recipient in trust for the benefit of holders of Senior Indebtedness
or their representatives to the extent necessary to make payment in full of all
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness.
Because of the subordination provisions described above, in the event of
our bankruptcy, dissolution or reorganization, holders of Senior Indebtedness
may receive more ratably, and holders of our 7 1/4% Convertible Subordinated
Notes may receive less ratably, than our other creditors. Such subordination
will not prevent the occurrence of any Event of Default under our Indenture with
LaSalle National Bank.
The Indenture does not limit the amount of indebtedness, including Senior
Indebtedness, that Beyond.com, or any subsidiary, can create, incur, assume or
guarantee. As of December 31, 1998, we had no Senior Indebtedness outstanding.
CERTAIN DEFINITIONS
For purposes of this description, the following terms have the meanings set
forth below.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that
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is required to be classified and accounted for as a capital lease obligation
under GAAP, and the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Conversion Agent" means an office or agency that we maintain where
securities may be presented for conversion.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect us
against fluctuations in currency values.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable from time to
time and are consistently applied.
"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
current liabilities incurred in the ordinary course of business; (b) all
obligations of such person evidenced by bonds, notes, debentures, or other
similar instruments; (c) all Capitalized Lease Obligations of such person; (d)
all guarantees of Indebtedness referred to in this definition by such person;
(e) all obligations of such person under or in respect of Currency Agreements
and Interest Rate Protection Obligations of such person; and (f) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a) through (e) above.
"Interest Rate Protection Agreement" means any arrangement between us and
any other person whereby, directly or indirectly, such person is entitled to
receive from time to time periodic payments calculated by applying either a
floating or a fixed rate of interest on a stated notional amount in exchange for
periodic payments made by such person calculated by applying a fixed or a
floating rate of interest on the same notional amount and shall include, without
limitation, interest rate swaps, caps, floors, collars and similar agreements.
"Interest Rate Protection Obligations" means the obligations we have
pursuant to an Interest Rate Protection Agreement.
"paying agent" means an office or agency that we maintain where securities
may be presented for payment.
"Registrar" means an office or agency that we maintain where securities may
be presented for registration of transfer or for exchange.
"Senior Indebtedness" means the principal of and premium, if any, interest
and other amounts payable on or in respect of any of our Indebtedness, whether
outstanding on the date of our Indenture with LaSalle National Bank or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to, or shall be junior in right of payment to,
or shall be pari passu in right of payment with, our 7 1/4% Convertible
Subordinated Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall
not
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include (a) Indebtedness evidenced by our 7 1/4% Convertible Subordinated Notes,
(b) Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code (or any successor provision
thereto), is without recourse to us, (c) trade accounts payable or other current
liabilities incurred in the ordinary course of business, (d) Indebtedness of or
amounts we owe for compensation to employees or for services rendered to us, (e)
any liability for federal, state, local or other taxes owed or owing by us, (f)
our Indebtedness to a Subsidiary of ours and (g) amounts owing under leases
(other than Capitalized Lease Obligations).
"Significant Subsidiary" means any Subsidiary of Beyond.com which is a
"significant subsidiary" within the meaning of Rule 1-02 under Regulation SX
promulgated by the Commission, as such Rule is in effect on the date of our
Indenture with LaSalle National Bank, but substituting 50% for 10% in each
instance that 10% appears in such Rule.
"Subsidiary" means, with respect to any person, a corporation a majority of
whose outstanding Voting Stock is at the time of determination thereof, directly
or indirectly, owned by such person, by one or more Subsidiaries of such person
or by such person and one or more of its Subsidiaries, and any other person
(other than a corporation), including, without limitation, a joint venture, in
which such person, one or more Subsidiaries of such person or such person and
one or more of its Subsidiaries, directly or indirectly, at the date of
determination thereof, owns at least a majority of the ownership interests
entitled to vote in the election of directors, managers or trustees thereof (or
other persons performing similar functions). For purposes of this definition,
any directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a
Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof under ordinary circumstances have the power to vote in
the election of the board of directors, managers or trustees of any person (or
other persons performing similar functions), irrespective of whether or not, at
the time, Capital Stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency.
EVENTS OF DEFAULT; NOTICE AND WAIVER
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization with respect to Beyond.com or any
Significant Subsidiary) occurs and is continuing, the Trustee may, by notice to
us, declare all unpaid principal of and accrued interest to the date of
acceleration on our 7 1/4% Convertible Subordinated Notes then outstanding to be
due and payable immediately. Also, in such event, the holders of at least 25% in
principal amount of our 7 1/4% Convertible Subordinated Notes then outstanding
may, by notice to us and the Trustee, declare all unpaid principal of and
accrued interest to the date of acceleration on our 7 1/4% Convertible
Subordinated Notes then outstanding to be due and payable immediately. If an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization with respect to us or any Significant Subsidiary occurs, all
unpaid principal of and accrued interest on our 7 1/4% Convertible Subordinated
Notes then outstanding shall become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holder.
Our Indenture with LaSalle National Bank provides that the holders of a
majority in principal amount of our outstanding 7 1/4% Convertible Subordinated
Notes may on behalf of all holders waive any existing default or Event of
Default and its consequences except a
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default or Event of Default in the payment of principal of or accrued interest
on our 7 1/4% Convertible Subordinated Notes or any default in respect of any
provision of our Indenture with LaSalle National Bank that cannot be modified or
amended without the consent of the holder of each Note affected.
The following will be "Events of Default" under our Indenture with LaSalle
National Bank:
- our failure to pay any interest on our 7 1/4% Convertible Subordinated
Notes for 30 days after the same is due or our failure to pay any
principal of or premium, if any, on our 7 1/4% Convertible Subordinated
Notes when due;
- our failure to comply with any of our other agreements contained in our
7 1/4% Convertible Subordinated Notes or our Indenture with LaSalle
National Bank for 60 days after receipt of notice of such failure from
the Trustee or the holders of not less than 25% in aggregate principal
amount of our 7 1/4% Convertible Subordinated Notes then outstanding;
- our default under any bond, debenture, note or other evidence of
indebtedness for money borrowed or that of any Significant Subsidiary
having an aggregate outstanding principal amount in excess of $10
million, which default shall have resulted in such indebtedness being
accelerated, without such indebtedness being discharged, or such
acceleration having been rescinded or annulled, within ten days from the
date of such acceleration; and
- certain events of bankruptcy, insolvency or reorganization with respect
to us or any Significant Subsidiary.
The Trustee shall, within 90 days after the occurrence of any default known
to it, give to the holders notice of such default; provided that, except in the
case of a default in the payment of principal of or interest on any of our
7 1/4% Convertible Subordinated Notes, the Trustee may withhold such notice if
it in good faith determines that the withholding of such notice is in the
interests of the holders.
No holder may pursue any remedy under our Indenture with LaSalle National
Bank or our 7 1/4% Convertible Subordinated Notes against us (except actions for
payment of overdue principal or interest or for the conversion of our 7 1/4%
Convertible Subordinated Notes), unless:
- the holder gives to the Trustee written notice of a continuing Event of
Default;
- the holders of at least 25% in principal amount of the outstanding Notes
make a written request to the Trustee to pursue the remedy;
- such holder or holders offer satisfactory indemnity to the Trustee
against any loss, liability or expense;
- the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and
- the Trustee shall not have received during such 60 day period a contrary
direction from the holders of at least a majority in principal amount of
the outstanding Notes.
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We must deliver an Officers' Certificate to the Trustee within 90 days
after the end of each fiscal year as to the signers' knowledge of our compliance
with all conditions and covenants contained in our Indenture with LaSalle
National Bank, and stating whether or not the signers know of any default or
Event of Default. If any such signer knows of such a default or Event of
Default, the Officers' Certificate shall describe the default or Event of
Default and the efforts to remedy the same.
AMENDMENT
We, together with the Trustee, may amend or supplement our Indenture with
LaSalle National Bank or our 7 1/4% Convertible Subordinated Notes with the
written consent of the holders of at least a majority in principal amount of the
outstanding Notes. The holders of a majority in principal amount of the
outstanding Notes may waive our compliance in a particular instance with any
provision of our Indenture with LaSalle National Bank or our 7 1/4% Convertible
Subordinated Notes without notice to any holder. However, without the consent of
the holder of each Note affected thereby, an amendment, supplement or waiver may
not:
- reduce the percentage of the principal amount of outstanding Notes whose
holders must consent to an amendment, supplement or waiver;
- reduce the rate of or change the time for payment of interest on any
Note;
- reduce the principal of or premium on or change the fixed maturity of any
of our 7 1/4% Convertible Subordinated Notes, or change the definition of
"Change in Control" or "Change in Control Purchase Date" applicable to
any of our 7 1/4% Convertible Subordinated Notes or the amount payable by
us to the holder of any Note upon a Change in Control, or alter any of
the other Change in Control provisions or any of the redemption
provisions in a manner adverse to the holder of any of our 7 1/4%
Convertible Subordinated Notes;
- alter the conversion provisions with respect to any of our 7 1/4%
Convertible Subordinated Notes in a manner adverse to the holder thereof;
- waive a default in the payment (whether at maturity, upon redemption, on
an interest payment date, on a Change in Control Purchase Date or
otherwise) of the principal of or premium or interest on any Note;
- reduce the percentage of our 7 1/4% Convertible Subordinated Notes
necessary to waive defaults or Events of Default;
- modify any of the subordination provisions in our Indenture with LaSalle
National Bank in a manner adverse to the holders of our 7 1/4%
Convertible Subordinated Notes; or
- make any of our 7 1/4% Convertible Subordinated Notes payable in money
other then that stated in our 7 1/4% Convertible Subordinated Notes.
We, together with the Trustee, may amend or supplement our Indenture with
LaSalle National Bank or our 7 1/4% Convertible Subordinated Notes without
notice to or consent of any holder in certain events, such as to comply with the
conversion, adjustment, liquidation and merger provisions described in our
Indenture with LaSalle National Bank, to cure any ambiguity, defect or
inconsistency or to make any other change that does not adversely
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affect the rights of the holders, to comply with the provisions of the Trust
Indenture Act or to appoint a successor Trustee.
No amendment may be made that adversely affects the rights under the
provisions described under "Subordination of Notes" above of a holder of an
issue of our Senior Indebtedness unless the holders of that issue, pursuant to
its terms, consent to such amendment.
REGISTRATION RIGHTS
On the initial sale of our 7 1/4% Convertible Subordinated Notes, we
entered into a registration rights agreement with the initial purchasers of our
7 1/4% Convertible Subordinated Notes. Under this agreement, we must register
for resale under the Securities Act our 7 1/4% Convertible Subordinated Notes
and the shares of common stock into which our 7 1/4% Convertible Subordinated
Notes are convertible within 60 days to register. We will use our reasonable
efforts to have this registration statement declared effective as soon as
practicable after it is filed and, in any event, within 120 days after November
23, 1998. We will use our reasonable efforts to keep it effective until the
earliest of:
- two years after the filing date;
- the date when all the applicable securities have been registered under
the Securities Act and disposed of; and
- the date on which all the applicable securities have been sold to the
public pursuant to Rule 144 under the Securities Act.
If you hold securities and sell them under this registration statement, you
will be required to provide certain information with respect to yourself and the
specifics of the sale. You will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and be bound
by the provisions of the registration rights agreement which are applicable to
you (including certain indemnification obligations). At least five business days
prior to any intended resale you must notify us of such intention and provide us
with such information with respect to such holder and the intended distribution
as may be reasonably required to amend the shelf registration statement or
supplement the prospectus.
We may suspend the use of this prospectus which is a part of the
registration statement for limited periods under certain circumstances relating
to pending corporate developments, public filings with the Commission and
similar events. Subject to certain limitations, we have agreed to pay liquidated
damages to all holders of our 7 1/4% Convertible Subordinated Notes or common
stock into which our 7 1/4% Convertible Subordinated Notes may convert that have
requested to sell pursuant to this registration statement if the registration
statement is not timely filed or declared effective, or if a stop order
suspending this registration statement or proceedings therefor have been
initiated under the Securities Act, or if the related prospectus is unavailable
for periods in excess of those set forth in the registration rights agreement.
We have further agreed, if such failure to file or unavailability continues for
an additional 30 day period, to pay liquidated damages to all such holders,
whether or not such holder has requested to sell pursuant to this registration
statement. Liquidated damages will accrue until such time as there are no
triggering events which have occurred and are continuing at a rate equal to one
half of one percent (0.50%) per annum of the principal amount of our 7 1/4%
Convertible Subordinated
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Notes and will be payable on the interest payment dates for our 7 1/4%
Convertible Subordinated Notes to the persons in whose names the relevant
securities were registered at the close of business on the immediately preceding
regular record dates for our 7 1/4% Convertible Subordinated Notes.
With respect to each holder, our obligations to pay liquidated damages
remains in effect only so long as our 7 1/4% Convertible Subordinated Notes and
the common stock issuable upon the conversion of our 7 1/4% Convertible
Subordinated Notes held by such holder are "Registrable Securities" within the
meaning of the registration rights agreement. We will pay all expenses of this
registration statement and provide each holder that is selling hereunder copies
of this prospectus and take certain other actions as are required to permit,
subject to the foregoing, unrestricted resales of the applicable securities.
This summary of certain provisions of the registration rights agreement is
not complete, and we qualify it in its entirety by reference to all the
provisions of the registration rights agreement, a copy of which is available
upon request.
SATISFACTION AND DISCHARGE
If all of our 7 1/4% Convertible Subordinated Notes have been delivered to
the Trustee for cancellation (subject to certain limited exceptions) or if all
of our 7 1/4% Convertible Subordinated Notes not theretofore delivered to the
Trustee for cancellation have become due and payable or will become due and
payable within one year at their stated maturity or upon redemption, then we may
terminate all of our obligations under our Indenture with LaSalle National Bank,
other than our obligation to pay the principal of and interest on our 7 1/4%
Convertible Subordinated Notes and certain other obligations (including our
obligation to deliver shares of common stock upon conversion of our 7 1/4%
Convertible Subordinated Notes and our obligation to purchase our 7 1/4%
Convertible Subordinated Notes following a Change in Control), at any time, by
depositing with the Trustee or a paying agent other than us, money sufficient to
pay the principal of and interest on our 7 1/4% Convertible Subordinated Notes
then outstanding to maturity or redemption.
MERGERS AND CONSOLIDATIONS
Subject to the right of the holders to require us to purchase our 7 1/4%
Convertible Subordinated Notes in the event of a Change in Control, we may
consolidate or merge with or into any other corporation, and we may sell, lease,
convey, assign or otherwise transfer all or substantially all our property and
assets to any other corporation, provided:
- either we are the resulting or surviving corporation, or the successor
corporation is organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia which expressly
assumes, by supplemental indenture executed and delivered to the Trustee,
payment of the principal of and interest on our 7 1/4% Convertible
Subordinated Notes and performance and observance of every covenant of
ours in our Indenture with LaSalle National Bank and our 7 1/4%
Convertible Subordinated Notes (including, without limitation, the
agreement to deliver shares of common stock upon conversion of our 7 1/4%
Convertible Subordinated Notes);
- immediately after giving effect to such transaction, no default or Event
of Default shall have occurred and be continuing; and
- certain other conditions are met.
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Thereafter, in any such transaction (other than a lease) in which we are not the
surviving or resulting corporation, we shall be released from all of our
obligations under our Indenture with LaSalle National Bank and our 7 1/4%
Convertible Subordinated Notes.
CONCERNING THE TRUSTEE
LaSalle National Bank has agreed to serve the Trustee under our Indenture
with LaSalle National Bank. The Trustee will be permitted to deal with us and
any of our Affiliates with the same rights as if it were not Trustee; provided,
however, that under the Trust Indenture Act, if the Trustee acquires any
conflicting interest (as defined in the Trust Indenture Act) and there exists a
default with respect to our 7 1/4% Convertible Subordinated Notes, it must
eliminate such conflict or resign.
The holders of a majority in principal amount of all outstanding of our
7 1/4% Convertible Subordinated Notes will have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy or power
available to the Trustee, provided that such direction does not conflict with
any law or our Indenture with LaSalle National Bank, is not unduly prejudicial
to the rights of another holder or the Trustee and does not involve the Trustee
in personal liability.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
considerations to holders of our 7 1/4% Convertible Subordinated Notes. We have
based this discussion upon the Internal Revenue Code of 1986, as amended,
Treasury Regulations, Internal Revenue Service rulings, and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations. We cannot assure that the IRS will not
challenge one or more of the tax consequences described herein. We have not
obtained a ruling from the IRS with respect to the U.S. federal income tax
consequences of acquiring or holding our 7 1/4% Convertible Subordinated Notes
or our common stock.
This discussion does not deal with all aspects of U.S. federal income
taxation that may be important to you as a holder of our 7 1/4% Convertible
Subordinated Notes, or common stock into which our 7 1/4% Convertible
Subordinated Notes may cover. This discussion does not deal with tax
consequences arising under the laws of any foreign, state or local jurisdiction.
This discussion is for general information purposes only, and does not purport
to address all tax consequences that may be important to you in light of your
personal circumstances (for example, persons subject to the alternative minimum
tax provisions of the Code). This discussion also does not purport to address
all the tax consequences that may be important to you if you are subject to
special rules such as those applicable to:
- certain financial institutions;
- insurance companies;
- tax exempt entities;
- dealers in securities;
- persons who hold our 7 1/4% Convertible Subordinated Notes or common
stock as part of a hedging or conversion transaction or straddle; or
- persons deemed to sell any of our 7 1/4% Convertible Subordinated Notes
or common stock under the constructive sale provisions of the Code.
This discussion assumes that you hold our 7 1/4% Convertible Subordinated
Notes and that you will hold the common stock received upon conversion thereof
as capital assets under Section 1221 of the Code, and that our 7 1/4%
Convertible Subordinated Notes are properly characterized as debt instruments
for federal income tax purposes.
For the purpose of this discussion, a "U.S. Holder" refers to any holder of
our 7 1/4% Convertible Subordinated Notes that is a U.S. person, and a "Non-U.S.
Holder" refers to any holder of our 7 1/4% Convertible Subordinated Notes who is
not a U.S. person. The term "U.S. person" means any of the following:
- a citizen or resident of the United States;
- a corporation, partnership (or other entity treated as a corporation or a
partnership for U.S. federal income tax purposes) created or organized in
the United States or any state thereof or the District of Columbia;
- an estate the income of which is includible in income for U.S. federal
income tax purposes regardless of is source; or
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- a trust subject to primary supervision by a court in the United States
and control by one or more U.S. persons.
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE FEDERAL STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF OWNERSHIP AND DISPOSITION OF OUR 7 1/4%
CONVERTIBLE SUBORDINATED NOTES, INCLUDING CONVERSION OF OUR 7 1/4% CONVERTIBLE
SUBORDINATED NOTES, AND THE EFFECT THAT YOUR PARTICULAR CIRCUMSTANCES MAY HAVE
ON SUCH TAX CONSEQUENCES.
OWNERSHIP OF NOTES
Interest on Notes. The stated interest on our 7 1/4% Convertible
Subordinated Notes generally will be includible in your gross income and taxable
to you as ordinary income in accordance with your method of tax accounting. We
intend to take the position that the possibility that you will be paid
Liquidated Damages is a remote contingency within the meaning of Treasury
Regulations Section 1.1275-4(a)(5). However, our position will not bind the IRS.
If the IRS successfully challenges this position, you could suffer potentially
adverse tax timing consequences. In addition, any gain you recognize on the sale
of our 7 1/4% Convertible Subordinated Notes would constitute ordinary income.
We urge you to consult your tax advisors regarding the foregoing. Special rules
may apply in the case of Non-U.S. Holders. See "--Certain Federal Income Tax
Considerations Applicable to Non-U.S. Holders."
Adjustments to Conversion Price. The conversion price of our 7 1/4%
Convertible Subordinated Notes may change under certain circumstances. In such a
case, Section 305 of the Code and the Treasury Regulations issued thereunder may
treat you as having received a constructive distribution whether or not you ever
exercise your conversion privilege. The constructive distribution will be taxed
as ordinary income (subject to a possible dividends received deduction if you
are a corporate holder) to the extent our current and/or accumulated earnings
and profits, if, and to the extent that, the adjustment in the conversion price
increases your proportionate interest in the fully diluted common stock.
Moreover, common stock holders themselves will generally be treated as having
received a constructive distribution if there is not a full adjustment to the
conversion price of our 7 1/4% Convertible Subordinated Notes to reflect a stock
dividend or other event increasing the proportionate interest of the common
stock holders in our assets or earnings and profits. In such an event, the
constructive distribution will be taxable as ordinary income (subject to a
possible dividends received deduction if you are a corporate holder) to the
extent of our current and/or accumulated earnings and profits.
Sale, Exchange or Retirement of Notes. In general, you will recognize gain
or loss upon the sale, exchange, redemption, retirement or other disposition of
our 7 1/4% Convertible Subordinated Notes. The gain or loss will equal:
(1) the amount realized; minus
(2) your adjusted tax basis in our 7 1/4% Convertible Subordinated Notes.
Your tax basis in our 7 1/4% Convertible Subordinated Notes generally will
equal:
(1) the amount you paid for our 7 1/4% Convertible Subordinated Notes; plus
(2) the amount of any market discount (as discussed below) you previously
recognized; or minus
(3) any amortized bond premium (as discussed below).
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Any such gain or loss you recognize on the sale, exchange, redemption,
retirement or other disposition of any of our 7 1/4% Convertible Subordinated
Notes should be capital gain or loss. Such gain or loss also will generally be
long term capital gain or loss if you held or are deemed to have held the 7 1/4%
Convertible Subordinated Note for more than one year at the time of the sale or
exchange. Special rules may apply in the case of Non-U.S. Holders. See
"-- Certain Federal Income Tax Considerations Applicable to Non-U.S. Holders."
Conversions of Notes into Common Stock. In general, you will not recognize
gain or loss on the conversion of our 7 1/4% Convertible Subordinated Notes into
shares of our common stock, unless you receive cash in lieu of a fractional
share. Your tax basis in the shares of our common stock received upon conversion
of our 7 1/4% Convertible Subordinated Notes will equal your aggregate basis in
our 7 1/4% Convertible Subordinated Notes exchanged therefor (less any portion
thereof allocable to a fractional share). Your holding period of the shares of
common stock you receive upon conversion of our 7 1/4% Convertible Subordinated
Notes generally will include the period during which you held our 7 1/4%
Convertible Subordinated Notes prior to the conversion. Any cash you receive in
lieu of a fractional share of common stock should be treated as a payment in
exchange for such fractional share. Any gain or loss you recognize on the
receipt of cash paid in lieu of a fractional share generally will equal the
difference between the amount of cash you receive and the amount of tax basis
allocable to the fractional share. Special rules may apply in the case of
Non-U.S. Holders. See "-- Certain Federal Income Tax Considerations Applicable
to Non-U.S. Holders."
Our Common Stock. Any distribution paid to you with respect to our common
stock after a conversion of any of our 7 1/4% Convertible Subordinated Notes
will constitute ordinary income (subject to a possible dividends received
deduction if you are a corporate holder) to the extent made from our current
and/or accumulated earnings and profits. The amount of gain or loss you realize
on the sale or exchange of common stock will equal:
(1) the amount you realize on such sale or exchange; minus
(2) your adjusted tax basis in such common stock.
Such gain or loss will generally be long term capital gain or loss if you have
held or are deemed to have held the common stock for more than one year.
However, special rules may apply if you originally purchased our 7 1/4%
Convertible Subordinated Notes at a market discount (as discussed below). In
addition, special rules may apply in the case of Non-U.S. Holders. See
"--Certain Federal Income Tax Considerations Applicable to Non-U.S. Holders."
Market Discount. If you sell any of our 7 1/4% Convertible Subordinated
Notes at a lower price than the price at which you purchased our 7 1/4%
Convertible Subordinated Notes, the purchaser may be affected by the "market
discount" provisions of the Code. Market discount on any of our 7 1/4%
Convertible Subordinated Notes will generally equal:
(1) the principal amount of the 7 1/4% Convertible Subordinated Note; minus
(2) the price at which you sell the 7 1/4% Convertible Subordinated Note.
The market discount provisions generally require the person to which you sell
any of our 7 1/4% Convertible Subordinated Notes to treat as ordinary income any
gain recognized on a subsequent disposition of such Note to the extent of the
"accrued market discount" at the time of subsequent disposition. If any of our
7 1/4% Convertible Subordinated Notes with
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accrued market discount is converted into common stock, the amount of such
accrued market discount generally will be taxable as ordinary income upon
disposition of the common stock. Unless a purchaser of our 7 1/4% Convertible
Subordinated Notes with market discount elects otherwise, market discount on our
7 1/4% Convertible Subordinated Notes will be treated as accruing on a straight
line basis over the term of such Note. In addition, if a purchaser of any of our
7 1/4% Convertible Subordinated Notes with market discount incurs or maintains
indebtedness to purchase or carry the 7 1/4% Convertible Subordinated Note, an
interest deduction attributable to such indebtedness may be disallowed until the
7 1/4% Convertible Subordinated Note is disposed of in a taxable transaction.
Amortizable Premium. If you sell any of our 7 1/4% Convertible Subordinated
Notes at a premium over its stated principal amount, plus accrued interest, the
purchaser generally may elect to amortize such premium ("Section 171 premium")
from the purchase date to the 7 1/4% Convertible Subordinated Note's maturity
date under a constant yield method. Section 171 premium, however, will not
include any premium attributable to any of our 7 1/4% Convertible Subordinated
Notes' conversion feature. The premium attributable to the conversion feature
equals:
(1) the purchase price of the 7 1/4% Convertible Subordinated Note; minus
(2) what the 7 1/4% Convertible Subordinated Note's fair market value would
be if there were no conversion feature.
Amortized Section 171 premium is treated as an offset to interest income on any
of our 7 1/4% Convertible Subordinated Notes and not as a separate deduction.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Notes. Generally, if you are a Non-U.S. Holder, stated interest
paid to you on our 7 1/4% Convertible Subordinated Notes will not be subject to
U.S. federal income tax if such interest is not effectively connected with the
conduct of a trade or business by you within the United States, and you meet the
following three requirements:
(1) you do not actually or constructively own 10% or more of the total
voting power of all classes of our stock entitled to vote;
(2) you are not a "controlled foreign corporation" with respect to which we
are a "related person" within the meaning of the Code; and
(3) you certify, under penalty of perjury, that you are not a U.S. person
and such certificate provides your name and address.
If you meet certain requirements, the certification described in paragraph
3 above may be provided by:
- a securities clearing organization;
- a bank, or
- other financial institution that holds customers' securities in the
ordinary course of is trade or business.
106
<PAGE> 108
For purposes of paragraph(2) above, the Non-U.S. Holder of our 7 1/4%
Convertible Subordinated Notes would be deemed to own constructively the common
stock into which it could be converted.
A Non-U.S. Holder that is not exempt from tax under the above rules
generally will be subject to U.S. federal income tax withholding at a rate of
30% unless:
(1) the interest is effectively connected with the conduct of a U.S. trade
or business, in which case the interest will be subject to the U.S.
federal income tax on net income that applies to U.S. persons
generally; or
(2) an applicable income tax treaty provides for a lower rate of, or
exemption from, withholding tax.
If you are a foreign corporation, such U.S. trade or business income may also be
subject to the branch profits tax at a 30% rate. (The branch profits tax
generally is imposed on a foreign corporation on the actual or deemed
repatriation from the United States of earnings and profits attributable to U.S.
trade or business income.) The branch profits tax may not apply (or may apply at
a reduced rate) if the foreign corporation is a qualified resident of a country
with which the United States has an income tax treaty.
To claim either (A) the benefit of a tax treaty, or (B) an exemption from
withholding because the income is effectively connected with a U.S. trade or
business, the Non-U.S. Holder must provide a properly executed Form 1001 or
4224, as applicable, prior to the payment of interest. These forms must be
periodically updated. Under new rules that will apply to payments made after
December 31, 1999, the Forms 1001 and 4224 will be replaced by Form W-8. Also,
under the new rules, a Non-U.S. Holder who is claiming the benefits of a treaty
may be required:
(1) to obtain a U.S. taxpayer identification number; and
(2) to prove residence in a foreign country by providing certain
documentary evidence issued by foreign governmental authorities.
In addition, the new rules provide certain special procedures for payments
through qualified intermediaries.
Sale, Exchange or Redemption of Notes or Shares of Common Stock. A Non-U.S.
Holder generally will not be subject to U.S. federal income tax on gain
recognized upon the sale or other disposition of our 7 1/4% Convertible
Subordinated Notes or shares of our common stock received in exchange therefor
unless:
(1) the gain is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder; or
(2) the Non-U.S. Holder:
(A) is a nonresident alien individual;
(B) holds the common stock as a capital asset; and
(C) is present in the United States for 183 or more days in the taxable
year.
However, a Non-U.S. Holder may be subject to federal income tax with respect to
gain realized on the disposition of Notes or shares of common stock if the
Company were to become a "United States real property holding corporation" under
the Code. In that case,
107
<PAGE> 109
such Non-U.S. Holder can credit any withholding tax withheld pursuant to the
rules applicable to dispositions of a "United States real property interest"
against such Non-U.S. Holder's U.S. federal income tax liability, and such
Non-U.S. Holder may be entitled to a refund upon furnishing required information
to the IRS.
Conversion of Notes. A Non-U.S. Holder generally will not be subject to
U.S. federal income tax on the conversion of any of our 7 1/4% Convertible
Subordinated Notes into shares of our common stock. However, a Non-U.S. Holder
may recognize gain to the extent of cash received in lieu of a fractional share
on conversion. Such gain would be subject to the rules described above with
respect to the rules regarding the sale or exchange of any of our 7 1/4%
Convertible Subordinated Notes by a Non-U.S. Holder.
Dividends on Shares of Common Stock. Generally, any distribution on shares
of our common stock to a Non-U.S. Holder will be subject to U.S. federal income
tax withholding at a rate of 30% unless:
(1) the dividend is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder; or
(2) an applicable income tax treaty provides for a lower rate of, or
exemption from, withholding tax.
If the dividend is effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Holder, the dividend will be subject
to:
(A) the U.S. federal income tax on net income that applies to U.S.
persons generally; and
(B) with respect to corporate Non-U.S. Holders under certain
circumstances, the branch profits tax.
A Non-U.S. Holder may be required to satisfy certain certification requirements
in order to claim a reduction of or exemption from withholding under the
foregoing rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders. Information reporting and backup withholding may apply to
payments of principal, interest or dividends on, or the proceeds from the sale
or other disposition of, our 7 1/4% Convertible Subordinated Notes or common
stock with respect to certain noncorporate U.S. Holders. If you are such a U.S.
Holder, then you generally will be subject to backup withholding at a rate of
31% unless, among other conditions, you supply a taxpayer identification number
and certain other information, certified under penalties of perjury, to the
payer or you otherwise establish an exemption from backup withholding. Any
amount withheld under backup withholding is allowable as a credit against the
U.S. Holder's federal income tax liability.
Non-U.S. Holders. Generally, information reporting will apply to payments
of interest on our 7 1/4% Convertible Subordinated Notes or dividends on our
common stock, and backup withholding at a rate of 31% will apply unless the
payee certifies that it is not a U.S. person or otherwise establishes an
exemption. The 31% backup withholding tax will not apply, however, to interest
or dividends subject to the 30% withholding tax described above. In addition,
information reporting and backup withholding will apply to payments of principal
on our 7 1/4% Convertible Subordinated Notes unless you certify that you are not
a U.S. person or otherwise establish an exemption.
108
<PAGE> 110
The payment of the proceeds from the disposition of any of our 7 1/4%
Convertible Subordinated Notes or common stock to or through the U.S. office of
a U.S. or foreign broker will be subject to information reporting and possible
backup withholding, unless the Non-U.S. Holder certifies as to its Non-U.S.
Holder status or otherwise establishes an exemption, provided that the broker
does not have actual knowledge that the holder is a U.S. person or that the
conditions of any other exemption are not, in fact, satisfied. The proceeds of
the disposition by a Non-U.S. Holder of our 7 1/4% Convertible Subordinated
Notes or common stock to or through a foreign office of a broker generally will
not be subject to information reporting or backup withholding. However, if the
broker is either:
(1) a U.S. person;
(2) a controlled foreign corporation for U.S. tax purposes; or
(3) a foreign person 50% or more of whose gross income from all sources for
certain periods is from activities that are effectively connected with
a U.S. trade or business, information reporting generally will apply
unless the broker has documentary evidence in its files of the Non-U.S.
Holder's foreign status and has no actual knowledge to the contrary.
NEW WITHHOLDING REGULATIONS
The recently finalized withholding rules referred to above (the "New
Regulations") make certain modifications to the withholding and information
reporting rules described above. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New Regulations
generally will be effective for payments made after December 31, 1999, subject
to certain transition rules. We urge you to consult your own tax advisors
regarding the New Regulations.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO PARTICULAR TAX CONSEQUENCES TO IT
OF PURCHASING, HOLDING AND DISPOSING OF OUR 7 1/4% CONVERTIBLE SUBORDINATED
NOTES AND OUR COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
LEGAL MATTERS
Certain legal matters will be passed on for us by our counsel, Jackson
Tufts Cole & Black, LLP, San Jose, California. As of the date of this
prospectus, Richard Scudellari, a partner in that firm and a director of the
Company, owned 70,000 shares of our common stock and holds options to purchase
20,000 shares of our common stock.
EXPERTS
The consolidated financial statements of Beyond.com Corporation as of
December 31, 1997 and 1998, and for each of the three years in the period ended
December 31, 1998, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
109
<PAGE> 111
ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and Seven World Trade Center, 13th Floor, New York, NY 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC upon
payment of certain fees prescribed by the SEC. The SEC's Web site contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of that site is
http://www.sec.gov. Our common stock is quoted on the Nasdaq National Market and
our reports, proxy state-
ments and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We have filed a Registration Statement on Form S-1 with the SEC under the
Securities Act in respect of the common stock offered hereby. This prospectus,
which is a part of the registration statement, omits certain information
contained in the registration statement as permitted by the SEC's rules and
regulations. For further information with respect to the Company and the common
stock offered hereby, please reference the registration statement, including its
exhibits. Statements herein concerning the contents of any contract or other
document filed with the SEC as an exhibit to the registration statement are not
necessarily complete and are qualified in all respects by such reference. Copies
of the registration statement, including all exhibits and schedules thereto, may
be inspected without charge at the public reference facilities maintained by the
SEC, or obtained at prescribed rates from the Public Reference Section of the
SEC at the address set forth above.
110
<PAGE> 112
BEYOND.COM CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations and Comprehensive
Income.................................................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Net Capital Deficiency)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 113
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Beyond.com Corporation
We have audited the accompanying consolidated balance sheets of Beyond.com
Corporation as of December 31, 1997 and 1998, and the related consolidated
statements of operations, redeemable convertible preferred stock and
stockholders' equity (net capital deficiency), and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Beyond.com
Corporation at December 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
January 11, 1999
F-2
<PAGE> 114
BEYOND.COM CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 2,571 $ 81,548
Accounts receivable, net of allowances of $275 and $878
at December 31, 1997 and 1998....................... 1,181 8,785
Note receivable from a director........................ -- 270
Prepaid expenses and other current assets.............. 516 6,201
Cost of deferred revenue............................... 4,938 5,255
-------- --------
Total current assets........................... 9,206 102,059
Property and equipment, net.............................. 380 3,150
Other noncurrent assets.................................. -- 4,695
-------- --------
Total assets................................... $ 9,586 $109,904
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable....................................... $ 2,256 $ 14,443
Other accrued liabilities.............................. 270 1,744
Current obligations under capital leases............... 18 --
Deferred revenue....................................... 5,569 5,744
-------- --------
Total current liabilities...................... 8,113 21,931
Note payable to a shareholder and director............... 60 --
Noncurrent obligations under capital leases.............. 39 --
Convertible notes payable................................ -- 63,250
Commitments and contingencies
Redeemable convertible preferred stock, no par value,
issuable in series:
Authorized shares -- 10,000,000 in 1997
Issued and outstanding shares -- 7,022,558 in 1997..... 12,565 --
Stockholders' equity (net capital deficiency)
Preferred stock, no par value:
Authorized shares -- 15,000,000 in 1998................ -- --
Common stock, no par value:
Authorized shares -- 30,000,000 in 1997 and 50,000,000
in 1998
Issued and outstanding shares -- 9,070,000 in 1997 and
27,423,763 in 1998.................................. 47 69,311
Deferred compensation.................................. -- (2,226)
Accumulated deficit.................................... (11,238) (42,362)
-------- --------
Total stockholders' equity (net capital
deficiency)................................. (11,191) 24,723
-------- --------
Total liabilities and stockholders' equity (net
capital deficiency)......................... $ 9,586 $109,904
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 115
BEYOND.COM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net revenues.................................... $ 5,858 $16,806 $ 36,650
Cost of revenues................................ 5,137 14,873 31,074
------- ------- --------
Gross profit.................................... 721 1,933 5,576
Operating expenses:
Research and development...................... 431 1,060 4,201
Sales and marketing........................... 704 1,696 27,568
General and administrative.................... 450 1,087 4,943
------- ------- --------
Total operating expenses.............. 1,585 3,843 36,712
------- ------- --------
Loss from operations............................ (864) (1,910) (31,136)
Interest and other income....................... 96 173 1,356
Interest expense................................ (11) (6) (1,293)
------- ------- --------
Loss from continuing operations................. (779) (1,743) (31,073)
Loss from discontinued operations............... (736) (3,616) --
------- ------- --------
Net loss and comprehensive net loss............. (1,515) (5,359) (31,073)
Accretion of premium on redemption of redeemable
convertible preferred stock in excess of
purchase price................................ (101) (101) (51)
------- ------- --------
Net loss applicable to common stockholders...... $(1,616) $(5,460) $(31,124)
======= ======= ========
Basic and diluted net loss per share from
continuing operations......................... $ (0.10) $ (0.21) $ (1.65)
Basic and diluted net loss per share from
discontinued operations....................... (0.08) (0.40) --
------- ------- --------
Basic and diluted net loss per share............ $ (0.18) $ (0.61) $ (1.65)
======= ======= ========
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share.................... 9,000 9,000 18,900
======= ======= ========
Pro forma basic and diluted net loss per share
from continuing operations.................... $ (0.10) $ (1.28)
Pro forma basic and diluted net loss per share
from discontinued operations.................. (0.20) --
------- --------
Pro forma basic and diluted net loss per
share......................................... $ (0.30) $ (1.28)
======= ========
Shares used in computing pro forma basic and
diluted net loss per share.................... 17,828 24,276
======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 116
BEYOND.COM CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
----------------------------------------------------------------
REDEEMABLE TOTAL
CONVERTIBLE STOCKHOLDERS
PREFERRED STOCK EQUITY (NET
--------------------- COMMON STOCK DEFERRED ACCUMULATED CAPITAL
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT DEFICIENCY)
---------- -------- ---------- ------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 1,437,500 $ 651 9,000,000 $ 45 $ -- $ (838) $ (793)
Issuance of Series A redeemable
convertible preferred stock at $0.91
per share............................ 164,835 150 -- -- -- -- --
Issuance of Series A redeemable
convertible preferred stock at $0.91
per share for the conversion of notes
payable and accrued interest and for
services received.................... 383,185 349 -- -- -- -- --
Issuance of Series B redeemable
convertible
preferred stock at $2.70 per share,
net.................................. 2,037,038 5,144 -- -- -- -- --
Accretion of premium on redemption of
redeemable convertible preferred
stock in excess of purchase price.... -- 101 -- -- -- (101) (101)
Net loss............................... -- -- -- -- -- (1,515) (1,515)
----------------------------------------------------------------------------------------
Balance at December 31, 1996........... 4,022,558 6,395 9,000,000 45 (2,454) (2,409)
Issuance of Series C redeemable
convertible
preferred stock at $2.04 per share,
net.................................. 3,000,000 6,069 -- -- -- -- --
Issuance of common stock upon exercise
of options under employee stock
option plan.......................... -- -- 70,000 2 -- -- 2
Accretion of premium on redemption of
redeemable convertible preferred
stock in excess of purchase price.... -- 101 -- -- -- (101) (101)
Spin-off of CyberSource to stockholders
on December 31, 1997................. -- -- -- -- -- (3,324) (3,324)
Net loss............................... -- -- -- -- -- (5,359) (5,359)
----------------------------------------------------------------------------------------
Balance at December 31, 1997........... 7,022,558 12,565 9,070,000 47 -- (11,238) (11,191)
Issuance of common stock upon exercise
of options under employee stock
option plan.......................... -- -- 165,852 28 -- -- 28
Issuance of Series D redeemable
convertible
preferred stock at $2.60 per share,
net.................................. 1,153,846 2,924 -- -- -- -- --
Accretion of premium on redemption of
redeemable convertible preferred
stock in excess of purchase price.... -- 51 -- -- -- (51) (51)
Conversion of redeemable convertible
preferred stock to common stock upon
the initial public offering.......... (8,176,404) (15,540) 12,198,962 15,540 -- -- 15,540
Issuance of warrant to AOL............. -- -- -- 1,075 -- -- 1,075
Shares issued upon the initial public
offering, net........................ -- -- 5,750,000 46,830 -- -- 46,830
Shares issued in a private placement... -- -- 238,949 2,000 -- 2,000
Deferred compensation resulting from
the grant of options................. -- -- -- 3,791 (3,791) -- --
Amortization of deferred
compensation......................... -- -- -- -- 1,565 -- 1,565
Net loss and comprehensive net loss.... -- -- -- -- -- (31,073) (31,073)
----------------------------------------------------------------------------------------
Balance at December 31, 1998........... -- $ -- 27,423,763 $69,311 $(2,226) $(42,362) $ 24,723
========== ======== ========== ======= ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 117
BEYOND.COM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $(1,515) $(5,359) $(31,073)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 19 79 6,613
Amortization of deferred compensation and other... 49 -- 1,565
Amortization of debt issuance costs............... -- -- 113
Net loss of discontinued operations............... 736 3,616 --
Changes in assets and liabilities:
Accounts receivable............................... (202) (750) (7,604)
Prepaid expenses and other current assets......... (50) (440) (11,490)
Cost of deferred revenue.......................... (819) (4,120) (317)
Other noncurrent assets........................... -- -- (1,068)
Accounts payable.................................. 345 1,720 12,187
Other accrued liabilities......................... (28) 172 1,474
Deferred revenue.................................. 967 4,602 175
Cash provided by (used for) discontinued
operations..................................... (6) 181 --
------- ------- --------
Net cash used in operating activities............... (504) (299) (29,425)
INVESTING ACTIVITIES
Purchases of property and equipment................. (16) (333) (3,280)
Issuance of note receivable to director............. -- -- (270)
Cash used for discontinued operations............... (1,292) (4,611) --
------- ------- --------
Net cash used in investing activities............... (1,308) (4,944) (3,550)
FINANCING ACTIVITIES
Proceeds from issuance of convertible notes
payable........................................... -- -- 63,250
Payments for debt issuance costs.................... -- -- (2,963)
Repayment of note payable to related party.......... -- (45) (60)
Repayment of capital leases obligations............. -- (3) (57)
Proceeds from sale of redeemable convertible
preferred stock, net.............................. 5,294 6,069 2,924
Proceeds from sale of common stock, net............. -- -- 48,830
Proceeds from exercise of stock options............. -- 2 28
Cash used for discontinued operations............... -- (1,946) --
------- ------- --------
Net cash provided by financing activities........... 5,294 4,077 111,952
------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 3,482 (1,166) 78,977
Cash and cash equivalents at beginning of period.... 255 3,737 2,571
------- ------- --------
Cash and cash equivalents at end of period.......... $ 3,737 $ 2,571 $ 81,548
======= ======= ========
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION
Interest paid....................................... $ -- $ 6 $
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES
Issuance of Series A redeemable convertible
preferred stock upon conversion of notes
payable........................................... $ 300 $ -- $ --
Issuance of Warrant to AOL.......................... $ -- $ -- $ 1,075
Deferred compensation related to stock option
grants............................................ $ -- $ -- $ 3,791
Issuance of common stock upon conversion of
preferred stock................................... $ -- $ -- $ 15,540
</TABLE>
See accompanying notes.
F-6
<PAGE> 118
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Beyond.com Corporation (the "Company") was incorporated in the state of
California as CyberSource Corporation on August 12, 1994. In April 1998, the
Company changed its name to software.net Corporation. In June 1998, the Company
reincorporated in Delaware as software.net Corporation. In December 1998, the
Company changed its name to Beyond.com. The Company is engaged in the resale of
commercial off-the-shelf software ("Software") via the Internet. On December 31,
1997, the Company distributed capital stock of its wholly owned subsidiary,
CyberSource Corporation ("CyberSource"), in the form of a dividend to all
existing stockholders of the Company. The accompanying consolidated financial
statements have been prepared to reflect CyberSource as a discontinued operation
(see Note 2).
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues are primarily derived from sales of Software to
customers using credit cards, to corporate customers that are invoiced directly
under credit terms, to various U.S. government agencies pursuant to contractual
arrangements and, to a lesser extent, amounts received from Software publishers
for advertising and promotion. Revenue from the sale of Software, net of
estimated returns, is recognized upon either shipment of the physical product or
delivery of electronic product, at which time, collectibility is probable and
the Company has no remaining obligations. Revenue from the sale of Software
under contracts with the U.S. government require continuing service, support and
performance by the Company, and accordingly, the related revenues and costs are
deferred and recognized over the period the service, support and performance are
provided. Revenues derived from Software publishers for advertising and
promotion are recognized as the services are provided. Costs of deferred revenue
relate to Software licenses purchased from Software publishers for sales to U.S.
government agencies.
In May 1997, the Financial Accounting Standards Board approved the American
Institute of Certified Public Accountants Statement of Position, "Software
Revenue Recognition" (SOP 97-2). SOP 97-2 provides revised and expanded guidance
on software revenue recognition and applies to all entities that earn revenue
from licensing, selling, or otherwise marketing computer software. SOP 97-2 is
effective for transactions entered into in fiscal years beginning after December
15, 1997. The application of SOP 97-2 has not had a material impact on the
Company's results of operations.
F-7
<PAGE> 119
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During fiscal 1998, the Financial Accounting Standard Board approved the
American Institute of Certified Public Accountants Statements of Position,
"Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition" (SOP 98-4)_ and "Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions" (SOP 98-9) which provide
revised and expanded guidance with respect to vendor specific objective evidence
as defined by SOP 97-2. SOP 98-4 and SOP 98-9 are effective for transactions
entered into after March 31, 1998 and fiscal years beginning after March 15,
1999, respectively. The application of SOP 98-4 and SOP 98-9 has not had a
material impact on the Company's results of operations.
Research and Development
Research and development expenditures are generally charged to operations
as incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. In the Company's case,
capitalization would begin upon completion of a working model as the Company
does not prepare detailed program designs as part of the development process.
Through December 31, 1998, there were no significant capitalizable software
development costs incurred and, as a result, all such costs have been expensed
as incurred.
Advertising Expense
The costs of advertising are recorded as an expense when incurred or upon
the first showing of the advertisement. Advertising costs for the years ended
December 31, 1996, 1997, and 1998 were approximately $98,000, $178,000, and
$8,500,000, respectively. Amounts capitalized for future advertising were none
and $515,000, at December 31, 1997 and 1998, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents. As of December 31, 1997 and 1998, cash equivalents consist
primarily of investments in money market accounts and cost approximates fair
market value. The Company places its cash and cash equivalents in high-quality
U.S. financial institutions and, to date, has not experienced losses on any of
its investments.
Concentration of Credit Risk and Other Risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and accounts
receivables. The Company operates in one business segment and sells Software and
advertising primarily in the United States to consumers, various companies
across several industries and certain U.S. government agencies. The Company
generally does not require collateral. The Company maintains allowances for
credit losses and customer returns, and such losses have been within
F-8
<PAGE> 120
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
management's expectations. For each of the years ended December 31, 1997 and
1998, U.S. government agencies, principally the Defense Logistics Agency,
accounted for 33% and 29% of revenues, respectively. There were no government
customers accounting for greater than 10% of revenues in 1996. As of December
31, 1998, 65% and 12% of accounts receivable was comprised of sales to U.S.
government agencies and one corporate customer, respectively.
The Company's contracts with the U.S. government are subject to annual
review and renewal by the applicable government entity, and may be terminated,
without cause, at any time.
The Company's success depends in large part on digital downloading as a
method of selling Software over the Internet. If digital downloading does not
achieve widespread market acceptance, the Company's results of operations will
be materially adversely affected. In addition, there can be no assurance that
the Company will overcome the substantial existing and future technical
challenges associated with digital downloading reliably and consistently on a
long-term basis.
Property and Equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over estimated useful lives of three years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or the estimated useful lives. Property and equipment consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ------
<S> <C> <C>
Computer equipment and software........................ $257 $2,450
Furniture and fixtures................................. 122 1,010
Office equipment....................................... 70 77
Leasehold improvements................................. 29 221
---- ------
478 3,758
Less accumulated depreciation and amortization......... (98) (608)
---- ------
$380 $3,150
==== ======
</TABLE>
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 8, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB Opinion No. 25,
when the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. See pro forma disclosures of applying FAS 123 included in
Note 8.
F-9
<PAGE> 121
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Loss Per Share and Pro forma Net Loss Per Share
Net loss per share is presented under Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Earnings per share amounts for all
periods have been presented to conform to FAS 128 requirements. Potentially
dilutive securities have been excluded from the computation as their effect is
antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of redeemable convertible preferred shares not included above that
automatically converted upon completion of the Company's initial offering (using
the if-converted method).
Pro forma basic and diluted net loss per share is as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------
1997 1998
------- --------
<S> <C> <C>
Net loss.................................................. $(5,539) $(31,073)
======= ========
Shares used in computing basic and diluted net loss per
share................................................... 9,000 18,900
Adjustments to reflect the effect of the assumed
conversion of redeemable convertible preferred stock
from the date of issuance through the date of the
initial public offering in 1998......................... 8,828 5,376
------- --------
Weighted average shares used in computing pro forma basic
and diluted net loss per share.......................... 17,828 24,276
======= ========
Pro forma basic and diluted net loss per share............ $ (0.30) $ (1.28)
======= ========
</TABLE>
If the Company had reported net income, diluted earnings per share would
have included the shares used in the computation of pro forma net loss per share
as well as an additional approximately 1,577,000, 1,879,000, and 2,965,000
common equivalent shares related to the outstanding options and warrants
(determined using the treasury stock method) for the years ended December 31,
1996, 1997 and 1998, respectively, and an additional 3,449,000 shares in 1998
related to the convertible notes payable not included above (using the "if
converted" method).
Income Taxes
Income taxes are calculated under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under FAS
109, the liability method is used in accounting for income taxes, which includes
the effects of temporary differences between financial and taxable amounts of
assets and liabilities.
F-10
<PAGE> 122
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (FAS 131)
in the fiscal year ended December 31, 1998. FAS 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. FAS 131 also establishes
standards for related disclosures about products and services, and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision making group, in making decisions
how to allocate resources and assess performance. The Company's chief decision
maker, as defined under FAS 131, is the Chief Executive Officer. To date, the
Company has viewed the Company's operations as principally one segment, Software
sales. Additionally, the Company derives an immaterial amount of revenue from
non-domestic sources. As a result, the financial information disclosed herein,
materially represents all of the financial information related to the Company's
principal operating segment.
Internally Used Software
In March 1998, the Financial Accounting Standards Board approved American
Institute of Certified Public Accountants Statement of Position, "Accounting for
Computer Software Developed For or Obtained For Internal-Use" (SOP 98-1). SOP
98-1 provides revised guidance for the accounting treatment for software which
is internally developed, acquired, or modified solely to meet the entity's
internal needs. SOP 98-1 applies to all non-governmental entities and is
effective for all activities in fiscal years beginning after December 15, 1998.
The Company does not expect SOP 98-1 to have a material effect on its financial
statements or results of operations.
2. DISCONTINUED OPERATIONS
On December 31, 1997, the Company and its stockholders approved a transfer
of assets and liabilities to its wholly owned subsidiary, CyberSource, and the
distribution of CyberSource capital stock, (the "Spin-off"), in the form of a
dividend to the Company's existing stockholders, on a pro rata basis such that
the stockholders of CyberSource were the same as the stockholders of the Company
at the time of the distribution. Revenues of CyberSource were $170,000 and
$1,128,000 for the years ended December 31, 1996 and 1997, respectively. The
results of operation of the discontinued business have been presented as a loss
from discontinued operations.
F-11
<PAGE> 123
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of net assets at the time of the Spin-off on December 31,
1997 are summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets:
Cash and cash equivalents................................ $2,000
Accounts receivable...................................... 606
Prepaid expenses and other assets........................ 118
Property and equipment................................... 1,152
Less liabilities:
Accounts payable and accrued liabilities................. 397
Deferred revenue and other............................... 155
------
Net assets................................................. $3,324
======
</TABLE>
3. MARKETING AGREEMENTS
During 1997 and 1998, the Company entered into marketing agreements with
America Online, Inc. ("AOL"), Excite, Inc. ("Excite"), Netscape Communications
Corporation ("Netscape") and Network Associates, Inc. ("Network Associates").
The AOL Agreement is for a term of 42 months beginning March 1998, unless
earlier terminated, and provides for a marketing relationship between AOL and
the Company. Pursuant to this agreement, the Company will be the exclusive
provider of electronically delivered Software on certain screens on the AOL
Service and aol.com to AOL customers through links to the Company's Web site
from various AOL Web pages. During the term, AOL is obligated to deliver a
cumulative number of Impressions (as defined in the agreement), with various
cumulative targets throughout the duration of the agreement term. If AOL does
not provide certain cumulative targeted Impressions, AOL will be required to
refund a portion of the fees paid by the Company under this agreement (or under
some circumstances, as outlined in this agreement, AOL will have the option to
extend the term and deliver the Impressions by the end of that extended term).
Upon conclusion of the initial 42 month term, AOL will have the right to renew
the agreement for two successive one-year terms.
The Excite agreement is for a term of 36 months beginning April 1998
pursuant to which the Company will be the exclusive Software reseller on certain
screens within certain channels of Excite's Web site.
The Netscape agreement is for a term of 24 months beginning August 1997,
pursuant to which the Company created and manages an online Software store
accessible through Netscape's Internet site.
The Company has entered into various contracts with Network Associates in
1997 and 1998. In September 1997, the Company and Network Associates entered
into an agreement whereby the Company agreed to electronically distribute
Network Associates products. In September 1998, the Company and Network
Associates entered into agreements whereby the Company agreed to co-host certain
websites with Network Associates and whereby the Company agreed to operate and
manage certain aspects of Network Associates' website. Pursuant to these
agreements, the Company and Network
F-12
<PAGE> 124
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Associates have developed an interdependent relationship whereby the Company
resells Network Associates' products. Furthermore, the Company has significant
fixed financial obligations to Network Associates under the Co-Hosting Agreement
based on certain exclusivity rights.
These marketing agreements provide for payments totaling $8,963,000 in
1999, $10,213,000 in 2000 and $1,163,000 in 2001. During 1998, the Company made
payments totalling $10,613,000 under these agreements.
Under these agreements, once the Company has generated a certain cumulative
net gross margin from Software sales, the Company will pay specified percentages
of the gross transaction margins from all subsequent software sales transactions
and a percentage of certain advertising revenues. As of December 31, 1998, none
of these net gross margin targets have been achieved.
The amounts paid under the AOL, Netscape and Network Associates agreements
are being amortized to sales and marketing expenses on a straight-line basis
over the period from the launch dates to the termination dates of the services.
The periods of amortization are March 1998 to August 2001; August 1997 to July
1999; and September 1998 to August 2001 for AOL, Netscape and Network
Associates, respectively. The amounts paid under the Excite agreement are being
expensed to sales and marketing expenses as the payments become due over the
contract term beginning from the launch date of the services. The period of
amortization for this agreement is April 1998 to March 2001. The Company has
expensed $104,000 and $6,700,000 related to these agreements in 1997 and 1998,
respectively. Total amounts capitalized under these agreements at December 31,
1997 and 1998 were none and $4,100,000, respectively.
The Company also entered into a Common Stock and Warrants Subscription
Agreement which provided for the sale of $2,000,000 of common stock to AOL
immediately prior to the closing of an initial public offering ("IPO") at the
price paid by the Underwriters in the IPO. At the completion of the IPO and the
purchase by AOL of the $2,000,000 of common stock, the Company issued a common
stock warrant (the "IPO Warrant"). The IPO Warrant vests in increments of 1/36
per month commencing March 1, 1998. The IPO Warrant was issued for the purchase
of 358,422 shares of common stock at an exercise price per share of $8.37 and
such shares are non-forfeitable.
The Company has determined the fair value of the IPO Warrant at the time of
issuance to be approximately $1,075,000 in total and recorded this amount as
additional purchase price for the marketing rights under the marketing
agreement. The value of the warrant is being amortized on a consistent basis
with the marketing rights as described above. The Company amortized $298,000 of
the IPO Warrant value to sales and marketing expense in 1998.
4. BORROWINGS
In September 1995, the Company issued notes payable of $300,000. In
February 1996, the $300,000 of principal and $11,000 of accrued interest were
converted into 341,426 shares of Series A preferred stock at a price of $0.91
per share.
F-13
<PAGE> 125
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company entered into a credit agreement (the "Credit Agreement") with
Deutsche Bank AG ("Deutsche Bank") in May 1998. Pursuant to the Credit
Agreement, on May 21, 1998, Deutsche Bank issued a standby letter of credit to
the Company in the amount of approximately $600,000 (the "Credit Facility") and
loaned the Company approximately an additional $4,200,000 (the "Loan"). The Loan
bore interest at a rate equal to the higher of (i) the daily Federal Funds Rate
plus 0.5% per annum or (ii) Deutsche Bank daily prime lending rate ("Base
Rate"), plus 3.0%, per annum. The Company was also required to pay a standby
letter of credit fee equal to a percentage of the face amount of the Credit
Facility equal to the Base Rate plus 3% less the LIBOR rate for a three-month
loan. In conjunction with the Credit Agreement, the Company also paid Deutsche
Bank an upfront fee of $120,000 and credit line fees equal to 7.5% totaling
$18,000. All amounts borrowed under this agreement were paid by the Company on
November 16, 1998.
5 . CONVERTIBLE NOTES PAYABLE
In November and December 1998, the Company issued unsecured convertible
subordinated notes payable with an aggregate principal amount of $63,250,000.
The notes bear an annual interest rate of 7.25% and mature on December 1, 2003.
Interest on the notes is payable semi-annually commencing on June 1, 1999. The
notes are convertible into common stock at the option of the holder at any time
prior to December 2, 2003 at the conversion price of $18.34 per share. As of
December 31, 1998, the difference between the carrying value and the fair value
of the notes payable was immaterial based upon the minimal change in interest
rates from the dates of issuance to fiscal year end. There are no financial
covenants associated with the notes payable.
At any time on or after December 6, 2001 the notes will be redeemable at
the option of the Company at the specified redemption price equal to a
percentage of the principal amount, plus accrued interest. The Company shall
redeem such notes at a price equal to 101.813% of the principal on or before
November 30, 2002. Subsequent to this date the notes shall be redeemed at a
price equal to 100% of the principal amount of the notes.
6. OPERATING LEASE COMMITMENTS
The Company leases or subleases facilities and certain equipment under
noncancelable operating leases expiring at various dates through 2003. The
Company does not have an option to renew or extend the term of the sublease
related to the Company's principal administrative, engineering, marketing and
customer service facility which expires in 2003. Rental expense was
approximately $101,000, $266,000, and $1,228,000 for the years ended December
31, 1996, 1997, and 1998, respectively.
F-14
<PAGE> 126
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancelable operating leases are as
follows as of December 31, 1998 (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 2,461
2000........................................................ 2,484
2001........................................................ 2,277
2002........................................................ 2,285
2003........................................................ 1,043
-------
Total minimum lease payments...................... $10,550
=======
</TABLE>
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock at December 31, 1997 is as follows
by series:
<TABLE>
<CAPTION>
DESIGNATED SHARES ISSUED AND
SHARES OUTSTANDING
---------- --------------------
<S> <C> <C>
A......................................... 1,985,520 1,985,520
B......................................... 2,500,000 2,037,038
C......................................... 3,000,000 3,000,000
D......................................... 1,523,424 --
--------- ---------
Total preferred stock........... 9,008,944 7,022,558
========= =========
</TABLE>
In March and April 1998, the Company sold 1,153,846 shares of Series D
redeemable convertible preferred stock at $2.60 per share.
Each share of preferred stock was convertible at any time at the option of
the holder into shares of common stock at the then effective conversion price.
Each outstanding share of Series A, B, C, and D redeemable convertible preferred
stock was convertible into 2.00, 2.00, 1.00, and 1.00 shares of common stock,
respectively, and was subject to adjustment as specified in the Articles of
Incorporation. Upon the Company's initial public offering, all outstanding
shares of preferred stock converted into 12,198,962 shares of common stock.
There have been no dividends declared or payable by the Company.
8. STOCKHOLDERS' EQUITY
Common Shares
The Company is authorized to issue 50,000,000 shares of common stock.
Holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders of the Company. Subject to the preferences that
may be applicable to any outstanding shares of preferred stock, the holders of
common stock are entitled to receive ratably such dividends, if any, that may be
declared by the Board of Directors.
F-15
<PAGE> 127
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has reserved shares of common stock for future issuance at
December 31, 1998 as follows:
<TABLE>
<S> <C>
1995 and 1998 Stock Option Plans:
Options outstanding....................................... 4,495,299
Options available for future grant........................ 268,849
Options granted outside of the Plan......................... 1,000,000
Outstanding warrants........................................ 358,422
---------
6,122,570
=========
</TABLE>
Stock Option Plans
The Company's 1995 Stock Option Plan was adopted by the Company on January
5, 1995. There are 3,000,000 shares of common stock authorized for issuance
under such plan. On April 4, 1998, the Company's Board of Directors and
stockholders adopted the 1998 Stock Option Plan and reserved an aggregate of
2,000,000 shares of Common Stock for grants of stock options under such plan.
These plans (collectively "the Plans") provide for the issuance of common stock
and granting of options to employees, officers, directors, consultants,
independent contractors, and advisors of the Company. The exercise price of a
nonqualifying stock option and an incentive stock option shall not be less than
85% and 100%, respectively, of the fair value of the underlying shares on the
date of grant. Options granted under the Plans generally vest over four years at
the rate of 25% one year from the grant date and ratably every month thereafter.
In conjunction with the Spin-off of CyberSource on December 31, 1997,
employees of the Company maintained their outstanding options to purchase common
shares of the Company and were granted additional stock options in CyberSource
based on the extent that the employees original options were vested. Employees
of CyberSource immediately following the Spin-off maintained their outstanding
vested stock options in the Company (although these stock options will now be
treated as nonqualified stock options subsequent to the Spin-off) and were
granted additional incentive stock options in CyberSource. The exercise prices
of the original and additional option grants were adjusted to reflect the
allocation of the current fair market value per share price between the
Company's and CyberSource's common stock based on an independent valuation of
the respective fair market value of such shares of common stock. Options to
purchase common shares of the Company held by the CyberSource employees that had
not vested as of the date of the Spin-off were canceled. The following table
summarizes option activity for the years ended December 31, 1996 and 1997, and
1998, and has been adjusted to retroactively reflect the change in exercise
prices of options to purchase common shares of the Company. The adjustments and
Spin-off of options resulted in nonstapled options to the employees of each
entity and were accounted for and in compliance with the guidelines in Emerging
F-16
<PAGE> 128
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Issues Task Force Issue No. 90-9 and, therefore, no compensation expense has
been recorded.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
NUMBER AVERAGE EXERCISE
SHARES AVAILABLE OF SHARES PRICE PER SHARE
---------------- --------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1995............ 770,000 530,000 $0.010
Additional shares reserved............ 700,000 -- --
Options granted....................... (618,500) 618,500 $0.052
---------- ---------
Balance at December 31, 1996............ 851,500 1,148,500 $0.033
Options granted....................... (750,700) 750,700 $0.156
Options exercised..................... -- (70,000) $0.031
Options canceled...................... 110,000 (110,000) $0.135
Cancellation of unvested options held
by CyberSource employees........... 702,745 (702,745) $0.097
---------- ---------
Balance at December 31, 1997............ 913,545 1,016,455 $0.068
Additional shares reserved............ 3,000,000 -- --
Options granted....................... (3,868,946) 3,868,946 $5.162
Options exercised..................... -- (165,852) $0.168
Options canceled...................... 224,250 (224,250) $5.775
---------- ---------
Balance at December 31, 1998............ 268,849 4,495,299 $4.163
========== =========
</TABLE>
In connection with certain stock options granted in March and April 1998,
the Company recorded deferred compensation for the estimated difference between
the exercise price of the options and the deemed fair value of approximately
$3,800,000 which is being amortized over the four year vesting period of the
options.
The following table summarizes information about options outstanding as of
December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED NUMBER OF
OPTIONS WEIGHTED AVERAGE OPTIONS WEIGHTED
OUTSTANDING AS OF AVERAGE REMAINING EXERCISABLE AS OF AVERAGE
DECEMBER 31, EXERCISE CONTRACTUAL DECEMBER 31, EXERCISE
EXERCISE PRICE 1998 PRICE LIFE (YEARS) 1998 PRICE
-------------- ----------------- -------- ------------ ----------------- --------
<S> <C> <C> <C> <C> <C>
$0.004 - $ 1.90.. 1,285,499 $ 0.46 8.05 642,341 $0.04
$2.60 - $ 4.00.. 1,241,600 $ 2.61 9.24 5,000 $4.00
$4.36 - $ 8.63.. 1,246,800 $ 5.52 9.38 -- $ --
$9.00 - $29.06.. 721,400 $11.09 9.56 1,000 $9.00
--------- -------
$0.0042 - $29.06.. 4,495,299 $4.163 648,341 $0.09
========= =======
</TABLE>
As of December 31, 1996, and 1997, 573,498 and 666,448 options were
exercisable at a weighted average exercise price of $0.03 and $0.03,
respectively.
F-17
<PAGE> 129
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options Granted Outside of the Stock Option Plans
On January 5, 1995, the Company granted options outside of the Plans to its
Chief Technical Officer to purchase 1,000,000 shares of common stock of the
Company at an exercise price of $0.004 per share. None of the options have been
exercised as of December 31, 1998. As of December 31, 1998, the remaining life
of the options is approximately three years, and all options are exercisable.
Stock-Based Compensation
Pro forma information regarding net loss is required by FAS 123, which also
requires that the information be determined as if the Company has accounted for
its employee stock options granted during the period from January 5, 1995 (date
of adoption of the Plan) through December 31, 1995 (1995) and the years ended
December 31, 1996, 1997, and 1998 under the fair value method of FAS 123. The
fair value for options granted prior to the IPO were estimated at the date of
grant using the minimum value method. Options granted subsequent to the IPO were
valued using the Black-Scholes model based on the actual stock closing price on
the day previous to the date of grant. The following weighted average
assumptions were used to calculate the value of the options granted: risk-free
interest rate of 5.6%, 6.1% and 5.2% for 1996, 1997, and 1998, respectively, no
dividend yield, no volatility factor for 1996 and 1997 and a volatility factor
of 1.35 for 1998, of the expected market price of the Company's common stock,
and a weighted average expected life of the option of four years for 1996 and
1997 and 5.43 years for 1998.
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those Plans
calculated using the minimum value method and the Black-Scholes model described
above, the Company's net loss and pro forma basic and diluted net loss per share
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Pro forma net loss (in thousands)............... $(1,515) $(5,364) $(32,924)
Pro forma basic and diluted net loss per
share......................................... $ (0.30) $ (1.36)
</TABLE>
The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $0.04, $0.04 and $6.48 for options
granted during 1996, 1997, and 1998 respectively.
F-18
<PAGE> 130
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The pro forma impact of options on the net loss for the years ended
December 31, 1996, 1997, and 1998 is not representative of the effects on net
income (loss) for future years, as future years will include the effects of
options vesting as well as the impact of multiple years of stock option grants.
The effect of FAS 123 will not be fully reflected until 1999.
9. RELATED PARTY TRANSACTIONS
Pursuant to the terms of an agreement entered into in connection with the
Spin-off of CyberSource, the Company uses services supplied to the Company by
CyberSource on a non-exclusive basis. These services relate to credit card
processing, fraud screening, export control, sales tax computation, electronic
licensing, hosting of electronic downloads and fulfillment notification. Any
discontinuation of such services, or any reduction in performance that requires
the Company to replace such services, would be disruptive to the Company's
business. The Company also received a non-exclusive license to certain
CyberSource Technology. Under the services agreement, the Company is obligated
to compensate CyberSource on a basis of services used per order or transaction.
The Company recorded expenses of approximately $746,500 related to such services
in 1998. As of December 31, 1998, amounts owed to CyberSource were approximately
$100,000.
During the years ended December 31, 1996, 1997, and 1998, legal fees
incurred were approximately, $112,000, $304,000, and $1,300,000, respectively,
relating to a law firm in which a current director of the Company is a partner.
As of December 31, 1997 and 1998, amounts owed to the law firm were
approximately $89,000, and $147,000, respectively.
On March 18, 1998, the Company borrowed $400,000 from CyberSource. The note
was repaid in June 1998.
On April 15, 1998, the Company issued a promissory note to a director and
stockholder to whom it loaned an aggregate of $270,000. Interest shall accrue on
the outstanding principal at a rate of 6.02% per annum. The note and related
accrued interest are due December 17, 1999. This note remains outstanding as of
December 31, 1998.
10. LITIGATION AND CONTINGENCIES
From time to time, the Company may be involved in litigation relating to
claims arising out of its ordinary course of business. The Company believes that
there are no claims or actions pending or threatened against the Company, the
ultimate disposition of which would have a material impact on the Company's
financial position or results of operations.
In November 1998, a third party that appears to hold a registered United
States trademark for "A Better Way to Buy Software" sent the Company a letter
asserting that use of that phrase up to such time infringed its trademark
rights. The Company disputes the validity of this assertion. However, this third
party might file a lawsuit against the Company, which could subject the Company
to injunctive relief or money damages, or both. In November 1998, another third
party, based in Australia, sent the Company a letter asserting that the
Company's use of the name "Beyond.com" infringes the trademark and domain name
rights of this third party. The Company disputes the validity of this
F-19
<PAGE> 131
BEYOND.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
assertion. However, if the asserting party were to be successful with certain of
its claims the Company's ability to use the "Beyond.com" mark, name or domain
name could be materially and adversely affected.
11. INCOME TAXES
No provision for income taxes has been recorded due to operating losses
with no current tax benefit.
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $37,000,000 and $31,000,000, respectively.
The Company also had federal and state research credit carryforwards of
approximately $314,000 and $268,000, respectively. The net operating losses and
credit carryforwards will expire at various dates beginning in 2002 through
2013, if not utilized. The net operating loss carryforwards differ from the
accumulated deficit primarily as a result of the accounting for the Spin-off of
CyberSource to the Company's preferred and common stockholders on December 31,
1997.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......... $ 2,952,000 $ 14,507,000
Research credit carryforwards............ 43,000 491,000
Reserves and accruals.................... 151,000 807,000
----------- ------------
Total deferred tax assets........ 3,146,000 15,805,000
Valuation allowance........................ (3,146,000) (15,805,000)
----------- ------------
Net deferred tax assets.................... $ -- $ --
=========== ============
</TABLE>
Under Statement of Financial Accounting Standards No. 109, (FAS 109),
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Based upon the weight of available evidence, which
includes the Company's historical operating performance, the reported net losses
in 1996, 1997, and 1998, and the uncertainties regarding future results of
operations of the Company, the Company has provided a full valuation allowance
against its net deferred tax assets as it is not more likely than not that the
deferred tax assets will be realized. The valuation allowance increased by
$2,204,000 during 1997 and increased by $12,659,000 during 1998.
F-20
<PAGE> 132
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BEYOND.COM CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and Nasdaq filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 18,000
Nasdaq National Market listing fee.......................... $ --
Blue Sky fees and expenses.................................. $ --
Printing and engraving expenses............................. $ 50,000
Legal fees and expenses..................................... $ 50,000
Accounting fees and expenses................................ $ 25,000
Transfer Agent and Registrar fees........................... $ 5,000
Miscellaneous............................................... $ 10,000
--------
Total............................................. $158,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond the indemnification specifically provided by the current
law.
Article IX of our Certificate of Incorporation, as amended, provides for
the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of our Bylaws provides for the indemnification of officers,
directors and third parties acting on our behalf if such person acted in good
faith and in a manner reasonably believed to be in, and not opposed to, our best
interest and, with respect to any criminal action or proceeding, the indemnified
party had no reason to believe his or her conduct was unlawful.
We have entered into indemnification agreements with our directors and
executive officers, in addition to providing indemnification in our Bylaws, and
intend to enter into indemnification agreements with any new directors and
executive officers in the future.
ITEM 15.RECENT SALES OF UNREGISTERED SECURITIES; USES OF PROCEEDS FROM SALES OF
REGISTERED SECURITIES
During the past three years, we and our predecessors, software.net
Corporation, a Delaware corporation, software.net Corporation, a California
corporation and CyberSource Corporation, a California corporation (collectively,
"Predecessor"), have issued unregistered securities to a limited number of
persons as described below. The information regarding our shares of stock has
been adjusted to give effect to the one-for-two stock split of our common stock
effected in June 1996, and the conversion of all outstanding shares of preferred
stock into common stock in connection with our initial public offering in June
1998.
II-1
<PAGE> 134
(1) On January 9, 1995, Predecessor issued an aggregate of 1,437,500 shares
of series A preferred stock which are convertible into 2,875,000 shares of
common stock, to ten investors for a consideration of either $0.40 per share of
Series A preferred stock ($0.33 per share as adjusted for the spin-off), or an
aggregate of $575,000. The purchasers consisted of one investor, who is
presently related to a director and purchased 500,000 shares, and nine
unaffiliated investors who purchased 937,500 shares.
(2) On February 27, 1996, Predecessor issued an aggregate of 548,020 shares
of Series A preferred stock, which are convertible into 1,096,040 shares of
common stock, to three investors for a consideration of either $0.91 per share
of Series A preferred stock ($0.76 per share as adjusted for the spin-off), or
an aggregate of $498,697. The purchasers consisted of one investor, who is
presently related to a director and purchased 253,131 shares, and two
unaffiliated investors who purchased 294,889 shares. Each of the purchasers had
previously purchased Series A preferred stock in January, 1995.
(3) On July 24, 1996, Predecessor issued an aggregate of 2,037,038 shares
of Series B preferred stock which are convertible into 4,074,076 shares of
common stock, to eleven investors for a consideration of either $2.70 per share
of Series B preferred stock ($2.25 per share as adjusted for the spin-off), or
an aggregate of approximately $5,500,000. The purchasers consisted of one
investor, who is presently related to a director and purchased 925,926 shares,
and ten unaffiliated investors who purchased 1,111,112 shares.
(4) On September 26, 1997, September 30, 1997 and December 5, 1997,
Predecessor issued an aggregate of 3,000,000 shares of Series C preferred stock
which are convertible into 3,000,000 shares of common stock, to 19 investors for
a consideration of either $2.04 per share of Series C preferred stock ($1.70 per
share as adjusted for the spin-off), or an aggregate of approximately
$6,120,000. The purchasers consisted of eleven investors, who are presently
related to certain directors and purchased 2,677,450 shares, and eight
unaffiliated investors who purchased 322,550 shares.
(5) On March 18, 1998 and April 3, 1998, Predecessor issued an aggregate of
1,153,846 shares of Series D preferred stock which are convertible into
1,153,846 shares of common stock, to eleven investors for a consideration of
either $2.60 per share of Series D preferred stock, or an aggregate of
approximately $3,000,000. The purchasers consisted of ten investors, who are
presently related to certain directors and purchased 1,145,264 shares, and one
unaffiliated investor who purchased 8,582 shares.
(6) In March 1998, Predecessor entered in an agreement with America Online
pursuant to which, subject to certain limited exceptions, America Online agreed
to buy shares of common stock at a price per share equal to the initial public
offering price (less the underwriters' discount) for an aggregate purchase price
of $2,000,000. Based on an initial public offering price of $9.00 per share,
America Online purchased 238,949 shares of common stock on June 19, 1998.
Concurrent with the purchase of the shares of common stock by America Online, we
issued to America Online a warrant to purchase 358,423 shares of the common
stock at a per share exercise price of $8.37, which will vest in increments of
1/36 per month commencing March 1, 1998.
(7) In March 1998, Predecessor also issued to America Online a warrant to
purchase 369,578 shares of the Series D preferred stock at a price of $2.60 per
share, which vest in increments of 1/36th per month commencing March 1, 1998;
provided, however, that the warrant is not exercisable until after August 31,
1999, except in the event of a change of
II-2
<PAGE> 135
control (as defined herein). This warrant terminated in accordance with its
terms immediately prior to the consummation of our initial public offering.
(8) In May 1998, we issued shares of our capital stock to the shareholders
of the Predecessor in connection with the reincorporation through a merger of
the Predecessor with and into us. We believe this transaction was exempt from
registration under Section 2(3) on the basis that such transaction did not
involve a "sale" of securities.
(9) In June 1998, in connection with the initial public offering of our
common stock, we sold an aggregate of 5,750,000 shares of common stock pursuant
to a registration statement on Form S-1, as amended (File No. 333-51121), which
is filed with the Securities and Exchange Commission (the "Commission"). The
registration statement was declared effective by the Commission on June 17,
1998.
(11) In August 1998, we filed a registration statement on Form S-8
registering an aggregate of 6,000,000 shares of common stock subject to
outstanding options or reserved for issuance under our stock option plans. As of
December 31, 1999, options to purchase an aggregate of 4,495,299 shares of
common stock had been granted under our stock option plans, options to purchase
an additional 1,000,000 shares of common stock had been granted outside our
stock option plans and an aggregate of 126,852 shares of common stock had been
issued upon exercise of such options.
(12) In November and December 1998, we issued and sold 7 1/4% Convertible
Subordinated Notes Due December 1, 2003 to several initial purchasers in an
aggregate principal amount of $63,250,000 (less discount). The initial
purchasers consisted of two purchasers, who are presently related to certain
directors and purchased an aggregate of $2,000 (less discount) of the
securities, and an unaffiliated purchaser who purchased $63,248,000 (less
discount).
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions or any public offering, and
we believe that each transaction was exempt from the registration requirements
of the Securities Act by virtue of Section 4(2) thereof, Regulation D
promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with us and the Predecessor, to
information about us and the Predecessor.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
** 2.1 Form of Agreement and Plan of Merger between the Registrant
and software.net Corporation, a California corporation.
*** 3.1 Form of Certificate of Incorporation, as amended.
** 3.2 Form of Bylaws of the Registrant.
** 4.1 Specimen of Certificate for Common Stock.
</TABLE>
II-3
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
** 4.2 Common Stock Warrant issued by Registrant to America Online,
Inc.
* 4.3 Form of Indenture dated as of November 23, 1998, by and
between the Registrant and LaSalle National Bank.
* 4.4 Form of Registration Rights Agreement dated as of November
23, 1998, by and between the Company and Credit Suisse
First Boston Corporation, C.E. Unterberg, Towbin and
Donaldson, Lufkin & Jenrette Securities Corporation.
* 4.5 Purchase Agreement dated as of November 17, 1998, by and
between the Company and Credit Suisse First Boston
Corporation, C.E. Unterberg, Towbin and Donaldson, Lufkin
& Jenrette Securities Corporation.
* 4.6 Form of Notes (included in Exhibit 4.3).
* 5.1 Opinion of Jackson Tufts Cole & Black, LLP.
* 5.2 Opinion of Winthrop Stimson Putnam & Roberts.
** 10.1 Form of Indemnification Agreement.
** 10.2 1995 Stock Option Plan, as amended.
** 10.3 1998 Stock Option Plan.
** 10.4 Stock Option Agreement dated as of March 31, 1995, by and
between the Registrant and John Pettitt.
** 10.5 Series A Preferred Stock Purchase Agreement, as amended.
** 10.6 Series B Preferred Stock Purchase Agreement.
** 10.7 Series C Preferred Stock Purchase Agreement.
** 10.8 Series D Preferred Stock Purchase Agreement.
** 10.9 Common Stock and Warrants Subscription Agreement dated as of
March 18, 1998, by and between the Registrant and America
Online, Inc.
** 10.10 Conveyance Agreement dated as of December 31, 1997, by and
between the Registrant and Internet Commerce Services
Corporation (now known as CyberSource Corporation).
** 10.11 Interactive Marketing Agreement dated as of March 1, 1998,
by and between the Registrant and America Online, Inc.
** 10.12 Sponsorship Agreement dated as of March 30, 1998, by and
between the Registrant and Excite, Inc.
** 10.13 Co-Marketing Services Agreement dated as of June 23, 1997,
by and between the Registrant and Netscape Communications
Corporation.
** 10.14 Trademark License Agreement dated as of June 23, 1997, by
and between the Registrant and Netscape Communications
Corporation.
** 10.15 Offer letter to Mark Breier.
** 10.16 Inter-Company Cross License Agreement dated as of April 23,
1998, by and between the Registrant and Internet Commerce
Services (now known as CyberSource Corporation), as
amended on May 19, 1998.
** 10.17 Promissory Note dated as of April 15, 1998, by and between
the Registrant and William S. McKiernan.
</TABLE>
II-4
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
** 10.18 Pledge Agreement as of April 15, 1998, by and between the
Registrant and William S. McKiernan.
** 10.19 Internet Services and Products Agreement dated as of April
29, 1996, by and between the Registrant and Exodus
Communications, Inc.
** 10.20 Office Building Lease dated as of July 8, 1997, as amended,
by and between the Registrant and PGP-South Bay Office
Towers, Inc.
** 10.21 Agreement dated as of December 19, 1995, by and between the
Registrant and the United States Department of Defense,
DFAS (#N00140-96-G-D115).
** 10.22 Internet Commerce Services Agreement dated as of April 23,
1998, by and between the Registrant and CyberSource
Corporation, as amended on May 19, 1998.
** 10.23 Call Center Agreement dated as of October 17, 1997, by and
between the Registrant and LOGISTIX.
** 10.24 Sublease dated as of May 27, 1998 by and between the
Registrant and First Data Merchant Services Corporation.
**** 10.25 Agreement dated as of June 12, 1998, by and between the
Registrant and the United States Department of Defense,
Defense Logistics Agency (#N00140-98-D-1756).
**** 10.26 Offer Letter from Registrant to Mala Anand, dated as of June
15, 1998.
***** 10.27 Agreement dated as of September 11, 1998, by and between the
Registrant and the United States National Imaging and
Mapping Agency ( NIMA Contract # N00140-98-D-2139).
*****+ 10.28 Co-hosting Agreement dated as of September 21, 1998, by and
between the Registrant and Network Associates, Inc.
*****+ 10.29 Web Site Service Agreement dated as of September 21, 1998,
by and between the Registrant and Network Associates, Inc.
*****+ 10.30 Electronic Services Distribution Agreement dated as of
September 1, 1997, by and between the Registrant and
McAfee Software, Inc.
* 10.31 Offer Letter to John D. Vigouroux dated as of October 26,
1998.
* 12.1 Ratio of Earnings to Fixed Charges.
* 23.1 Consent of Ernst & Young LLP, independent auditor.
* 23.2 Consent of Jackson Tufts Cole & Black, LLP (included in
Exhibit 5.1).
* 24.1 Power of Attorney (See page II- ).
* 25.1 Form T-1 Statement of Eligibility and Qualification of
Trustee.
* 27 Financial Data Schedule.
</TABLE>
- -------------------------
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with
the Commission.
* Filed herewith.
** Incorporated by reference from Beyond.com's Registration Statement on Form
S-1 (Reg. No. 333-51121), as amended, filed with the Commission on June
17, 1998.
*** Incorporated by reference from Beyond.com's Current Report on Form 8-K
filed with the Commission on December 31, 1998, as amended.
II-5
<PAGE> 138
**** Incorporated by reference from Beyond.com's Quarterly Report on Form 10-Q
filed with the Commission on August 14, 1998.
***** Incorporated by reference from Beyond.com's Quarterly Report, as amended,
on Form 10-Q/A filed with the Commission on November 20, 1998.
(b) FINANCIAL STATEMENT SCHEDULES
BEYOND.COM CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTION/ END OF
DESCRIPTION OF PERIOD EXPENSES WRITEOFF PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Accounts receivable allowances...... $ -- $ 77 $ (12) $ 65
Year ended December 31, 1997
Accounts receivable allowances...... $ 65 $240 $ (30) $275
Period ended December 31, 1998
Accounts receivable allowances...... $275 $730 $(117) $878
</TABLE>
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements of the registrant or
related notes thereto.
ITEM 17. UNDERTAKINGS
We hereby undertake to:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE> 139
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of our annual report pursuant to section 13(a)
or section 15(d) of the Exchange Act (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to section 15(d) of the
Exchange Act) that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Sunnyvale, California,
on January 21, 1999.
Beyond.com Corporation
By: /s/ MARK L. BREIER
-----------------------------------
Mark L. Breier
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints, jointly and severally,
Mark L. Breier and Michael J. Praisner, and each of them, individually and
without the other, his or her true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him or her
and his or her name, place and stead, in any and all capacities, to sign any or
all amendments to this registration statement (including post-effective
amendments and any amendments or abbreviated registration statements pursuant to
Rule 462(b) increasing the amount of securities for which registration is
sought) and to file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission. Each person
whose signature appears below hereby grants unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, and hereby ratifies and
confirms all that each of said attorney-in-fact may lawfully perform or cause to
be performed each and every act requisite and necessary to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on the 21st day of January, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
By: /s/ MARK L. BREIER President and Chief January 21, 1999
---------------------------------------- Executive Officer
Mark L. Breier
PRINCIPAL FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING
OFFICER:
By: /s/ MICHAEL J. PRAISNER Vice President, Finance & January 21, 1999
---------------------------------------- Administration and Chief
Michael J. Praisner Financial Officer
</TABLE>
II-8
<PAGE> 141
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
ADDITIONAL DIRECTORS:
By: /s/ WILLIAM S. MCKIERNAN Chairman of the Board of January 21, 1999
---------------------------------------- Directors
William S. McKiernan
By: /s/ LINDA FAYNE LEVINSON Director January 21, 1999
----------------------------------------
Linda Fayne Levinson
By: /s/ BERT KOLDE Director January 21, 1999
----------------------------------------
Bert Kolde
By: /s/ STEVEN P. NOVAK Director January 21, 1999
----------------------------------------
Steven P. Novak
By: /s/ RICHARD SCUDELLARI Secretary and Director January 21, 1999
----------------------------------------
Richard Scudellari
</TABLE>
II-9
<PAGE> 142
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- -------------------------------------------------- ------------
<S> <C> <C> <C>
** 2.1 Form of Agreement and Plan of Merger between the
Registrant and software.net Corporation, a
California corporation.
*** 3.1 Form of Certificate of Incorporation, as amended.
** 3.2 Form of Bylaws of the Registrant.
** 4.1 Specimen of Certificate for Common Stock.
** 4.2 Common Stock Warrant issued by Registrant to
America Online, Inc.
* 4.3 Form of Indenture dated as of November 23, 1998,
by and between the Registrant and LaSalle National
Bank.
* 4.4 Form of Registration Rights Agreement dated as of
November 23, 1998, by and between the Company and
Credit Suisse First Boston Corporation, C.E.
Unterberg, Towbin and Donaldson, Lufkin & Jenrette
Securities Corporation.
* 4.5 Purchase Agreement dated as of November 17, 1998,
by and between the Company and Credit Suisse First
Boston Corporation, C.E. Unterberg, Towbin and
Donaldson, Lufkin & Jenrette Securities
Corporation.
* 4.6 Form of Notes (included in Exhibit 4.3).
* 5.1 Opinion of Jackson Tufts Cole & Black, LLP.
* 5.2 Opinion of Winthrop Stimson Putnam & Roberts.
** 10.1 Form of Indemnification Agreement.
** 10.2 1995 Stock Option Plan, as amended.
** 10.3 1998 Stock Option Plan.
** 10.4 Stock Option Agreement dated as of March 31, 1995,
by and between the Registrant and John Pettitt.
** 10.5 Series A Preferred Stock Purchase Agreement, as
amended.
** 10.6 Series B Preferred Stock Purchase Agreement.
** 10.7 Series C Preferred Stock Purchase Agreement.
** 10.8 Series D Preferred Stock Purchase Agreement.
** 10.9 Common Stock and Warrants Subscription Agreement
dated as of March 18, 1998, by and between the
Registrant and America Online, Inc.
** 10.10 Conveyance Agreement dated as of December 31,
1997, by and between the Registrant and Internet
Commerce Services Corporation (now known as
CyberSource Corporation).
** 10.11 Interactive Marketing Agreement dated as of March
1, 1998, by and between the Registrant and America
Online, Inc.
** 10.12 Sponsorship Agreement dated as of March 30, 1998,
by and between the Registrant and Excite, Inc.
** 10.13 Co-Marketing Services Agreement dated as of June
23, 1997, by and between the Registrant and
Netscape Communications Corporation.
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- -------------------------------------------------- ------------
<S> <C> <C> <C>
** 10.14 Trademark License Agreement dated as of June 23,
1997, by and between the Registrant and Netscape
Communications Corporation.
** 10.15 Offer letter to Mark Breier.
** 10.16 Inter-Company Cross License Agreement dated as of
April 23, 1998, by and between the Registrant and
Internet Commerce Services (now known as
CyberSource Corporation), as amended on May 19,
1998.
** 10.17 Promissory Note dated as of April 15, 1998, by and
between the Registrant and William S. McKiernan.
** 10.18 Pledge Agreement as of April 15, 1998, by and
between the Registrant and William S. McKiernan.
** 10.19 Internet Services and Products Agreement dated as
of April 29, 1996, by and between the Registrant
and Exodus Communications, Inc.
** 10.20 Office Building Lease dated as of July 8, 1997, as
amended, by and between the Registrant and
PGP-South Bay Office Towers, Inc.
** 10.21 Agreement dated as of December 19, 1995, by and
between the Registrant and the United States
Department of Defense, DFAS (#N00140-96-G-D115).
** 10.22 Internet Commerce Services Agreement dated as of
April 23, 1998, by and between the Registrant and
CyberSource Corporation, as amended on May 19,
1998.
** 10.23 Call Center Agreement dated as of October 17,
1997, by and between the Registrant and LOGISTIX.
** 10.24 Sublease dated as of May 27, 1998 by and between
the Registrant and First Data Merchant Services
Corporation.
**** 10.25 Agreement dated as of June 12, 1998, by and
between the Registrant and the United States
Department of Defense, Defense Logistics Agency
(#N00140-98-D-1756).
**** 10.26 Offer Letter from Registrant to Mala Anand, dated
as of June 15, 1998.
***** 10.27 Agreement dated as of September 11, 1998, by and
between the Registrant and the United States
National Imaging and Mapping Agency ( NIMA
Contract # N00140-98-D-2139).
*****+ 10.28 Co-hosting Agreement dated as of September 21,
1998, by and between the Registrant and Network
Associates, Inc.
*****+ 10.29 Web Site Service Agreement dated as of September
21, 1998, by and between the Registrant and
Network Associates, Inc.
*****+ 10.30 Electronic Services Distribution Agreement dated
as of September 1, 1997, by and between the
Registrant and McAfee Software, Inc.
</TABLE>
<PAGE> 144
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- -------------------------------------------------- ------------
<S> <C> <C> <C>
* 10.31 Offer Letter to John D. Vigouroux dated as of
October 26, 1998.
* 12.1 Ratio of Earnings to Fixed Charges.
* 23.1 Consent of Ernst & Young LLP, independent auditor.
* 23.2 Consent of Jackson Tufts Cole & Black, LLP
(included in Exhibit 5.1).
* 24.1 Power of Attorney (See page II- ).
* 25.1 Form T-1 Statement of Eligibility and
Qualification of Trustee.
* 27 Financial Data Schedule.
</TABLE>
- -------------------------
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with
the Commission.
* Filed herewith.
** Incorporated by reference from Beyond.com's Registration Statement on Form
S-1 (Reg. No. 333-51121), as amended, filed with the Commission on June
17, 1998.
*** Incorporated by reference from Beyond.com's Current Report on Form 8-K
filed with the Commission on December 31, 1998, as amended.
**** Incorporated by reference from Beyond.com's Quarterly Report on Form 10-Q
filed with the Commission on August 14, 1998.
***** Incorporated by reference from Beyond.com's Quarterly Report, as amended,
on Form 10-Q/A filed with the Commission on November 20, 1998.
<PAGE> 1
EXHIBIT 4.3
SOFTWARE.NET CORPORATION
(Doing Business as Beyond.com)
7 1/4% Convertible Subordinated Notes
Due December 1, 2003
------------------------------------------------------
INDENTURE
Dated as of November 23, 1998
------------------------------------------------------
LaSalle National Bank
Trustee
------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TIA Indenture
Section Section
<S> <C>
Section 310(a)(1)............................................................... 9.10
(a)(2).................................................................... 9.10
(a)(3).................................................................... N.A.**
(a)(4).................................................................... N.A.
(a)(5).................................................................... 9.10
(b)....................................................................... 9.8; 9.10
(c)....................................................................... N.A.
Section 311(a).................................................................. 9.11
(b)....................................................................... 9.11
(c)....................................................................... N.A.
Section 312(a).................................................................. 2.5
(b)....................................................................... 12.3
(c)....................................................................... 12.3
Section 313(a).................................................................. 9.6
(b)(1).................................................................... N.A.
(b)(2).................................................................... 9.6
(c)....................................................................... 9.6; 12.2
(d)....................................................................... 9.6
Section 314(a).................................................................. 6.2; 6.4;12.2
(b)....................................................................... N.A.
(c)(1).................................................................... 12.4(a)
(c)(2).................................................................... 12.4(a)
(c)(3).................................................................... N.A.
(d)....................................................................... N.A.
(e)....................................................................... 12.4(b)
(f)....................................................................... N.A.
Section 315(a).................................................................. 9.1(b)
(b)....................................................................... 9.5; 12.2
(c)....................................................................... 9.1(a)
(d)....................................................................... 9.1(c)
(e)....................................................................... 8.11
Section 316(a)(last sentence)................................................... 2.9
(a)(1)(A)................................................................. 8.5
(a)(1)(B)................................................................. 8.4
(a)(2).................................................................... N.A.
(b)....................................................................... 8.7
(c)....................................................................... 12.5
Section 317(a)(1)............................................................... 8.8
(a)(2).................................................................... 8.9
(b)....................................................................... 2.4
Section 318(a).................................................................. 12.1
</TABLE>
<PAGE> 3
* This Cross-Reference Table shall not, for any purpose, be deemed a part
of this Indenture.
** N.A. means Not Applicable.
<PAGE> 4
TABLE OF CONTENTS*
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions..........................................................1
SECTION 1.2. Other Definitions....................................................6
SECTION 1.3. Trust Indenture Act Provisions.......................................6
SECTION 1.4. Rules of Construction................................................7
ARTICLE 2
THE SECURITIES
SECTION 2.1. Form and Dating......................................................7
SECTION 2.2. Execution and Authentication.........................................9
SECTION 2.3. Registrar, Paying Agent and Conversion Agent.........................9
SECTION 2.4. Paying Agent to Hold Money In Trust.................................10
SECTION 2.5. Securityholder Lists................................................10
SECTION 2.6. Transfer and Exchange...............................................10
SECTION 2.7. Replacement Securities..............................................11
SECTION 2.8. Outstanding Securities..............................................12
SECTION 2.9. Treasury Securities.................................................12
SECTION 2.10. Temporary Securities...............................................12
SECTION 2.11. Cancellation.......................................................13
SECTION 2.12. Additional Transfer and Exchange Requirements......................13
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.1. Right to Redeem; Notice to Trustee..................................18
SECTION 3.2. Selection of Securities to Be Redeemed..............................19
SECTION 3.3. Notice of Redemption................................................19
SECTION 3.4. Effect of Notice of Redemption......................................20
SECTION 3.5. Deposit of Redemption Price.........................................20
SECTION 3.6. Securities Redeemed in Part.........................................21
SECTION 3.7. Conversion Arrangement on Call for Redemption.......................21
</TABLE>
- ----------
* This Table of Contents shall not, for any purpose, be deemed a part of this
Indenture.
i
<PAGE> 5
<TABLE>
<S> <C>
SECTION 3.8. Purchase of Securities at Option of the Holder Upon Change in
Control............................................................21
SECTION 3.9. Effect of Change in Control Purchase Notice.........................24
SECTION 3.10. Deposit of Change in Control Purchase Price.........................25
SECTION 3.11. Securities Purchased In Part........................................25
SECTION 3.12. Compliance With Securities Laws Upon Purchase of Securities.........25
SECTION 3.13. Repayment to the Company............................................26
ARTICLE 4
CONVERSION
SECTION 4.1. Conversion Privilege................................................26
SECTION 4.2. Conversion Procedure................................................27
SECTION 4.3. Fractional Shares...................................................28
SECTION 4.4. Taxes on Conversion.................................................28
SECTION 4.5. Company to Provide Stock............................................28
SECTION 4.6. Adjustment of Conversion Price......................................29
SECTION 4.7. No Adjustment.......................................................33
SECTION 4.8. Adjustment for Tax Purposes.........................................33
SECTION 4.9. Notice of Adjustment................................................34
SECTION 4.10. Notice of Certain Transactions......................................34
SECTION 4.11. Effect of Reclassification, Consolidation, Merger or Sale on
Conversion Privilege................................................34
SECTION 4.12. Trustee's Disclaimer................................................35
SECTION 4.13. Voluntary Reduction.................................................35
ARTICLE 5
SUBORDINATION
SECTION 5.1. Securities Subordinated to Senior Indebtedness......................36
SECTION 5.2. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation, Reorganization, Etc.......36
SECTION 5.3. Holders to Be Subrogated to Right of Holders of Senior
Indebtedness.......................................................37
SECTION 5.4. Obligations of the Company Unconditional............................38
SECTION 5.5. Company Not to Make Payment With Respect to Securities in
Certain Circumstances..............................................38
SECTION 5.6. Notice to Trustee...................................................39
SECTION 5.7. Application by Trustee of Money Deposited With It...................40
SECTION 5.8. Subordination Rights Not Impaired by Acts or Omissions of
Company or Holders of Senior Indebtedness...........................40
SECTION 5.9. Trustee to Effectuate Subordination.................................40
SECTION 5.10. Right of Trustee to Hold Senior Indebtedness........................41
SECTION 5.11. Article 5 Not to Prevent Events of Default..........................41
SECTION 5.12. No Fiduciary Duty Created to Holders of Senior Indebtedness.........41
</TABLE>
ii
<PAGE> 6
<TABLE>
<S> <C>
SECTION 5.13. Article Applicable to Paying Agents..................................41
ARTICLE 6
COVENANTS
SECTION 6.1. Payment of Securities................................................41
SECTION 6.2. SEC Reports..........................................................42
SECTION 6.3. Compliance Certificates..............................................42
SECTION 6.4. Notice of Defaults...................................................42
SECTION 6.5. Further Instruments and Acts.........................................43
SECTION 6.6. Maintenance of Corporate Existence...................................43
ARTICLE 7
SUCCESSOR CORPORATION
SECTION 7.1. When Company May Merge, Etc..........................................43
SECTION 7.2. Successor Corporation Substituted....................................44
ARTICLE 8
DEFAULT AND REMEDIES
SECTION 8.1. Events of Default....................................................44
SECTION 8.2. Acceleration.........................................................45
SECTION 8.3. Other Remedies.......................................................46
SECTION 8.4. Waiver of Defaults and Events of Default.............................46
SECTION 8.5. Control by Majority..................................................47
SECTION 8.6. Limitations on Suits.................................................47
SECTION 8.7. Rights of Holders to Receive Payment and to Convert..................47
SECTION 8.8. Collection Suit by Trustee...........................................48
SECTION 8.9. Trustee May File Proofs of Claim.....................................48
SECTION 8.10. Priorities...........................................................48
SECTION 8.11. Undertaking for Costs................................................49
SECTION 8.12. Waiver of Usury, Stay or Extension Laws..............................49
ARTICLE 9
TRUSTEE
SECTION 9.1. Duties of Trustee....................................................49
SECTION 9.2. Rights of Trustee....................................................50
SECTION 9.3. Individual Rights of Trustee.........................................51
SECTION 9.4. Trustee's Disclaimer.................................................51
SECTION 9.5. Notice of Default or Events of Default...............................51
SECTION 9.6. Reports by Trustee to Holders........................................51
</TABLE>
iii
<PAGE> 7
<TABLE>
<S> <C>
SECTION 9.7. Compensation and Indemnity.........................................51
SECTION 9.8. Replacement of Trustee.............................................52
SECTION 9.9. Successor Trustee by Merger, Etc...................................53
SECTION 9.10. Eligibility; Disqualification......................................53
SECTION 9.11. Preferential Collection of Claims Against Company..................53
ARTICLE 10
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 10.1. Satisfaction and Discharge of Indenture............................54
SECTION 10.2. Application of Trust Money.........................................55
SECTION 10.3. Repayment to Company...............................................55
SECTION 10.4. Reinstatement......................................................55
ARTICLE 11
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.1. Without Consent of Holders.........................................56
SECTION 11.2. With Consent of Holders............................................56
SECTION 11.3. Compliance With Trust Indenture Act................................57
SECTION 11.4. Revocation and Effect of Consents..................................57
SECTION 11.5. Notation on or Exchange of Securities..............................57
SECTION 11.6. Trustee to Sign Amendments, etc....................................58
ARTICLE 12
MISCELLANEOUS
SECTION 12.1. Trust Indenture Act Controls.......................................58
SECTION 12.2. Notices............................................................58
SECTION 12.3. Communications by Holders With Other Holders.......................59
SECTION 12.4. Certificate and Opinion as to Conditions Precedent.................59
SECTION 12.5. Record Date for Vote or Consent of Securityholders.................60
SECTION 12.6. Rules by Trustee, Paying Agent, Registrar and Conversion Agent.....60
SECTION 12.7. Legal Holidays.....................................................60
SECTION 12.8. Governing Law......................................................60
SECTION 12.9. No Adverse Interpretation of Other Agreements......................60
SECTION 12.10. No Recourse Against Others.........................................60
SECTION 12.11. Successors.........................................................60
SECTION 12.12. Multiple Counterparts..............................................61
SECTION 12.13. Separability.......................................................61
SECTION 12.14. Table of Contents, Headings, etc...................................61
</TABLE>
iv
<PAGE> 8
THIS INDENTURE dated as of November 23, 1998 is between software.net
Corporation, a Delaware corporation (the "Company") doing business as
Beyond.com, and LaSalle National Bank, a banking corporation duly organized and
existing under the laws of the United States, as Trustee (the "Trustee").
In consideration of the premises and the purchase of the Securities by
the Holders thereof, both parties agree as follows for the benefit of the other
and for the equal and ratable benefit of the registered Holders of the Company's
7 1/4% Convertible Subordinated Notes Due December 1, 2003.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
"Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent or Conversion Agent.
"Applicable Procedures" means, with respect to any transfer or exchange
of beneficial ownership interests in a global Security, the rules and procedures
of the Depositary that are applicable to such transfer or exchange.
"Board of Directors" means the board of directors of the Company or any
authorized committee of the Board of Directors. The term "board of directors",
when used with lower-case letters, means the board of directors of the Company.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" or "capital stock" of any person means any and all
shares, interests, partnership interests, participations, rights or other
equivalents (however designated) of such person's equity interest (however
designated).
"Capitalized Lease Obligation" means any obligation under a lease of
(or other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and the amount of such obligation at any
date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.
<PAGE> 9
"Cash" or "cash" means such coin or currency of the United States as at
any time of payment is legal tender for the payment of public and private debts.
"Certificated Security" means a Security that is in substantially the
form attached hereto as Exhibit A and that does not include the information or
the schedule called for by footnotes 1, 3 and 4 thereof.
"Common Stock" means the common stock of the Company, $.001 par value,
as it exists on the date of this Indenture and any shares of any class or
classes of capital stock of the Company resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company and which are not subject to redemption
by the Company; provided, however, that if at any time there shall be more than
one such resulting class, the shares of each such class then so issuable on
conversion of Securities shall be substantially in the proportion which the
total number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture, and thereafter means the
successor.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered
which office at the date of the execution of this Indenture is located at 135
South LaSalle Street, Suite 1960, Chicago, Illinois 60603, Attention: Corporate
Trust Department or at any other time at such other address as the Trustee may
designate from time to time by notice to the Company.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company against fluctuations in currency values.
"Default" or "default" means, when used with respect to the Securities,
any event which is or, after notice or passage of time or both, would be an
Event of Default.
"Final Maturity Date" means December 1, 2003.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable from time to
time and are consistently applied.
"global Security" means a permanent global Security that is in
substantially the form attached hereto as Exhibit A and that includes the
information and schedule called for by
2
<PAGE> 10
footnotes 1, 3 and 4 thereof and which is deposited with the Depositary or its
custodian and registered in the name of the Depositary or its nominee
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Primary Registrar's books.
"Indebtedness" means , with respect to any person, without duplication,
(a) all liabilities of such person for borrowed money or for the deferred
purchase price of property or services, excluding any trade accounts payable and
other current liabilities incurred in the ordinary course of business; (b) all
obligations of such person evidenced by bonds, notes, debentures, or other
similar instruments; (c) all Capitalized Lease Obligations of such person; (d)
all guarantees of Indebtedness referred to in this definition by such person;
(e) all obligations of such person under or in respect of Currency Agreements
and Interest Rate Protection Obligations of such person; and (f) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a) through (e) above.
"Indenture" means this Indenture as amended or supplemented from time
to time pursuant to the terms of this Indenture.
"Initial Issuance Date" means November 23, 1998.
"Interest Rate Protection Agreement" means any arrangement between the
Company and any other person whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a floating or a fixed rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or a floating rate of interest on the same notional amount and shall
include without limitation, interest rate swaps, caps, floors, collars and
similar agreements.
"Interest Rate Protection Obligations" means the obligations of the
Company pursuant to an Interest Rate Protection Agreement.
"Officer" means the Chairman or any Co-Chairman of the Board, any Vice
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers;
provided, however, that for purposes of Sections 4.11 and 6.3, "Officers'
Certificate" means a certificate signed by the principal executive officer,
principal financial officer or principal accounting officer of the Company and
by one other Officer.
"Opinion of Counsel" means a written opinion from legal counsel. The
counsel may be an employee of or counsel to the Company or the Trustee.
"Person" or "person" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint-stock company,
trust, or any other entity or organization, including a government or political
subdivision or instrumentality thereof.
3
<PAGE> 11
"Principal" or "principal" of a debt security, including the
Securities, means the principal of the security plus, when appropriate, the
premium, if any, on the security.
"Redemption Date" or "redemption date," when used with respect to any
Security to be redeemed, means the date fixed for such redemption pursuant to
this Indenture.
"Redemption Price" or "redemption price," when used with respect to any
Security to be redeemed, means the price fixed for such redemption pursuant to
this Indenture, as set forth in the form of Security annexed as Exhibit A
hereto.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of November 23, 1998 among the Company and Credit Suisse First Boston
Corporation, Donaldson, Lufkin & Jenrette Securities Corporation and C.E.
Unterberg, Towbin.
"Restricted Certificated Security" means a Certificated Security which
is a Transfer Restricted Security.
"Restricted Global Security" means a global Security that is a Transfer
Restricted Security.
"Rule 144" means Rule 144 under the Securities Act or any successor to
such Rule.
"Rule 144A" means Rule 144A under the Securities Act or any successor
to such Rule.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities" means the 7 1/4% Convertible Subordinated Notes Due
December 1, 2003 or any of them (each, a "Security"), as amended or supplemented
from time to time, that are issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor thereto.
"Senior Indebtedness" means the principal of and premium, if any,
interest and other amounts payable on or in respect of any Indebtedness of the
Company, whether outstanding on the date of this Indenture or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to, or shall be junior in right of payment to,
or shall be pari passu in right of payment with, the Securities. Notwithstanding
the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness
evidenced by the Securities, (b) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code
(or any successor provision thereto), is without recourse to the Company, (c)
trade accounts payable or other current liabilities incurred in the ordinary
course of business, (d) Indebtedness of or amounts owed by the Company for
compensation to employees or for services rendered to the Company,
4
<PAGE> 12
(e) any liability for federal, state, local or other taxes owed or owing by the
Company, (f) Indebtedness of the Company to a Subsidiary of the Company and (g)
amounts owing under leases (other than Capitalized Lease Obligations).
"Significant Subsidiary" means any Subsidiary of the Company which is a
"significant subsidiary" within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission, as such Rule is in effect on the date of this
Indenture, but substituting 50% for 10% in each instance that 10% appears in
such Rule.
"Subsidiary" means, with respect to any person, (i) a corporation a
majority of whose outstanding Voting Stock is at the time of determination
thereof, directly or indirectly, owned by such person, by one or more
Subsidiaries of such person or by such person and one or more of its
Subsidiaries and (ii) any other person (other than a corporation), including,
without limitation, a joint venture, in which such person, one or more
Subsidiaries of such person or such person and one or more of its Subsidiaries,
directly or indirectly, at the date of determination thereof, owns at least a
majority of the ownership interests entitled to vote in the election of
directors, managers or trustees thereof (or other persons performing similar
functions). For purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be disregarded
in determining the ownership of a Subsidiary.
"TIA" means the Trust Indenture Act of 1939, as amended, as in effect
on the date of this Indenture, except as provided in Section 11.3, and except to
the extent any amendment to the Trust Indenture Act expressly provides for
application of the Trust Indenture Act as in effect on another date.
"Trading Day" means, with respect to any security, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which securities
are not generally traded on the principal exchange or market in which such
security is traded.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture, and
thereafter means the successor.
"Trust Officer" means, with respect to the Trustee, any officer
assigned to the Corporate Trust Office, including any managing director, vice
president, assistant vice president, assistant treasurer, assistant secretary or
any other officer of the Trustee customarily performing functions similar to
those performed by any of the above-designated officers and having direct
responsibility for the administration of this Indenture, and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Unrestricted Certificated Security" means a Certificated Security
which is not a Transfer Restricted Security.
"Unrestricted Global Security" means a global Security which is not a
Transfer Restricted Security.
5
<PAGE> 13
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof under ordinary circumstances have the power to vote in
the election of the board of directors, managers or trustees of any person (or
other persons performing similar functions), irrespective of whether or not, at
the time, Capital Stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency.
SECTION 1.2. Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Agent Members".................................................... 2.1
"Bankruptcy Law"................................................... 8.1
"Change in Control"................................................ 3.8
"Change in Control Purchase Date".................................. 3.8
"Change in Control Purchase Notice"................................ 3.8
"Change in Control Purchase Price"................................. 3.8
"closing price".................................................... 4.6
"Company Order".................................................... 2.2
"Conversion Agent"................................................. 2.3
"Conversion Date".................................................. 4.2
"Conversion Price"................................................. 4.6
"current market price"............................................. 4.6
"Custodian"........................................................ 8.1
"DTC".............................................................. 2.1
"Default Notice"................................................... 5.5
"Depositary"....................................................... 2.1
"Determination Date"............................................... 4.6
"Distribution Date"................................................ 4.6
"Event of Default"................................................. 8.1
"Exchange Act"..................................................... 2.12
"Expiration Date".................................................. 4.6
"Expiration Time".................................................. 4.6
"Legal Holiday".................................................... 12.7
"NYSE"............................................................. 4.6
"Paying Agent"..................................................... 2.3
"Primary Registrar"................................................ 2.3
"Purchase Agreement"............................................... 2.1
"Purchased Shares"................................................. 4.6
"QIB".............................................................. 2.1
"Registrar"........................................................ 2.3
"Transfer Certificate"............................................. 2.12
"Transfer Restricted Security"..................................... 2.12
"Triggering Distribution".......................................... 4.6
"Unissued Shares".................................................. 3.8
</TABLE>
6
<PAGE> 14
SECTION 1.3. Trust Indenture Act Provisions.
Whenever this Indenture refers to a provision of the TIA, that
provision is incorporated by reference in and made a part of this Indenture. The
Indenture shall also include those provisions of the TIA required to be included
herein by the provisions of the Trust Indenture Reform Act of 1990. The
following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.4. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) words in the singular include the plural, and words in the
plural include the singular;
(4) provisions apply to successive events and transactions;
(5) the term "merger" includes a statutory share exchange and
the term "merged" has a correlating meaning;
(6) the masculine gender includes the feminine and the neuter;
(7) references to agreements and other instruments include
subsequent amendments thereto; and
(8) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subdivision.
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ARTICLE 2
THE SECURITIES
SECTION 2.1. Form and Dating.
The Securities and the Trustee's certificate of authentication shall be
substantially in the respective forms set forth in Exhibit A, which Exhibit is
incorporated in and made part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Security shall be dated the date of its authentication. The
Securities are being offered and sold by the Company pursuant to a Purchase
Agreement, dated November 17, 1998 (the "Purchase Agreement"), between the
Company and Credit Suisse First Boston Corporation, C. E. Unterberg, Towbin and
Donaldson, Lufkin & Jenrette Securities Corporation, in transactions exempt
from, or not subject to, the registration requirements of the Securities Act.
(a) Restricted Global Securities. All of the Securities are initially
being offered and sold to qualified institutional buyers as defined in Rule 144A
(collectively, "QIBs" or individually a "QIB") in reliance on Rule 144A under
the Securities Act and shall be issued initially in the form of one or more
Restricted Global Securities, which shall be deposited on behalf of the
purchasers of the Securities represented thereby with the Trustee, at its
Corporate Trust Office, as custodian for the depositary, The Depository Trust
Company ("DTC") (such depositary, or any successor thereto, being hereinafter
referred to as the "Depositary"), and registered in the name of its nominee,
Cede & Co., duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Restricted Global
Security may from time to time be increased or decreased by adjustments made on
the records of the Securities Custodian as hereinafter provided, subject in each
case to compliance with the Applicable Procedures.
(b) Global Securities in General. Each global Security shall represent
such of the outstanding Securities as shall be specified therein and each shall
provide that it shall represent the aggregate amount of outstanding Securities
from time to time endorsed thereon and that the aggregate amount of outstanding
Securities represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges, redemptions, purchases or conversions of such
Securities. Any endorsement of a global Security to reflect the amount of any
increase or decrease in the amount of outstanding Securities represented thereby
shall be made by the Securities Custodian in accordance with the standing
instructions and procedures existing between the Depositary and the Securities
Custodian.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any global Security held on
their behalf by the Depositary or under the global Security, and the Depositary
(including, for this purpose, its nominee) may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner and
Holder of such global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall (A) prevent the Company, the Trustee or any
agent of the
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<PAGE> 16
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or (B) impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Security.
(c) Certificated Securities. Certificated Securities shall be issued
only under the limited circumstances provided in Section 2.12(a)(1) hereof.
SECTION 2.2. Execution and Authentication.
An Officer shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal or a facsimile thereof shall be affixed
to or reproduced on the Securities and attested by the manual or facsimile
signature of the Secretary or an Assistant Secretary of the Company. Typographic
and other minor errors or defects in any such reproduction of the seal or any
such facsimile signature shall not affect the validity or enforceability of any
Security which has been authenticated and delivered by the Trustee.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate and make available for delivery
Securities for original issue in the aggregate principal amount of up to
$55,000,000 (plus up to an additional $8,250,000 issuable upon exercise of the
option described in the Purchase Agreement) upon receipt of a written order or
orders of the Company signed by two Officers of the Company (a "Company Order").
The Company Order shall specify the amount of Securities to be authenticated,
shall provide that all such Securities will be represented by a Restricted
Global Security and the date on which each original issue of Securities is to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed $63,250,000, except as provided above and in Section 2.7.
The Trustee shall act as the initial authenticating agent. Thereafter,
the Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent shall have the same rights as an Agent to deal with the
Company or an Affiliate of the Company.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
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SECTION 2.3. Registrar, Paying Agent and Conversion Agent.
The Company shall maintain one or more offices or agencies where
Securities may be presented for registration of transfer or for exchange (each,
a "Registrar"), one or more offices or agencies where Securities may be
presented for payment (each, a "Paying Agent"), one or more offices or agencies
where Securities may be presented for conversion (each, a "Conversion Agent")
and one or more offices or agencies where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served. The
Company will at all times maintain a Paying Agent, Conversion Agent, Registrar
and an office or agency where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served in Chicago, Illinois
and, if any Certificated Securities are issued, in the Borough of Manhattan, the
City of New York. One of the Registrars (the "Primary Registrar") shall keep a
register of the Securities and of their transfer and exchange.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any Agent not a party to this Indenture.
If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or
agent for service of notices and demands in any place required by this
Indenture, or fails to give the foregoing notice, the Trustee shall act as such.
The Company or any Affiliate of the Company may act as Paying Agent (except for
the purposes of Section 6.1 and Article 10).
The Company initially appoints the Trustee, acting through its
Corporate Trust Office in Chicago, Illinois, as Registrar, Paying Agent,
Conversion Agent and agent for service of notices and demands in connection with
the Securities.
SECTION 2.4. Paying Agent to Hold Money In Trust.
Prior to 11:00 a.m., New York City time, on each due date of the
principal of or interest on any Securities, the Company shall deposit with a
Paying Agent a sum sufficient to pay such principal or interest so becoming due.
Subject to Section 5.7, a Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities, and shall notify the
Trustee of any default by the Company (or any other obligor on the Securities)
in making any such payment. If the Company or an Affiliate of the Company acts
as Paying Agent, it shall, before 11:00 a.m., New York City time, on each due
date of the principal of or interest on any Securities, segregate the money and
hold it as a separate trust fund. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee, and the Trustee may at any
time during the continuance of any default, upon written request to a Paying
Agent, require such Paying Agent to forthwith pay to the Trustee all sums so
held in trust by such Paying Agent. Upon doing so, the Paying Agent (other than
the Company) shall have no further liability for the money.
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SECTION 2.5. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Primary Registrar, the Company shall
furnish to the Trustee on or before each semiannual interest payment date and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of Securityholders.
SECTION 2.6. Transfer and Exchange.
(a) Subject to compliance with any applicable additional requirements
contained in Section 2.12, when a Security is presented to a Registrar with a
request to register a transfer thereof or to exchange such Security for an equal
principal amount of Securities of other authorized denominations, the Registrar
shall register the transfer or make the exchange as requested; provided,
however, that every Security presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by
the Holder thereof or its attorney duly authorized in writing. To permit
registration of transfers and exchanges, upon surrender of any Security for
registration of transfer or exchange at an office or agency maintained pursuant
to Section 2.3, the Company shall execute and the Trustee shall authenticate
Securities of a like aggregate principal amount at the Registrar's request. Any
exchange or transfer shall be without charge, except that the Company or the
Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto, and provided
further that this sentence shall not apply to any exchange pursuant to Section
2.10, 2.12(a)(1), 3.6, 3.11, 4.2 (last paragraph) or 11.5.
Neither the Company, any Registrar nor the Trustee shall be required to
exchange or register a transfer of (a) any Securities for a period of 15 days
next preceding any selection of Securities to be redeemed, (b) any Securities or
portions thereof selected or called for redemption (except, in the case of
redemption of a Security in part, the portion not to be redeemed) or (c) any
Securities or portions thereof in respect of which a Change in Control Purchase
Notice has been delivered and not withdrawn by the Holder thereof (except, in
the case of the purchase of a Security in part, the portion not to be
purchased).
All Securities issued upon any transfer or exchange of Securities shall
be valid obligations of the Company, evidencing the same debt and entitled to
the same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
(b) Any Registrar appointed pursuant to Section 2.3 hereof shall
provide to the Trustee such information as the Trustee may reasonably require in
connection with the delivery by such Registrar of Securities upon transfer or
exchange of Securities.
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SECTION 2.7. Replacement Securities.
If any mutilated Security is surrendered to the Company, a Registrar or
the Trustee, or the Company, a Registrar and the Trustee receive evidence to
their satisfaction of the destruction, loss or theft of any Security, and there
is delivered to the Company, the applicable Registrar and the Trustee such
Security or indemnity as may be required by them to save each of them harmless,
then, in the absence of notice to the Company, such Registrar or the Trustee
that such Security has been acquired by a bona fide purchaser, the Company shall
execute, and upon its written request the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, or is about to be redeemed or
purchased by the Company pursuant to Article 3, the Company in its discretion
may, instead of issuing a new Security, pay, redeem or purchase such Security,
as the case may be.
Upon the issuance of any new Securities under this Section 2.7, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the reasonable fees and expenses of the Trustee
or the Registrar) in connection therewith.
Every new Security issued pursuant to this Section 2.7 in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section 2.7 are (to the extent lawful) exclusive
and shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.
SECTION 2.8. Outstanding Securities.
Securities outstanding at any time are all Securities authenticated by
the Trustee, except for those canceled by it, those delivered to it for
cancellation and those described in this Section 2.8 as not outstanding.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Company receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If a Paying Agent (other than the Company or an Affiliate of the
Company) holds on a redemption date, a Change in Control Purchase Date or the
Final Maturity Date money sufficient to pay the principal of (including premium,
if any) and accrued interest on Securities (or portions
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thereof) payable on that date, then on and after that date such Securities (or
portions thereof, as the case may be) cease to be outstanding and interest on
them ceases to accrue.
Subject to the restrictions contained in Section 2.9, a Security does
not cease to be outstanding because the Company or an Affiliate of the Company
holds the Security.
SECTION 2.9. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any notice, direction, waiver or consent,
Securities owned by the Company or any other obligor on the Securities or by any
Affiliate of the Company or of such other obligor shall be disregarded, except
that, for purposes of determining whether the Trustee shall be protected in
relying on any such notice, direction, waiver or consent, only Securities which
the Trustee knows are so owned shall be so disregarded. Securities so owned
which have been pledged in good faith shall not be disregarded if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to the Securities and that the pledgee is not the Company or any
other obligor on the Securities or any Affiliate of the Company or of such other
obligor.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and execute, and, upon receipt of a Company Order, the Trustee shall
authenticate and deliver, temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Company with the consent of the Trustee considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate and deliver definitive Securities in exchange for
temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar, the Paying Agent and the Conversion Agent shall
forward to the Trustee or its agent any Securities surrendered to them for
transfer, exchange, payment or conversion. The Trustee and no one else shall
cancel, in accordance with its standard procedures, all Securities surrendered
for transfer, exchange, redemption, payment, conversion or cancellation and
shall deliver the canceled Securities to the Company. All Securities which are
redeemed, purchased or otherwise acquired by the Company or any of its
Subsidiaries or Affiliates prior to the Final Maturity Date shall be delivered
to the Trustee for cancellation and the Company may not hold or resell such
Securities or issue any new Securities to replace any such Securities or any
Securities that any Holder has converted pursuant to Article 4. Without
limitation to the foregoing, any Securities acquired by any investment bankers
or other purchasers pursuant to Section 3.7 shall be surrendered for conversion
and thereafter cancelled, and may not be reoffered, sold or otherwise
transferred.
SECTION 2.12. Additional Transfer and Exchange Requirements.
(a) Transfer and Exchange of Global Securities.
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(1) Certificated Securities shall be issued in exchange for
interests in the global Securities only if (x) the Depositary notifies
the Company that it is unwilling or unable to continue as depositary
for the global Securities or if it at any time ceases to be a "clearing
agency" registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), if so required by applicable law or
regulation and a successor depositary is not appointed by the Company
within 90 days, or (y) an Event of Default has occurred and is
continuing. In either case, the Company shall execute, and the Trustee
shall, upon receipt of a Company Order (which the Company agrees to
delivery promptly), authenticate and deliver Certificated Securities in
an aggregate principal amount equal to the principal amount of such
global Securities in exchange therefor. Only Restricted Certificated
Securities shall be issued in exchange for beneficial interests in
Restricted Global Securities, and only Unrestricted Certificated
Securities shall be issued in exchange for beneficial interests in
Unrestricted Global Securities. Certificated Securities issued in
exchange for beneficial interests in global Securities shall be
registered in such names and shall be in such authorized denominations
as the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver or cause to be delivered such Certificated Securities to
the persons in whose names such Securities are so registered. Such
exchange shall be effected in accordance with the Applicable
Procedures.
(2) Notwithstanding any other provisions of this Indenture
other than the provisions set forth in Section 2.12(a)(1), a global
Security may not be transferred as a whole except by the Depositary to
a nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such
successor Depositary.
(b) Transfer and Exchange of Certificated Securities. When Certificated
Securities are presented by a Holder to a Registrar with a request:
(x) to register the transfer of the Certificated Securities to
a person who will take delivery thereof in the form of Certificated
Securities only; or
(y) to exchange such Certificated Securities for an equal
principal amount of Certificated Securities of other authorized
denominations,
such Registrar shall register the transfer or make the exchange as requested;
provided, however, that the Certificated Securities presented or surrendered for
register of transfer or exchange:
(1) shall be duly endorsed or accompanied by a written
instrument of transfer in accordance with the proviso to the first
paragraph of Section 2.6; and
(2) in the case of a Restricted Certificated Security, such
request shall be accompanied by the following additional information
and documents, as applicable:
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(A) if such Restricted Certificated Security is being
delivered to the Registrar by a Holder for registration in the
name of such Holder, without transfer, or such Restricted
Certificated Security is being transferred to the Company or a
Subsidiary of the Company, a certification to that effect from
such Holder (in substantially the form set forth in the
Transfer Certificate);
(B) if such Restricted Certificated Security is being
transferred to a person the Holder reasonably believes is a
QIB in accordance with Rule 144A or pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from such Holder (in
substantially the form set forth in the Transfer Certificate);
or
(C) if such Restricted Certificated Security is being
transferred (i) pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
or (ii) pursuant to an exemption from the registration
requirements of the Securities Act (other than pursuant to
Rule 144A or Rule 144) and as a result of which, in the case
of a Security transferred pursuant to this clause (ii), such
Security shall cease to be a "restricted security" within the
meaning of Rule 144, a certification to that effect from the
Holder (in substantially the form set forth in the Transfer
Certificate) and, if the Company or such Registrar so
requests, a customary opinion of counsel, certificates and
other information reasonably acceptable to the Company and
such Registrar to the effect that such transfer is in
compliance with the Securities Act.
(c) Transfer of a Beneficial Interest in a Restricted Global Security
for a Beneficial Interest in an Unrestricted Global Security. Any person having
a beneficial interest in a Restricted Global Security may upon request, subject
to the Applicable Procedures, transfer such beneficial interest to a person who
is required or permitted to take delivery thereof in the form of an Unrestricted
Global Security. Upon receipt by the Trustee of written instructions or such
other form of instructions as is customary for the Depositary, from the
Depositary or its nominee on behalf of any person having a beneficial interest
in a Restricted Global Security and the following additional information and
documents in such form as is customary for the Depositary from the Depositary or
its nominee on behalf of the person having such beneficial interest in the
Restricted Global Security (all of which may be submitted by facsimile or
electronically):
(1) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certification to that effect from the transferor (in substantially the
form set forth in the Transfer Certificate); or
(2) if such beneficial interest is being transferred (i)
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 or (ii) pursuant to an
exemption from the registration requirements of the Securities Act
(other than pursuant to Rule 144A or Rule 144) and as a result of
which, in the case of a Security transferred pursuant to this clause
(ii), such Security shall cease to be a "restricted security" within
the meaning of Rule 144, a certification to that effect from the
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transferor (in substantially the form set forth in the Transfer
Certificate) and, if the Company or the Trustee so requests, a
customary opinion of counsel, certificates and other information
reasonably acceptable to the Company and the Trustee to the effect that
such transfer is in compliance with the Securities Act,
the Trustee, as a Registrar and Securities Custodian, shall reduce or cause to
be reduced the aggregate principal amount of Restricted Global Security by the
appropriate principal amount and shall increase or cause to be increased the
aggregate principal amount of the Unrestricted Global Security by a like
principal amount. Such transfer shall otherwise be effected in accordance with
the Applicable Procedures. If no Unrestricted Global Security is then
outstanding, the Company shall execute and the Trustee shall, upon receipt of a
Company Order (which the Company agrees to deliver promptly), authenticate and
deliver an Unrestricted Global Security.
(d) Transfer of a Beneficial Interest in an Unrestricted Global
Security for a Beneficial Interest in a Restricted Global Security. Any person
having a beneficial interest in an Unrestricted Global Security may upon
request, subject to the Applicable Procedures, transfer such beneficial interest
to a person who is required or permitted to take delivery thereof in the form of
a Restricted Global Security (it being understood that only QIBs may own
beneficial interests in Restricted Global Securities). Upon receipt by the
Trustee of written instructions or such other form of instructions as is
customary for the Depositary, from the Depositary or its nominee, on behalf of
any person having a beneficial interest in an Unrestricted Global Security and
the following additional information and documents in such form as its customary
for the Depositary from the Depositary or its nominee on behalf of the person
having such beneficial interest in the Unrestricted Global Security (all of
which may be submitted by facsimile or electronically):
(1) a certification from the transferor (in substantially the
form set forth in the Transfer Certificate) to the effect that such
beneficial interest is being transferred to a person that the
transferor reasonably believes is a QIB in accordance with Rule 144A;
the Trustee, as a Registrar and Securities Custodian, shall reduce or cause to
be reduced the aggregate principal amount of the Unrestricted Global Security by
the appropriate principal amount and shall increase or cause to be increased the
aggregate principal amount of the Restricted Global Security by a like principal
amount. Such transfer shall otherwise be effected in accordance with the
Applicable Procedures. If no Restricted Global Security is then outstanding, the
Company shall execute and the Trustee shall, upon receipt of a Company Order
(which the Company agrees to deliver promptly), authenticate and deliver a
Restricted Global Security.
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(e) Transfers of Certificated Securities for Beneficial Interest in
Global Securities. In the event that Certificated Securities are issued in
exchange for beneficial interests in Global Securities and, thereafter, the
events or conditions specified in Section 2.12(a)(1) which required such
exchange shall have ceased to exist, the Company shall mail notice to the
Trustee and to the Holders stating that Holders may exchange Certificated
Securities for interests in global Securities by complying with the procedures
set forth in this Indenture and briefly describing such procedures and the
events or circumstances requiring that such notice be given. Thereafter, if
Certificated Securities are presented by a Holder to a Registrar with a request:
(x) to register the transfer of such Certificated Securities
to a person who will take delivery thereof in the form of a beneficial
interest in a global Security, which request shall specify whether such
global Security will be a Restricted Global Security or an Unrestricted
Global Security; or
(y) to exchange such Certificated Securities for an equal
principal amount of beneficial interests in a global Security, which
beneficial interests will be owned by the Holder transferring such
Certificated Securities (provided that in the case of such an exchange,
Restricted Certificated Securities may be exchanged only for Restricted
Global Securities and Unrestricted Certificated Securities may be
exchanged only for Unrestricted Global Securities),
the Registrar shall register the transfer or make the exchange as requested by
canceling such Certificated Security and causing, or directing the Securities
Custodian to cause, the aggregate principal amount of the applicable global
Security to be increased accordingly and, if no such global Security is then
outstanding, the Company shall issue and the Trustee shall authenticate and
deliver a new global Security; provided, however, that the Certificated
Securities presented or surrendered for registration of transfer or exchange:
(1) shall be duly endorsed or accompanied by a written
instrument of transfer in accordance with the proviso to Section 2.6;
(2) in the case of a Restricted Certificated Security to be
transferred for a beneficial interest in an Unrestricted Global
Security, such request shall be accompanied by the following additional
information and documents, as applicable:
(A) if such Restricted Certificated Security is being
transferred pursuant to an effective registration statement
under the Securities Act, a certification to that effect from
such Holder (in substantially the form set forth in the
Transfer Certificate); or
(B) if such Restricted Certificated Security is being
transferred pursuant to (i) an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
or (ii) pursuant to an exemption from the registration
requirements of the Securities Act (other than pursuant to
Rule 144A or Rule 144) and as a result of which, in the case
of a Security transferred pursuant to this clause (ii), such
Security shall cease to be a "restricted security" within the
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meaning of Rule 144, a certification to that effect from such
Holder (in substantially the form set forth in the Transfer
Certificate), and, if the Company or the Registrar so
requests, a customary opinion of counsel, certificates and
other information reasonably acceptable to the Company and the
Trustee to the effect that such transfer is in compliance with
the Securities Act;
(3) in the case of a Restricted Certificated Security to be
transferred or exchanged for a beneficial interest in a Restricted
Global Security, such request shall be accompanied by a certification
from such Holder (in substantially the form set forth in the Transfer
Certificate) to the effect that such Restricted Certificated Security
is being transferred to a person the Holder reasonably believes is a
QIB (which, in the case of an exchange, shall be such Holder) in
accordance with Rule 144A;
(4) in the case of an Unrestricted Certificated Security to be
transferred or exchanged for a beneficial interest in an Unrestricted
Global Security, such request need not be accompanied by any additional
information or documents; and
(5) in the case of an Unrestricted Certificated Security to be
transferred or exchanged from a beneficial interest in a Restricted
Global Security, such request shall be accompanied by a certification
from such Holder (in substantially the form set forth in the Transfer
Certificate) to the effect that such Unrestricted Certificated Security
is being transferred to a person the Holder reasonably believes is a
QIB (which, in the case of an exchange, shall be such Holder) in
accordance with Rule 144A.
(f) Legends.
(1) Except as permitted by the following paragraphs (2) and
(3), each global Security and Certificated Security (and all Securities
issued in exchange therefor or upon registration of transfer or
replacement thereof) shall bear a legend in substantially the form
called for by footnote 2 to Exhibit A hereto (each a "Transfer
Restricted Security" for so long as it is required by this Indenture to
bear such legend). Each Transfer Restricted Security shall have
attached thereto a certificate (a "Transfer Certificate") in
substantially the form called for footnote 5 to Exhibit A hereto.
(2) Upon any sale or transfer of a Transfer Restricted
Security (x) pursuant to Rule 144, (y) pursuant to an effective
registration statement under the Securities Act or (z) pursuant to any
other available exemption (other than Rule 144A) from the registration
requirements of the Securities Act and as a result of which, in the
case of a Security transferred pursuant to this clause (z), such
Security shall cease to be a "restricted security" within the meaning
of Rule 144:
(A) in the case of any Restricted Certificated
Security, any Registrar shall permit the Holder thereof to
exchange such Restricted Certificated Security for an
Unrestricted Certificated Security, or (under the
circumstances described in Section 2.12(e)) to transfer such
Restricted Certificated Security to a transferee who shall
take such Security in the form of a beneficial interest in an
Unrestricted
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Global Security, and in each case shall rescind any
restriction on the transfer of such Security; provided,
however, that the Holder of such Restricted Certificated
Security shall, in connection with such exchange or transfer,
comply with the other applicable provisions of this Section
2.12; and
(B) in the case of any beneficial interest in a
Restricted Global Security, the Trustee shall permit the
beneficial owner thereof to transfer such beneficial interest
to a transferee who shall take such interest in the form of a
beneficial interest in an Unrestricted Global Security and
shall rescind any restriction on transfer of such beneficial
interest; provided, that such Unrestricted Global Security
shall continue to be subject to the provisions of Section
2.12(a)(2); and provided, further, that the owner of such
beneficial interest shall, in connection with such transfer,
comply with the other applicable provisions of this Section
2.12.
(3) Upon the exchange, registration of transfer or replacement
of Securities not bearing the legend described in paragraph (1) above,
the Company shall execute, the Trustee shall authenticate and deliver
Securities that do not bear such legend and which do not have a
Transfer Certificate attached thereto.
(g) Transfers to the Company. Nothing in this Indenture or in the
Securities shall prohibit the sale or other transfer of any Securities
(including beneficial interests in global Securities) to the Company or any of
its Subsidiaries, which Securities shall thereupon be cancelled in accordance
with the last sentence of Section 2.11.
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.1. Right to Redeem; Notice to Trustee.
The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part, at any time on or after December 6, 2001, at
the redemption prices specified in paragraph 5 of the form of Security attached
hereto as Exhibit A, together with accrued interest up to but not including the
Redemption Date.
If the Company elects to redeem Securities pursuant to this Section 3.1
and paragraph 5 of the Securities, it shall notify the Trustee at least 35 days
prior to the redemption date as fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee) of the redemption date and the principal
amount of Securities to be redeemed. If fewer than all of the Securities are to
be redeemed, the record date relating to such redemption shall be selected by
the Company and given to the Trustee, which record date shall not be less than
ten days after the date of notice to the Trustee.
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SECTION 3.2. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed, the Trustee
shall, not more than 60 days prior to the redemption date, select the Securities
to be redeemed. The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption, by lot, pro rata or by
another method the Trustee considers fair and appropriate. Securities in
denominations of $1,000 may only be redeemed in whole. The Trustee may select
for redemption portions (equal to $1,000 or any multiple thereof) of the
principal of Securities that have denominations larger than $1,000. Provisions
of this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed to
be the portion selected for redemption. Securities which have been converted
during a selection of Securities to be redeemed shall be treated by the Trustee
as outstanding for the purpose of such selection.
SECTION 3.3. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail or cause to be mailed a notice of redemption to each
Holder of Securities to be redeemed at such Holder's address as it appears on
the Primary Registrar's books.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the then current Conversion Price;
(4) the name and address of each Paying Agent and Conversion
Agent;
(5) that Securities called for redemption must be presented
and surrendered to a Paying Agent to collect the redemption price;
(6) that the Securities called for redemption may be converted
at any time before the close of business on the Business Day
immediately preceding the redemption date;
(7) that Holders who wish to convert Securities must surrender
such Securities for conversion no later than the close of business on
the Business Day immediately preceding the redemption date and must
satisfy the other requirements in paragraph 8 of the Securities;
(8) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption shall cease
accruing on and after the redemption date and the only remaining right
of the Holder shall be to receive payment of the redemption
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price, plus accrued interest, if any upon presentation and surrender to
a Paying Agent of the Securities; and
(9) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after
the redemption date, upon presentation and surrender of such Security,
a new Security or Securities in aggregate principal amount equal to the
unredeemed portion thereof will be issued.
If any of the Securities to be redeemed is in the form of a global
Security, then the Company shall modify such notice to the extent necessary to
accord with the procedures of the Depositary applicable to redemptions.
At the Company's written request, which request shall (i) be
irrevocable once given and (ii) set forth all relevant information required by
clauses (1) through (9) of the second preceding paragraph, the Trustee shall
give the notice of redemption in the Company's name and at the Company's
expense.
SECTION 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date and at the redemption price stated
in the notice, together with accrued interest, if any, except for Securities
that are converted in accordance with the provisions of Article 4. Upon
presentation and surrender to a Paying Agent, Securities called for redemption
shall be paid at the redemption price, plus accrued interest up to but not
including the redemption date; provided that installments of interest which are
due and payable on interest payment dates falling on or prior to a redemption
date will be payable to the Holders in whose names the Securities are registered
at the close of business on the relevant record dates.
SECTION 3.5. Deposit of Redemption Price.
Prior to 11:00 a.m. New York City time, on the redemption date, the
Company shall deposit with a Paying Agent (or, if the Company acts as Paying
Agent, shall segregate and hold in trust) money sufficient to pay the redemption
price of and accrued interest on all Securities to be redeemed on that date,
other than Securities or portions thereof called for redemption on that date
which have been delivered by the Company to the Trustee for cancellation or have
been converted. The Paying Agent shall return to the Company any money not
required for that purpose because of the conversion of Securities pursuant to
Article 4 or, if such money is then held by the Company in trust and is not
required for such purpose, it shall be discharged from the trust.
SECTION 3.6. Securities Redeemed in Part.
Upon presentation and surrender of a Security that is redeemed in part,
the Company shall execute and the Trustee shall authenticate and deliver to the
Holder a new Security equal in principal amount to the unredeemed portion of the
Security surrendered.
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SECTION 3.7. Conversion Arrangement on Call for Redemption.
In connection with any redemption of Securities, the Company may
arrange for the purchase and conversion of any Securities called for redemption
by an agreement with one or more investment bankers or other purchasers to
purchase such Securities by paying to a Paying Agent (other than the Company or
any of its Affiliates) in trust for the Securityholders, on or before 11:00 A.M.
New York City time on the Redemption Date, an amount that, together with any
amounts deposited with such Paying Agent by the Company for the redemption of
such Securities, is not less than the Redemption Price, together with interest
accrued to, but not including, the Redemption Date, of such Securities.
Notwithstanding anything to the contrary contained in this Article 3, the
obligation of the Company to pay the Redemption Price of such Securities,
including all accrued interest, shall be deemed to be satisfied and discharged
to the extent such amount is so paid by such purchasers; provided, however, that
nothing in this Section 3.7 shall relieve the Company of its obligation to pay
the Redemption Price, plus accrued interest to but excluding the relevant
redemption date, on Securities called for redemption. If such an agreement is
entered into, any Securities called for redemption and not surrendered for
conversion by the Holders thereof prior to the relevant redemption date may, at
the option of the Company upon written notice to the Trustee, be deemed, to the
fullest extent permitted by law, acquired by such purchasers from such Holders
and (notwithstanding anything to the contrary contained in Article 4)
surrendered by such purchasers for conversion, all as of 11:00 A.M. New York
City time on the Redemption Date, subject to payment of the above amount as
aforesaid. The Paying Agent shall hold and pay to the Holders whose Securities
are selected for redemption any such amount paid to it for purchase in the same
manner as it would money deposited with it by the Company for the redemption of
Securities. Without the Paying Agent's prior written consent, no arrangement
between the Company and such purchasers for the purchase and conversion of any
Securities shall increase or otherwise affect any of the powers, duties,
responsibilities or obligations of the Paying Agent as set forth in this
Indenture, and the Company agrees to indemnify the Paying Agent from, and hold
it harmless against, any loss, liability or expense arising out of or in
connection with any such arrangement for the purchase and conversion of any
Securities between the Company and such purchasers, including the costs and
expenses incurred by the Paying Agent in the defense of any claim or liability
arising out of or in connection with the exercise or performance of any of its
powers, duties, responsibilities or obligations under this Indenture.
SECTION 3.8. Purchase of Securities at Option of the Holder Upon Change
in Control.
(a) If at any time that Securities remain outstanding there shall occur
a Change in Control, Securities shall be purchased by the Company at the option
of the Holders thereof as of the date that is 30 Business Days after the
occurrence of the Change in Control (the "Change in Control Purchase Date") at a
purchase price equal to 100% of the principal amount thereof (the "Change in
Control Purchase Price") plus accrued interest up to but not including the
Change in Control Purchase Date, subject to satisfaction by or on behalf of any
Holder of the requirements set forth in subsection (c) of this Section 3.8.
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A "Change in Control" shall be deemed to have occurred if any of the
following occurs after the Initial Issuance Date:
(1) any "person" or "group" (as such terms are defined below)
is or becomes the "beneficial owner" (as defined below), directly or
indirectly, of shares of Voting Stock of the Company representing 50%
or more of the total voting power of all outstanding classes of Voting
Stock of the Company or has the power, directly or indirectly, to elect
a majority of the members of the board of directors of the Company; or
(2) the Company consolidates with, or merges with or into,
another Person or the Company sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of the assets
of the Company, or any Person consolidates with, or merges with or
into, the Company, in any such event other than pursuant to a
transaction in which the Persons that "beneficially owned" (as defined
below), directly or indirectly, shares of Voting Stock of the Company
immediately prior to such transaction "beneficially own" (as defined
below), directly or indirectly, shares of Voting Stock of the Company
representing at least a majority of the total voting power of all
outstanding classes of Voting Stock of the surviving or transferee
Person; or
(3) there shall occur the liquidation or dissolution of the
Company.
For the purpose of the definition of "Change in Control", (i) "person" and
"group" have the meanings given such terms under Section 13(d) and 14(d) of the
Exchange Act or any successor provision to either of the foregoing, and the term
"group" includes any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act (or any successor provision thereto), (ii) a "beneficial owner"
shall be determined in accordance with Rule 13d-3 under the Exchange Act, as in
effect on the date of this Indenture, except that the number of shares of Voting
Stock of the Company shall be deemed to include, in addition to all outstanding
shares of Voting Stock of the Company and Unissued Shares deemed to be held by
the "person" or "group" (as such terms are defined above) or other Person with
respect to which the Change in Control determination is being made, all Unissued
Shares deemed to be held by all other Persons, and (iii) the terms "beneficially
owned" and "beneficially own" shall have meanings correlative to that of
"beneficial owner". The term "Unissued Shares" means shares of Voting Stock not
outstanding that are subject to options, warrants, rights to purchase or
conversion privileges exercisable within 60 days of the date of determination of
a Change in Control.
Notwithstanding the foregoing, a Change in Control will be deemed not
to have occurred (i) if the closing price of the Common Stock for any five
Trading Days during the ten Trading Days immediately preceding the Change in
Control is at least equal to 105% of the Conversion Price in effect immediately
preceding the Change in Control or (ii) if at least 90% of the consideration
(excluding cash payments for fractional shares or cash payments for appraisal
rights) in the transaction or transactions constituting the Change in Control
consists of shares of common stock or securities convertible into shares of
common stock that are, or upon issuance
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will be, traded on a national securities exchange in the United States of
America or through the Nasdaq National Market.
(b) Within 10 Business Days after the occurrence of a Change in
Control, the Company shall mail a written notice of the Change in Control to the
Trustee and to each Holder (and to beneficial owners as required by applicable
law) and shall cause a copy of such notice to be published in a daily newspaper
of national circulation. The notice shall include the form of a Change in
Control Purchase Notice to be completed by the Holder and shall state:
(1) the date of such Change in Control and, briefly, the
events causing such Change in Control;
(2) the date by which the Change in Control Purchase Notice
pursuant to this Section 3.8 must be given;
(3) the Change in Control Purchase Date;
(4) the Change in Control Purchase Price;
(5) briefly, the conversion rights of the Securities;
(6) the name and address of each Paying Agent and Conversion
Agent;
(7) the then current Conversion Price;
(8) that Securities as to which a Change in Control Purchase
Notice has been given may be converted into Common Stock only to the
extent that the Change in Control Purchase Notice has been withdrawn in
accordance with the terms of this Indenture;
(9) the procedures that the Holder must follow to exercise
rights under this Section 3.8;
(10) the procedures for withdrawing a Change in Control
Purchase Notice, including a form of notice of withdrawal; and
(11) that the Holder must satisfy the requirements set forth
in the Securities in order to convert the Securities.
If any of the Securities is in the form of a global Security, then the
Company shall modify such notice to the extent necessary to accord with the
procedures of the Depositary applicable to the repurchase of global securities.
(c) A Holder may exercise its rights specified in subsection (a) of
this Section 3.8 upon delivery of a written notice (which shall be in
substantially the form included in Exhibit A hereto and which may be delivered
by letter, overnight courier, hand delivery, facsimile transmission or in any
other written form and, in the case of global Securities, may be delivered
electronically or by other means in accordance with the Depositary's customary
procedures) of the exercise of
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such rights (a "Change in Control Purchase Notice") to any Paying Agent at any
time prior to the close of business on the Business Day next preceding the
Change in Control Purchase Date.
The delivery of such Security to any Paying Agent (together with all
necessary endorsements) at the office of such Paying Agent shall be a condition
to the receipt by the Holder of the Change in Control Purchase Price therefor.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.8, a portion of a Security if the principal amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the purchase of all of a Security pursuant to Sections 3.8 through 3.13
also apply to the purchase of such portion of such Security.
Notwithstanding anything herein to the contrary, any Holder delivering
to a Paying Agent the Change in Control Purchase Notice contemplated by this
subsection (c) shall have the right to withdraw such Change in Control Purchase
Notice in whole or in a portion thereof that is $1,000 or in an integral
multiple thereof at any time prior to the close of business on the Business Day
next preceding the Change in Control Purchase Date by delivery of a written
notice of withdrawal to the Paying Agent in accordance with Section 3.9.
A Paying Agent shall promptly notify the Company of the receipt by it
of any Change in Control Purchase Notice or written withdrawal thereof.
Anything herein to the contrary notwithstanding, in the case of global
Securities, any Change in Control Purchase Notice may be delivered or withdrawn
and such Securities may be surrendered or delivered for purchase in accordance
with the applicable procedures of the Depositary as in effect from time to time.
SECTION 3.9. Effect of Change in Control Purchase Notice.
Upon receipt by any Paying Agent of the Change in Control Purchase
Notice specified in Section 3.8(c), the Holder of the Security in respect of
which such Change in Control Purchase Notice was given shall (unless such Change
in Control Purchase Notice is withdrawn as specified below) thereafter be
entitled to receive the Change in Control Purchase Price with respect to such
Security plus accrued interest thereon up to but not including the Change in
Control Purchase Date. Such Change in Control Purchase Price and accrued
interest shall be paid to such Holder promptly following the later of (a) the
Change in Control Purchase Date with respect to such Security (provided the
conditions in Section 3.8(c) have been satisfied) and (b) the time of delivery
of such Security to a Paying Agent by the Holder thereof in the manner required
by Section 3.8(c). Securities in respect of which a Change in Control Purchase
Notice has been given by the Holder thereof may not be converted into shares of
Common Stock on or after the date of the delivery of such Change in Control
Purchase Notice unless such Change in Control Purchase Notice has first been
validly withdrawn.
A Change in Control Purchase Notice may be withdrawn by means of a
written notice (which may be delivered by letter, overnight courier, hand
delivery, facsimile transmission or in any other written form and, in the case
of global Securities, may be delivered electronically or by
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other means in accordance with the Depositary's customary procedures) of
withdrawal delivered by the Holder to a Paying Agent at any time prior to the
close of business on the Business Day immediately preceding the Change in
Control Purchase Date, specifying the principal amount of the Security or
portion thereof (which must be $1,000 or an integral multiple of $1,000 in
excess thereof) with respect to which such notice of withdrawal is being
submitted.
SECTION 3.10. Deposit of Change in Control Purchase Price.
On the Change in Control Purchase Date, the Company shall deposit with
the Trustee or with a Paying Agent (other than the Company or an Affiliate of
the Company) an amount of money sufficient to pay the aggregate Change in
Control Purchase Price of all the Securities or portions thereof that are to be
purchased as of such Change in Control Purchase Date plus accrued interest
thereon up to but not including the Change in Control Purchase Date. The manner
in which the deposit required by this Section 3.10 is made by the Company shall
be at the option of the Company, provided that such deposit shall be made in a
manner such that the Trustee or a Paying Agent shall have immediately available
funds on the Change in Control Purchase Date.
If a Paying Agent holds, in accordance with the terms hereof, money
sufficient to pay the Change in Control Purchase Price of any Security tendered
for purchase plus accrued interest thereon to but not including the Change in
Control Purchase Date, then, on the Change in Control Purchase Date, such
Security will cease to be outstanding and the rights of the Holder in respect
thereof shall terminate (other than the right to receive the Change in Control
Purchase Price plus accrued interest as aforesaid). The Company shall publicly
announce the principal amount of Securities purchased as a result of such Change
in Control on or as soon as practicable after the Change in Control Purchase
Date.
SECTION 3.11. Securities Purchased In Part.
Any Security that is to be purchased only in part shall be surrendered
at the office of a Paying Agent and promptly after the Change in Control
Purchase Date the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Security, without service charge, a new Security
or Securities, of such authorized denomination or denominations as may be
requested by such Holder, in aggregate principal amount equal to, and in
exchange for, the portion of the principal amount of the Security so surrendered
that is not purchased.
SECTION 3.12. Compliance With Securities Laws Upon Purchase of
Securities.
In connection with any offer to purchase or purchase of Securities
under Section 3.8, the Company shall (a) comply with Rule 13e-4 and Rule 14e-1
(or any successor to either such Rule), if applicable, under the Exchange Act,
(b) file the related Schedule 13E-4 (or any successor or similar schedule, form
or report) if required under the Exchange Act, and (c) otherwise comply with all
federal and state securities laws in connection with such offer, all so as to
permit the rights of the Holders and obligations of the Company under Sections
3.8 through 3.11 to be exercised in the time and in the manner specified
therein.
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SECTION 3.13. Repayment to the Company.
Subject to the provisions of Section 5.7, to the extent that the
aggregate amount of cash deposited by the Company pursuant to Section 3.10
exceeds the aggregate Change in Control Purchase Price of the Securities or
portions thereof that the Company is obligated to purchase, plus accrued
interest thereon up to but not including the Change in Control Purchase Date,
then promptly after the Change in Control Purchase Date the Trustee or a Paying
Agent, as the case may be, shall return any such excess to the Company.
ARTICLE 4
CONVERSION
SECTION 4.1. Conversion Privilege.
Subject to the further provisions of this Section 4.1, a Holder of a
Security may convert the principal amount of such Security (or any portion
thereof equal to $1,000 or any integral multiple of $1,000 in excess thereof)
into Common Stock at any time prior to the close of business on the Final
Maturity Date, at the Conversion Price then in effect; provided, however, that,
if such Security is called for redemption pursuant to Article 3, such conversion
right shall terminate at the close of business on the Business Day immediately
preceding the redemption date for such Security or such earlier date as the
Holder presents such Security for redemption (unless the Company shall default
in making the redemption payment when due, in which case the conversion right
shall terminate at the close of business on the date such default is cured and
such Security is redeemed). The number of shares of Common Stock issuable upon
conversion of a Security shall be determined by dividing the principal amount of
the Security or portion thereof surrendered for conversion by the Conversion
Price in effect on the Conversion Date. The initial Conversion Price is set
forth in paragraph 8 of the Securities and is subject to adjustment as provided
in this Article 4.
A Holder may convert a portion of a Security equal to $1,000 or any
integral multiple thereof. Provisions of this Indenture that apply to conversion
of all of a Security also apply to conversion of a portion of a Security.
A Security in respect of which a Holder has delivered a Change in
Control Purchase Notice pursuant to Section 3.8(c) exercising the option of such
Holder to require the Company to purchase such Security may be converted only if
such Change in Control Purchase Notice is withdrawn by a written notice of
withdrawal delivered to a Paying Agent prior to the close of business on the
Business Day immediately preceding the Change in Control Purchase Date in
accordance with Section 3.9.
A Holder of Securities is not entitled to any rights of a holder of
Common Stock until such Holder has converted its Securities to Common Stock, and
only to the extent such Securities are deemed to have been converted into Common
Stock pursuant to this Article 4.
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SECTION 4.2. Conversion Procedure.
To convert a Security, a Holder must (a) complete and manually sign the
conversion notice on the back of the Security and deliver such notice to a
Conversion Agent, (b) surrender the Security to a Conversion Agent, (c) furnish
appropriate endorsements and transfer documents if required by a Registrar or a
Conversion Agent, and (d) pay any transfer or similar tax, if required. The date
on which the Holder satisfies all of those requirements is the "Conversion
Date." As soon as practicable after the Conversion Date, the Company shall
deliver to the Holder through a Conversion Agent a certificate for the number of
whole shares of Common Stock issuable upon the conversion and cash in lieu of
any fractional shares pursuant to Section 4.3. Anything herein to the contrary
notwithstanding, in the case of global Securities, conversion notices may be
delivered and such Securities may be surrendered for conversion in accordance
with the applicable procedures of the Depositary as in effect from time to time.
The person in whose name the Common Stock certificate is registered
shall be deemed to be a shareholder of record on the Conversion Date; provided,
however, that no surrender of a Security on any date when the stock transfer
books of the Company shall be closed shall be effective to constitute the person
or persons entitled to receive the shares of Common Stock upon such conversion
as the record holder or holders of such shares of Common Stock on such date, but
such surrender shall be effective to constitute the person or persons entitled
to receive such shares of Common Stock as the record holder or holders thereof
for all purposes at the close of business on the next succeeding day on which
such stock transfer books are open; provided, further, that such conversion
shall be at the Conversion Price in effect on the Conversion Date as if the
stock transfer books of the Company had not been closed. Upon conversion of a
Security, such person shall no longer be a Holder of such Security. No payment
or adjustment will be made for dividends or distributions on shares of Common
Stock issued upon conversion of a Security.
Except as otherwise provided in this Section 4.2, no payment or
adjustment will be made for accrued interest on a converted Security; provided,
however, that interest accrued to but excluding December 6, 2001 shall be paid
on any Security called for redemption pursuant to Article 3 and surrendered for
conversion pursuant to this Article 4 on or before the close of business on the
Business Day immediately preceding December 6, 2001 (with interest accrued from
and including December 1, 2001 through and including December 6, 2001 being paid
to the Holder surrendering such Security for conversion). If any Holder
surrenders a Security for conversion after the close of business on the record
date for the payment of an installment of interest and before the close of
business on the related interest payment date, then, notwithstanding such
conversion, the interest payable on such interest payment date shall be paid to
the Holder in whose name such Security was registered at the close of business
on such record date; and, in such event, unless such Security has been called
for redemption, such Security, when surrendered for conversion, must be
accompanied by delivery by such Holder of payment (which may be in the form of a
check or draft payable to the Conversion Agent) in an amount equal to the
interest payable on such interest payment date on the principal amount of such
Security or portion thereof so converted. If the Company defaults in the payment
of interest
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payable on such interest payment date, the Company shall promptly repay such
funds to such Holder.
Nothing in this Section shall affect the right of a Holder in whose
name any Security is registered at the close of business on a record date to
receive the interest payable on such Security on the related interest payment
date in accordance with the terms of this Indenture and the Securities.
If a Holder converts more than one Security at the same time, the
number of shares of Common Stock issuable upon the conversion shall be based on
the aggregate principal amount of Securities converted.
Upon surrender of a Security that is converted in part, the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder, a
new Security equal in principal amount to the unconverted portion of the
Security surrendered.
SECTION 4.3. Fractional Shares.
The Company will not issue fractional shares of Common Stock upon
conversion of Securities. In lieu thereof, the Company will pay an amount in
cash based upon the closing price of the Common Stock on the Trading Day
immediately prior to the Conversion Date.
SECTION 4.4. Taxes on Conversion.
If a Holder converts a Security, the Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon such conversion. However, the Holder shall pay any such tax which is
due because the Holder requests the shares to be issued in a name other than the
Holder's name. The Conversion Agent may refuse to deliver the certificate
representing the Common Stock being issued in a name other than the Holder's
name until the Conversion Agent receives a sum sufficient to pay any tax which
will be due because the shares are to be issued in a name other than the
Holder's name. Nothing herein shall preclude any tax withholding required by law
or regulation.
SECTION 4.5. Company to Provide Stock.
The Company shall, prior to issuance of any Securities hereunder, and
from time to time as may be necessary, reserve, out of its authorized but
unissued Common Stock, a sufficient number of shares of Common Stock to permit
the conversion of all outstanding Securities into shares of Common Stock.
All shares of Common Stock delivered upon conversion of the Securities
shall be newly issued shares, shall be duly authorized, validly issued, fully
paid and nonassessable and shall be free from preemptive rights and free of any
lien or adverse claim.
The Company will endeavor promptly to comply with all federal and state
securities laws regulating the offer and delivery of shares of Common Stock upon
conversion of Securities, if
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any, and will list or cause to have quoted such shares of Common Stock on each
national securities exchange or on the Nasdaq National Market or other
over-the-counter market or such other market on which the Common Stock is then
listed or quoted.
SECTION 4.6. Adjustment of Conversion Price.
The conversion price as stated in paragraph 8 of the Securities (the
"Conversion Price") shall be adjusted from time to time by the Company as
follows:
(a) In case the Company shall (i) pay a dividend on its Common
Stock in shares of Common Stock, (ii) make a distribution on its Common
Stock in shares of Common Stock, (iii) subdivide its outstanding Common
Stock into a greater number of shares, or (iv) combine its outstanding
Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior thereto shall be adjusted so that the Holder
of any Security thereafter surrendered for conversion shall be entitled
to receive that number of shares of Common Stock which it would have
owned had such Security been converted immediately prior to the
happening of such event. An adjustment made pursuant to this subsection
(a) shall become effective immediately after the record date in the
case of a dividend or distribution and shall become effective
immediately after the effective date in the case of subdivision or
combination.
(b) In case the Company shall issue rights or warrants to all
or substantially all holders of its Common Stock entitling them (for a
period commencing no earlier than the record date described below and
expiring not more than 60 days after such record date) to subscribe for
or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price per share (or having a conversion price per
share) less than the current market price per share of Common Stock (as
determined in accordance with subsection (e) of this Section 4.6) on
the record date for the determination of shareholders entitled to
receive such rights or warrants, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to such record date by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding on
such record date plus the number of shares which the aggregate offering
price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered,
which shall be determined by multiplying the number of shares of Common
Stock issuable upon conversion of such convertible securities by the
conversion price per share of Common Stock pursuant to the terms of
such convertible securities) would purchase at the current market price
per share (as defined in subsection (e) of this Section 4.6) of Common
Stock on such record date, and of which the denominator shall be the
number of shares of Common Stock outstanding on such record date plus
the number of additional shares of Common Stock offered (or into which
the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever any such rights or warrants are
issued, and shall become effective immediately after such record date.
If at the end of the period during which such rights or warrants are
exercisable not all rights or warrants shall have
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been exercised, the adjusted Conversion Price shall be immediately
readjusted to what it would have been based upon the number of
additional shares of Common Stock actually issued (or the number of
shares of Common Stock issuable upon conversion of convertible
securities actually issued).
(c) In case the Company shall distribute to all or
substantially all holders of its Common Stock any shares of capital
stock of the Company (other than Common Stock), evidences of
indebtedness or other non-cash assets (including securities of any
person other than the Company), or shall distribute to all or
substantially all holders of its Common Stock rights or warrants to
subscribe for or purchase any of its securities (excluding those rights
and warrants referred to in subsection (b) of this Section 4.6 and also
excluding the distribution of rights to all holders of Common Stock
pursuant to the adoption of a stockholders rights plan or the
detachment of such rights under the terms of such stockholder rights
plan), then in each such case the Conversion Price shall be adjusted so
that the same shall equal the price determined by multiplying the
current Conversion Price by a fraction of which the numerator shall be
the current market price per share (as defined in subsection (e) of
this Section 4.6) of the Common Stock on the record date mentioned
below less the fair market value on such record date (as determined by
the Board of Directors, whose determination shall be conclusive
evidence of such fair market value and which shall be evidenced by an
Officers' Certificate delivered to the Trustee) of the portion of the
capital stock, evidences of indebtedness or other non-cash assets so
distributed or of such rights or warrants applicable to one share of
Common Stock (determined on the basis of the number of shares of Common
Stock outstanding on the record date), and of which the denominator
shall be the current market price per share (as defined in subsection
(e) of this Section 4.6) of the Common Stock on such record date. Such
adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for
the determination of shareholders entitled to receive such
distribution.
(d) (1) In case the Company shall, by dividend or otherwise,
at any time distribute (a "Triggering Distribution") to all or
substantially all holders of its Common Stock cash in an aggregate
amount that, together with the aggregate amount of (A) any cash and the
fair market value (as determined by the Board of Directors, whose
determination shall be conclusive evidence thereof and which shall be
evidenced by an Officers' Certificate delivered to the Trustee) of any
other consideration payable in respect of any tender offer by the
Company or a Subsidiary of the Company for Common Stock consummated
within the 12 months preceding the date of payment of the Triggering
Distribution and in respect of which no Conversion Price adjustment
pursuant to this Section 4.6 has been made and (B) all other cash
distributions to all or substantially all holders of its Common Stock
made within the 12 months preceding the date of payment of the
Triggering Distribution and in respect of which no Conversion Price
adjustment pursuant to this Section 4.6 has been made, exceeds an
amount equal to 12.5% of the product of the current market price per
share of Common Stock (as determined in accordance with subsection (e)
of this Section 4.6) on the Business Day (the "Determination Date")
immediately preceding the day on which such Triggering
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Distribution is declared by the Company multiplied by the number of
shares of Common Stock outstanding on the Determination Date (excluding
shares held in the treasury of the Company), the Conversion Price shall
be reduced so that the same shall equal the price determined by
multiplying such Conversion Price in effect immediately prior to the
Determination Date by a fraction of which the numerator shall be the
current market price per share of the Common Stock (as determined in
accordance with subsection (e) of this Section 4.6) on the
Determination Date less the sum of the aggregate amount of cash and the
aggregate fair market value (determined as aforesaid) of any such other
consideration so distributed, paid or payable within such 12 months
(including, without limitation, the Triggering Distribution) applicable
to one share of Common Stock (determined on the basis of the number of
shares of Common Stock outstanding on the Determination Date) and the
denominator shall be such current market price per share of the Common
Stock (as determined in accordance with subsection (e) of this Section
4.6) on the Determination Date, such reduction to become effective
immediately prior to the opening of business on the day following the
date on which the Triggering Distribution is paid.
(2) In case any tender offer made by the Company or any of its
Subsidiaries for Common Stock shall expire and such tender offer (as
amended upon the expiration thereof) shall involve the payment of
aggregate consideration in an amount (determined as the sum of the
aggregate amount of cash consideration and the aggregate fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive evidence thereof and which shall be evidenced by an
Officers' Certificate delivered to the Trustee thereof ) of any other
consideration) that, together with the aggregate amount of (A) any cash
and the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive evidence thereof and which
shall be evidenced by an Officers' Certificate delivered to the
Trustee) of any other consideration payable in respect of any other
tender offers by the Company or any Subsidiary of the Company for
Common Stock consummated within the 12 months preceding the date of the
Expiration Date (as defined below) and in respect of which no
Conversion Price adjustment pursuant to this Section 4.6 has been made
and (B) all cash distributions to all or substantially all holders of
its Common Stock made within the 12 months preceding the Expiration
Date and in respect of which no Conversion Price adjustment pursuant to
this Section 4.6 has been made, exceeds an amount equal to 12.5% of the
product of the current market price per share of Common Stock (as
determined in accordance with subsection (e) of this Section 4.6) as of
the last date (the "Expiration Date") tenders could have been made
pursuant to such tender offer (as it may be amended) (the last time at
which such tenders could have been made on the Expiration Date is
hereinafter sometimes called the "Expiration Time") multiplied by the
number of shares of Common Stock outstanding (including tendered shares
but excluding any shares held in the treasury of the Company) at the
Expiration Time, then, immediately prior to the opening of business on
the day after the Expiration Date, the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to close
of business on the Expiration Date by a fraction of which the numerator
shall be the product of the number of shares of Common Stock
outstanding (including tendered shares but excluding any shares held in
the treasury of the Company) at the
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<PAGE> 40
Expiration Time multiplied by the current market price per share of the
Common Stock (as determined in accordance with subsection (e) of this
Section 4.6) on the Trading Day next succeeding the Expiration Date and
the denominator shall be the sum of (x) the aggregate consideration
(determined as aforesaid) payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender
offer) of all shares validly tendered and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum,
being referred to as the "Purchased Shares") and (y) the product of the
number of shares of Common Stock outstanding (less any Purchased Shares
and excluding any shares held in the treasury of the Company) at the
Expiration Time and the current market price per share of Common Stock
(as determined in accordance with subsection (e) of this Section 4.6)
on the Trading Day next succeeding the Expiration Date, such reduction
to become effective immediately prior to the opening of business on the
day following the Expiration Date. In the event that the Company is
obligated to purchase shares pursuant to any such tender offer, but the
Company is permanently prevented by applicable law from effecting any
or all such purchases or any or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price
which would have been in effect based upon the number of shares
actually purchased. If the application of this Section 4.6(d)(2) to any
tender offer would result in an increase in the Conversion Price, no
adjustment shall be made for such tender offer under this Section
4.6(d)(2).
(3) For purposes of this Section 4.6(d), the term "tender
offer" shall mean and include both tender offers and exchange offers,
all references to "purchases" of shares in tender offers (and all
similar references) shall mean and include both the purchase of shares
in tender offers and the acquisition of shares pursuant to exchange
offers, and all references to "tendered shares" (and all similar
references) shall mean and include shares tendered in both tender
offers and exchange offers.
(e) For the purpose of any computation under subsections (b),
(c) and (d) of this Section 4.6, the current market price per share of
Common Stock on any date shall be deemed to be the average of the daily
closing prices for the 30 consecutive Trading Days commencing 45
Trading Days before (i) the Determination Date or the Expiration Date,
as the case may be, with respect to distributions or tender offers
under subsection (d) of this Section 4.6 or (ii) the record date with
respect to distributions, issuances or other events requiring such
computation under subsection (b) or (c) of this Section 4.6. The
closing price for each day shall be the last reported sales price or,
in case no such reported sale takes place on such date, the average of
the reported closing bid and asked prices in either case on the New
York Stock Exchange (the "NYSE") or, if the Common Stock is not listed
or admitted to trading on the NYSE, on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, the last reported sales price of the Common Stock
as quoted on NASDAQ (the term "NASDAQ" shall include, without
limitation, the Nasdaq National Market) or, in case no reported sales
takes place, the average of the closing bid and asked prices as quoted
on NASDAQ or any comparable system or, if the Common Stock is not
quoted on NASDAQ or any comparable system,
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<PAGE> 41
the closing sales price or, in case no reported sale takes place, the
average of the closing bid and asked prices, as furnished by any two
members of the National Association of Securities Dealers, Inc.
selected from time to time by the Company for that purpose. If no such
prices are available, the current market price per share shall be the
fair value of a share of Common Stock as determined by the Board of
Directors (which shall be evidenced by an Officers' Certificate
delivered to the Trustee).
(f) In any case in which this Section 4.6 shall require that
an adjustment be made following a record date or a Determination Date
or Expiration Date, as the case may be, established for purposes of
this Section 4.6, the Company may elect to defer (but only until five
Business Days following the filing by the Company with the Trustee of
the certificate described in Section 4.9) issuing to the Holder of any
Security converted after such record date or Determination Date or
Expiration Date the shares of Common Stock and other capital stock of
the Company issuable upon such conversion over and above the shares of
Common Stock and other capital stock of the Company issuable upon such
conversion only on the basis of the Conversion Price prior to
adjustment; and, in lieu of the shares the issuance of which is so
deferred, the Company shall issue or cause its transfer agents to issue
due bills or other appropriate evidence prepared by the Company of the
right to receive such shares. If any distribution in respect of which
an adjustment to the Conversion Price is required to be made as of the
record date or Determination Date or Expiration Date therefor is not
thereafter made or paid by the Company for any reason, the Conversion
Price shall be readjusted to the Conversion Price which would then be
in effect if such record date had not been fixed or such effective date
or Determination Date or Expiration Date had not occurred.
SECTION 4.7. No Adjustment.
No adjustment in the Conversion Price shall be required unless the
adjustment would require an increase or decrease of at least 1% in the
Conversion Price as last adjusted; provided, however, that any adjustments which
by reason of this Section 4.7 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Article 4 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
No adjustment need be made for a transaction referred to in Section 4.6
if all Securityholders are entitled to participate in the transaction on a basis
and with notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which holders of Common Stock
participate in the transaction. The Company shall give notice to the Trustee of
any such determination.
No adjustment need be made for issuances of Common Stock pursuant to a
Company plan for reinvestment of dividends or interest or for a change in the
par value or a change to no par value of the Common Stock.
To the extent that the Securities become convertible into the right to
receive cash, no adjustment need be made thereafter as to the cash. Interest
will not accrue on the cash.
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SECTION 4.8. Adjustment for Tax Purposes.
The Company shall be entitled to make such reductions in the Conversion
Price, in addition to those required by Section 4.6, as it in its discretion
shall determine to be advisable in order that any stock dividends, subdivisions
of shares, distributions of rights to purchase stock or securities or
distributions of securities convertible into or exchangeable for stock hereafter
made by the Company to its shareholders shall not be taxable.
SECTION 4.9. Notice of Adjustment.
Whenever the Conversion Price or conversion privilege is adjusted, the
Company shall promptly mail to Securityholders a notice of the adjustment and
file with the Trustee an Officers' Certificate briefly stating the facts
requiring the adjustment and the manner of computing it.
SECTION 4.10. Notice of Certain Transactions.
In the event that:
(1) the Company takes any action which would require an
adjustment in the Conversion Price;
(2) the Company consolidates or merges with, or transfers all
or substantially all of its property and assets to, another corporation
and shareholders of the Company must approve the transaction; or
(3) there is a dissolution or liquidation of the Company,
the Company shall mail to Holders and file with the Trustee a notice stating the
proposed record or effective date, as the case may be. The Company shall mail
the notice at least ten days before such date. Failure to mail such notice or
any defect therein shall not affect the validity of any transaction referred to
in clause (1), (2) or (3) of this Section 4.10.
SECTION 4.11. Effect of Reclassification, Consolidation, Merger or Sale
on Conversion Privilege.
If any of the following shall occur, namely: (a) any reclassification
or change of shares of Common Stock issuable upon conversion of the Securities
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination, or any
other change for which an adjustment is provided in Section 4.6); (b) any
consolidation or merger to which the Company is a party other than a merger in
which the Company is the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name, or in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock;
or (c) any sale or conveyance of all or substantially all of the property and
assets of the Company to any person, then the Company, or such successor,
purchasing or transferee corporation, as the case may be, shall, as a condition
precedent to such reclassification, change,
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<PAGE> 43
consolidation, merger, sale or conveyance, execute and deliver to the Trustee a
supplemental indenture providing that the Holder of each Security then
outstanding shall have the right to convert such Security into the kind and
amount of shares of stock and other securities and property (including cash)
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock deliverable upon
conversion of such Security immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such supplemental indenture shall
provide for adjustments of the Conversion Price which shall be as nearly
equivalent as may be practicable to the adjustments of the Conversion Price
provided for in this Article 4. If, in the case of any such consolidation,
merger, sale or conveyance, the stock or other securities and property
(including cash) receivable thereupon by a holder of Common Stock include shares
of stock or other securities and property of a person other than the successor,
purchasing or transferee corporation, as the case may be, in such consolidation,
merger, sale or conveyance, then such supplemental indenture shall also be
executed by such other person and shall contain such additional provisions to
protect the interests of the Holders of the Securities as the Board of Directors
shall reasonably consider necessary by reason of the foregoing. The provisions
of this Section 4.11 shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales or conveyances.
In the event the Company shall execute a supplemental indenture
pursuant to this Section 4.11, the Company shall promptly file with the Trustee
(x) an Officers' Certificate briefly stating the reasons therefor, the kind or
amount of shares of stock or other securities or property (including cash)
receivable by Holders of the Securities upon the conversion of their Securities
after any such reclassification, change, consolidation, merger, sale or
conveyance, any adjustment to be made with respect thereto and that all
conditions precedent have been complied with and (y) an Opinion of Counsel that
all conditions precedent have been complied with, and shall promptly mail notice
thereof to all Holders.
SECTION 4.12. Trustee's Disclaimer.
The Trustee shall have no duty to determine when an adjustment under
this Article 4 should be made, how it should be made or what such adjustment
should be, but may accept as conclusive evidence of that fact or the correctness
of any such adjustment, and shall be protected in relying upon, an Officers'
Certificate including the Officers' Certificate with respect thereto which the
Company is obligated to file with the Trustee pursuant to Section 4.9. The
Trustee makes no representation as to the validity or value of any securities or
assets issued upon conversion of Securities, and the Trustee shall not be
responsible for the Company's failure to comply with any provisions of this
Article 4.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 4.11, but may accept as conclusive evidence of the
correctness thereof, and shall be fully protected in relying upon, the Officers'
Certificate with respect thereto which the Company is obligated to file with the
Trustee pursuant to Section 4.11.
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SECTION 4.13. Voluntary Reduction.
The Company from time to time may reduce the Conversion Price by any
amount for any period of time if the period is at least 20 days or such longer
period as may be required by law and if the reduction is irrevocable during the
period; provided, however, that in no event may the Company reduce the
Conversion Price to be less than the par value of a share of Common Stock.
ARTICLE 5
SUBORDINATION
SECTION 5.1. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and each Holder of Securities issued
hereunder by its acceptance thereof likewise covenants and agrees, that all
Securities shall be issued subject to the provisions of this Article 5; and each
person holding any Security, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound by such provisions.
The payment of all amounts on account of all Securities issued
hereunder shall, to the extent and in the manner hereinafter set forth, be
subordinated and junior in right of payment to the prior payment in full of all
Senior Indebtedness, whether outstanding at the date of this Indenture or
thereafter created, assumed or guaranteed.
SECTION 5.2. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation, Reorganization, Etc., of the Company.
Upon the payment or distribution of the assets of the Company of any
kind or character, whether in cash, property or securities (including any
collateral at any time securing the Securities), to creditors upon any
dissolution, winding-up, liquidation or reorganization of the Company (whether
voluntary or involuntary, or in bankruptcy, insolvency, reorganization,
liquidation, receivership proceedings, or upon an assignment for the benefit of
creditors, or any other marshaling of the assets and liabilities of the Company,
or in any similar proceedings), then in such event:
(a) all Senior Indebtedness shall first be paid in full, in
cash, before any payment is made on account of the Securities, whether
by way of the payment of principal of or interest on the indebtedness
evidenced by the Securities, a deposit pursuant to Section 10.1, a
repurchase, redemption or other acquisition of the Securities or
otherwise (collectively, "pay the Securities");
(b) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other
than securities of the Company as reorganized or readjusted, or
securities of the Company or any other person provided for by a plan of
reorganization or readjustment, junior, or the payment of which is
otherwise subordinate, at least to the extent provided in this Article
5, with respect to the Securities,
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to the payment of all Senior Indebtedness), to which the Holders or the
Trustee on behalf of the Holders would be entitled except for the
provisions of this Article 5, including any such payment or
distribution which may be payable or deliverable by reason of the
payment of another debt of the Company being subordinated to the
payment of the Securities, shall be paid or delivered by any debtor,
Custodian or other person making such payment or distribution, directly
to the holders of the Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture
pursuant to which any instruments evidencing any of such Senior
Indebtedness have been issued, ratably according to the aggregate
amounts remaining unpaid on account of the Senior Indebtedness held or
represented by each, for application to payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all
Senior Indebtedness in full after giving effect to any concurrent
payment or distribution to or for the benefit of the holders of such
Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section 5.2, any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities (other than securities of the Company as reorganized or
readjusted, or securities of the Company or any other person provided
for by a plan of reorganization or readjustment, junior, or the payment
of which is otherwise subordinate, at least to the extent provided for
in this Article 5, with respect to the Securities, to the payment of
all Senior Indebtedness), shall be received by the Trustee or any
Paying Agent or the Holders before all Senior Indebtedness is paid in
full, such payment or distribution (subject to the provisions of
Sections 5.6 and 5.7) shall be held in trust for the benefit of, and
shall be immediately paid or delivered by the Trustee, such Paying
Agent or such Holders, as the case may be, to, the holders of Senior
Indebtedness remaining unpaid or unprovided for, or their
representative or representatives, or to the trustee or trustees under
any indenture pursuant to which any instruments evidencing any of such
Senior Indebtedness have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each, for application to the
payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full after giving effect to
any concurrent payment or distribution to or for the benefit of the
holders of such Senior Indebtedness.
The Company shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of the Company.
Upon any distribution of assets of the Company referred to in this
Article 5, the Trustee and the Holders shall be entitled to rely conclusively
upon any order or decree by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceeding is pending, or
a certificate of the liquidating trustee or agent or other person making any
distribution to the Trustee or to the Holders, for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 5.
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SECTION 5.3. Holders to Be Subrogated to Right of Holders of Senior
Indebtedness.
Subject to the prior payment in full of all Senior Indebtedness then
due, the Holders shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until the principal of and interest on the
Securities shall be paid in full, and, for purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of assets,
whether in cash, property or securities, distributable to the holders of Senior
Indebtedness under the provisions hereof to which the Holders would be entitled
except for the provisions of this Article 5, and no payment pursuant to the
provisions of this Article 5 to the holders of Senior Indebtedness by the
Holders shall, as among the Company, its creditors other than the holders of
Senior Indebtedness, and the Holders, be deemed to be a payment by the Company
to or on account of Senior Indebtedness, it being understood that the provisions
of this Article 5 are, and are intended, solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
SECTION 5.4. Obligations of the Company Unconditional.
Nothing contained in this Article 5 or elsewhere in this Indenture or
in any Security is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders the principal of and interest on the Securities, as and when the same
shall become due and payable in accordance with the terms of the Securities and
this Indenture, or to affect the relative rights of the Holders and other
creditors of the Company other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or any Holder from
exercising all remedies otherwise permitted by applicable law upon the happening
of an Event of Default under this Indenture, subject to the provisions of
Article 8, and the rights, if any, under this Article 5 of the holders of Senior
Indebtedness to receive assets, whether in cash, property or securities, of the
Company otherwise payable or deliverable to the Trustee or such Holder upon the
exercise of any such remedy.
SECTION 5.5. Company Not to Make Payment With Respect to Securities in
Certain Circumstances.
(a) Upon the happening of a default in payment (whether at maturity or
at a date fixed for prepayment or by acceleration or otherwise) of the principal
of, or premium, if any, or interest on any Senior Indebtedness, as such default
is defined under or in respect of such Senior Indebtedness or in any agreement
pursuant to which such Senior Indebtedness has been incurred, then, unless and
until the amount of such Senior Indebtedness then due shall have been paid in
full or provision made therefor in a manner satisfactory to the holders of such
Senior Indebtedness, or such default shall have been cured or waived or shall
have ceased to exist, the Company shall not pay the Securities.
(b) Upon the happening of an event of default with respect to any
Senior Indebtedness (other than under circumstances when the terms of subsection
(a) of this Section 5.5 are applicable), as such event of default is defined
under or in respect of such Senior Indebtedness or
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in any agreement pursuant to which such Senior Indebtedness has been incurred,
permitting the holders thereof to accelerate the maturity thereof, and upon
written notice thereof given to the Company and the Trustee by any one or more
holders of such Senior Indebtedness or their representative or representatives
or the trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Indebtedness have been issued (a "Default
Notice"), then, unless and until such event of default shall have been cured or
waived or shall have ceased to exist, the Company shall not pay the Securities;
provided, however, that the foregoing provisions of this sentence shall not
prevent the making of any such payment (which is not otherwise prohibited by
subsection (a) of this Section 5.5) for more than 180 days after the Default
Notice shall have been given unless the Senior Indebtedness in respect of which
such event of default exists has been declared due and payable in its entirety,
in which case no such payment may be made until such acceleration has been
waived, rescinded or annulled, or such Senior Indebtedness shall have been paid
in full, or payment thereof shall be duly provided for in cash or in any other
manner satisfactory to the holders of such Senior Indebtedness. Notwithstanding
the foregoing, not more than one Default Notice shall be given with respect to
the same issue of Senior Indebtedness within a period of 360 consecutive days,
and no event of default which existed or was continuing on the date of any
Default Notice and was known to the holders of such issue of Senior Indebtedness
shall be made the basis for the giving of a subsequent Default Notice by the
holders of such issue of Senior Indebtedness.
(c) In the event that, notwithstanding the foregoing provisions of this
Section 5.5, the Company shall pay the Securities and such payment shall be
received by the Trustee, any Holder or any Paying Agent (or, if the Company is
acting as its own Paying Agent, money for any such payment shall be segregated
and held in trust), after the happening of a default or event of default, as the
case may be, under any Senior Indebtedness of the type specified in subsections
(a) and (b) of this Section 5.5, then, unless and until the amount of such
Senior Indebtedness then due shall have been paid in full or provision made
therefor or such default or event of default, as the case may be, shall have
been cured or waived or shall have ceased to exist or any such acceleration
referred to in the proviso to subsection (b) of this Section 5.5 shall have been
waived, rescinded or annulled, such payment (subject, in each case, to the
provisions of Sections 5.6 and 5.7 and the proviso contained in subsection (b)
of this Section 5.5) shall be held in trust for the benefit of, and shall be
immediately paid over to, the holders of Senior Indebtedness or their
representative or representatives or the trustee or trustees under any indenture
under which any instruments evidencing any of the Senior Indebtedness may have
been issued ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, for application
to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the benefit of
the holders of Senior Indebtedness.
SECTION 5.6. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article 5 or any other provision of this
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Indenture, the Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee, unless and until the Trustee shall have received written notice
thereof from the Company or from the holder or holders of Senior Indebtedness or
from their representative or representatives or from the trustee or trustees
under any indenture pursuant to which any instruments evidencing any of such
Senior Indebtedness have been issued; and, prior to the receipt of any such
written notice, the Trustee shall be entitled to assume conclusively that such
facts do not exist.
The Trustee shall be entitled to rely conclusively on the delivery to
it of a written notice by a person representing himself or herself to be a
holder of Senior Indebtedness (or a representative of such holder or the trustee
under any indenture pursuant to which any instruments evidencing any of such
Senior Indebtedness have been issued) to establish that such notice has been
given by a holder of Senior Indebtedness or a representative of any such holder.
In the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article 5, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
each person under this Article 5, and, if such evidence is not furnished, the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
SECTION 5.7. Application by Trustee of Money Deposited With It.
Money deposited in trust with the Trustee pursuant to Section 10.1 and
not in violation of this Article 5 shall be for the sole benefit of Holders and
shall thereafter not be subject to the subordination provisions of this Article
5. Otherwise, any deposit of money by the Company with the Trustee or any Paying
Agent (whether or not in trust) for the payment of the principal of or interest
on any Securities shall be subject to the provisions of Sections 5.1, 5.2, 5.3
and 5.5; except that, if two Business Days prior to the date on which by the
terms of this Indenture any such money may become payable for any purpose
(including, without limitation, the payment of either the principal of or
interest on any Security) the Trustee shall not have received with respect to
such money the notice provided for in Section 5.6, then the Trustee or any
Paying Agent shall have full power and authority to receive such money and to
apply such money to the purpose for which it was received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such date. This Section 5.7 shall be construed solely for the benefit of the
Trustee and the Paying Agent and shall not otherwise affect the rights that
holders of Senior Indebtedness may have to recover any such payments from the
Holders in accordance with the provisions of this Article 5.
SECTION 5.8. Subordination Rights Not Impaired by Acts or Omissions of
Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness to
enforce subordination, as herein provided, shall at any time in any way be
prejudiced or impaired by any
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act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
The holders of any Senior Indebtedness may extend, renew, modify or amend the
terms of such Senior Indebtedness or any security therefor and release, sell or
exchange such security and otherwise deal freely with the Company, all without
affecting the liabilities and obligations of the parties to this Indenture or
the Holders.
SECTION 5.9. Trustee to Effectuate Subordination.
Each Holder of a Security by its acceptance thereof authorizes and
directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article 5 and
appoints the Trustee its attorney-in-fact for any and all such purposes.
SECTION 5.10. Right of Trustee to Hold Senior Indebtedness.
The Trustee, in its individual capacity, shall be entitled to all of
the rights set forth in this Article 5 in respect of any Senior Indebtedness at
any time held by it to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 9.7.
SECTION 5.11. Article 5 Not to Prevent Events of Default.
The failure to make a payment on account of the principal of or
interest on the Securities by reason of any provision in this Article 5 shall
not be construed as preventing the occurrence of a default or an Event of
Default.
SECTION 5.12. No Fiduciary Duty Created to Holders of Senior
Indebtedness.
Notwithstanding any other provision in this Article 5, the Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness by virtue of the provisions of this Article 5.
SECTION 5.13. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 5 shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully for all intents and purposes as if such Paying Agent were named
in this Article 5 in addition to or in place of the Trustee; provided, however,
that Sections 5.6, 5.10 and 5.12 shall not apply to the Company if it acts as
Paying Agent.
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ARTICLE 6
COVENANTS
SECTION 6.1. Payment of Securities.
The Company shall promptly make all payments in respect of the
Securities on the dates and in the manner provided in the Securities and this
Indenture. An installment of principal or interest shall be considered paid on
the date it is due if the Paying Agent (other than the Company) holds by 11:00
a.m., New York City time, on that date money, deposited by the Company or an
Affiliate thereof, sufficient to pay the installment. The Company shall, to the
fullest extent permitted by law, pay interest on overdue principal (including
premium, if any) and overdue installments of interest at the rate borne by the
Securities per annum.
SECTION 6.2. SEC Reports.
The Company shall file all reports and other information and documents
which it is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act, and within 15 days after it files them with the SEC, the Company
shall file copies of all such reports, information and other documents with the
Trustee.
In the event the Company is at any time no longer subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will prepare, for the first three quarters of each fiscal year, quarterly
financial statements substantially equivalent to the financial statements
required to be included in a report on Form 10-Q under the Exchange Act. The
Company will also prepare, on an annual basis, complete audited consolidated
financial statements, including, but not limited to, a balance sheet, a
statement of operations, a statement of cash flows and all appropriate notes.
All such financial statements will be prepared in accordance with generally
accepted accounting principles. The Company will cause a copy of such financial
statements to be filed with the Trustee and mailed to the Holders of the
Securities within 50 days after the end of each of the first three quarters of
each fiscal year and within 95 days after the close of each fiscal year. The
Company will also comply with the other provisions of TIA Section 314(a).
If at any time while any of the Securities are "restricted securities"
within the meaning of Rule 144, the Company is no longer subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will prepare and will furnish to any Holder , any beneficial owner of Securities
and any prospective purchaser of Securities designated by a Holder or a
beneficial owner of Securities, promptly upon request, the information required
pursuant to Rule 144A(d)(4) (or any successor thereto) under the Securities Act
in connection with the offer, sale or transfer of Securities.
SECTION 6.3. Compliance Certificates.
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company, an Officers' Certificate as to the signer's
knowledge of the Company's
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compliance with all conditions and covenants on its part contained in this
Indenture and stating whether or not the signer knows of any default or Event of
Default. If such signer knows of such a default or Event of Default, the
Officers' Certificate shall describe the default or Event of Default and the
efforts to remedy the same. For the purposes of this Section 6.3, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
SECTION 6.4. Notice of Defaults.
In the event (a) that indebtedness of the Company or any Significant
Subsidiary in an aggregate principal amount in excess of $10,000,000 is declared
due and payable before its maturity because of the occurrence of any default
under such indebtedness, or (b) of the occurrence of any event which entitles
the holder or holders of such indebtedness to declare such indebtedness due and
payable before its maturity and with respect to which any applicable grace
period has lapsed or expired, the Company will promptly give written notice to
the Trustee of such declaration or event.
SECTION 6.5. Further Instruments and Acts.
Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purposes of this Indenture.
SECTION 6.6. Maintenance of Corporate Existence.
Subject to Article 7, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises, and the existence,
rights (charter and statutory) and franchises of its Subsidiaries; provided,
however, that the Company will not be required to preserve any such right or
franchise or the existence of any Subsidiary if the Board of Directors
determines that the preservation thereof is no longer desirable in the conduct
of its business and that the loss thereof is not disadvantageous in any material
respect to the Holders of the outstanding Securities.
ARTICLE 7
SUCCESSOR CORPORATION
SECTION 7.1. When Company May Merge, Etc.
The Company shall not consolidate with or merge with or into, or sell,
lease, convey, assign or otherwise transfer all or substantially all of its
property and assets to, any person unless:
(a) either the Company shall be the resulting or surviving
corporation or such person is a corporation organized and existing
under the laws of the United States of America, any State thereof or
the District of Columbia, and such person expressly
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assumes, by supplemental indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual
payment of the principal of and interest on all of the outstanding
Securities and the due and punctual performance and observance of all
other covenants, agreements and conditions contained in this Indenture
and the Securities to be performed or observed by the Company
(including, without limitation, the obligations of the Company under
Article 4 hereof); and
(b) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company or
such successor corporation as a result of such transaction as having
been incurred by the Company or such successor corporation, as the case
may be, at the time of such transaction, no default or Event of Default
shall have occurred and be continuing.
The Company shall deliver to the Trustee prior to the proposed
transaction an Officers' Certificate and an Opinion of Counsel, each of which
shall comply with Section 12.4 and shall state that such transaction and any
such supplemental indenture comply with this Article 7 and that all conditions
precedent herein provided for relating to such transaction have been complied
with; provided, however, that such Opinion of Counsel shall address only the
matters referred to in clause (a) of this Section 7.1.
SECTION 7.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance,
assignment or other transfer of all or substantially all of the property and
assets of the Company in accordance with Section 7.1, the successor corporation
(if other than the Company) formed by such consolidation or into which the
Company is merged or to which such sale, lease, conveyance, assignment or other
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor corporation had been named as the Company herein, and the
predecessor corporation (except in the case of a lease) shall be released from
all of its obligations under this Indenture and the Securities.
ARTICLE 8
DEFAULT AND REMEDIES
SECTION 8.1. Events of Default.
An "Event of Default" shall occur if:
(1) the Company defaults in the payment of any interest on any
Security when the same becomes due and payable and the default
continues for a period of 30 days;
(2) the Company defaults in the payment of any principal of
(including, without limitation, any premium, if any, on) any Security
when the same becomes due and
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payable (whether at maturity, upon redemption, on a Change of Control
Purchase Date or otherwise);
(3) the Company fails to comply with any of its other
agreements contained in the Securities or this Indenture and the
default continues for the period and after the notice specified below;
(4) a default shall occur under any bond, debenture, note or
other evidence of indebtedness for money borrowed of the Company or any
Significant Subsidiary having an aggregate outstanding principal amount
in excess of $10,000,000, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise have been due and payable, without
such indebtedness having been discharged, or such acceleration having
been rescinded or annulled, within a period of 10 days following the
occurrence of such acceleration;
(5) the Company or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding;
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property; or
(D) makes a general assignment for the benefit of its
creditors; or
(6) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary in an involuntary case or proceeding;
(B) appoints a Custodian of the Company or any
Significant Subsidiary or for all or substantially all of the
property of the Company or any Significant Subsidiary; or
(C) orders the liquidation of the Company or any
Significant Subsidiary;
and in each case the order or decree remains unstayed and in effect for
60 days.
The term "Bankruptcy Law" means Title 11 of the United States Code (or
any successor thereto) or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
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A default under clause (3) above is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the Securities then outstanding notify the Company and the
Trustee, of the default, and the Company does not cure the default within 60
days after receipt of such notice. The notice given pursuant to this Section 8.1
must specify the default, demand that it be remedied and state that the notice
is a "Notice of Default." When any default under this Section 8.1 is cured, it
ceases.
The Trustee shall not be charged with knowledge of any Event of Default
unless written notice thereof shall have been given to a Trust Officer at the
Corporate Trust Office of the Trustee by the Company, a Paying Agent, any Holder
or any agent of any Holder.
SECTION 8.2. Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (5) or (6) of Section 8.1) occurs and is continuing, the Trustee may, by
notice to the Company, or the Holders of at least 25% in aggregate principal
amount of the Securities then outstanding may, by notice to the Company and the
Trustee, declare all unpaid principal of and accrued interest to the date of
acceleration on the Securities then outstanding (if not then due and payable) to
be due and payable upon any such declaration, and the same shall become and be
immediately due and payable. If an Event of Default specified in clause (5) or
(6) of Section 8.1 occurs, all unpaid principal of and accrued interest on the
Securities then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. The Holders of a majority in aggregate principal amount of the
Securities then outstanding by notice to the Trustee may rescind an acceleration
and its consequences if (a) all existing Events of Default, other than the
nonpayment of the principal of and accrued interest on the Securities which has
become due solely by such declaration of acceleration, have been cured or
waived; (b) to the extent the payment of such interest is lawful, interest
(calculated at the rate per annum borne by the Securities) on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid; (c) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction; and (d) all payments due to the Trustee and any predecessor
Trustee under Section 9.7 have been made. Anything herein contained to the
contrary notwithstanding (other than the provisions of this sentence), in the
event of any acceleration pursuant to this Section 8.2, the Company shall not be
obligated to pay any premium which it would have had to pay if it had then
elected to redeem the Securities pursuant to paragraph 5 of the Securities,
except in the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium which it would have had to pay
if it had then elected to redeem the Securities pursuant to paragraph 5 of the
Securities, in which case an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law, and except that any
premium payable in respect of any Securities which shall have been called for
redemption shall be due and payable upon such acceleration.
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SECTION 8.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may, but
shall not be obligated to, pursue any available remedy by proceeding at law or
in equity to collect the payment of the principal of or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 8.4. Waiver of Defaults and Events of Default.
Subject to Sections 8.7 and 11.2, the Holders of a majority in
principal amount of the Securities then outstanding by notice to the Trustee may
waive an existing default or Event of Default and its consequence, except a
default or Event of Default in the payment of the principal of or interest on
any Security or any default or Event of Default in respect of any provision of
this Indenture or the Securities which, under Section 11.2, cannot be modified
or amended without the consent of the Holder of each Security affected. When a
default or Event of Default is waived, it is cured and ceases.
SECTION 8.5. Control by Majority.
The Holders of a majority in principal amount of the Securities then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of another Holder or the Trustee, or that may involve
the Trustee in personal liability; provided, however, that the Trustee may take
any other action deemed proper by the Trustee which is not inconsistent with
such direction.
SECTION 8.6. Limitations on Suits.
A Holder may not pursue any remedy with respect to this Indenture or
the Securities (except actions for payment of overdue principal or interest or
for the conversion of the Securities pursuant to Article 4) unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in principal amount of the
then outstanding Securities make a written request to the Trustee to
pursue the remedy;
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(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Securities then outstanding.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 8.7. Rights of Holders to Receive Payment and to Convert.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of the principal of and interest on the
Security, on or after the respective due dates expressed in the Security and
this Indenture, to convert such Security in accordance with Article 4 and to
bring suit for the enforcement of any such payment on or after such respective
dates or the right to convert, is absolute and unconditional and shall not be
impaired or affected without the consent of the Holder.
SECTION 8.8. Collection Suit by Trustee.
If an Event of Default in the payment of principal or interest
specified in clause (1) or (2) of Section 8.1 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or another obligor on the Securities for the whole amount of
principal and accrued interest remaining unpaid, together with, to the extent
that payment of such interest is lawful, interest on overdue principal and on
overdue installments of interest, in each case at the rate per annum borne by
the Securities and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 8.9. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Holders allowed in
any judicial proceedings relative to the Company (or any other obligor on the
Securities), its creditors or its property and shall be entitled and empowered
to collect and receive any money or other property payable or deliverable on any
such claims and to distribute the same, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 9.7, and to the extent
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that such payment of the reasonable compensation, expenses,
disbursements and advances in any such proceedings shall be denied for
any reason, payment of the same shall be secured by a lien on, and
shall be paid out of, any and all distributions, dividends, money,
securities and other property which the Holders may be entitled to
receive in such proceedings, whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to,
or, on behalf of any Holder, to authorize, accept or adopt any plan of
reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 8.10. Priorities.
If the Trustee collects any money pursuant to this Article 8, it shall
pay out the money in the following order:
First, to the Trustee for amounts due under Section 9.7;
Second, to the holders of Senior Indebtedness to the extent
required by Article 5;
Third, to Holders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable
on the Securities for principal and interest, respectively;
and
Fourth, to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 8.10.
SECTION 8.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 8.11 does not apply to a suit made by the Trustee, a suit by a
Holder pursuant to Section 8.7, or a suit by Holders of more than 10% in
principal amount of the Securities then outstanding.
SECTION 8.12. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent
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that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been
enacted.
ARTICLE 9
TRUSTEE
SECTION 9.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no others; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. The Trustee, however, shall examine any certificates
and opinions which by any provision hereof are specifically required to
be delivered to the Trustee to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this paragraph does not limit the effect of subsection (b)
of this Section 9.1;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 8.5.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers unless the Trustee shall have received adequate indemnity in
its opinion against potential costs and liabilities incurred by it relating
thereto.
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(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to subsections (a), (b), (c) and (d) of this Section 9.1.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 9.2. Rights of Trustee.
Subject to Section 9.1:
(a) The Trustee may rely conclusively on any document believed
by it to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in
the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, which shall
conform to Section 12.4(b). The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
Certificate or Opinion.
(c) The Trustee may act through its agents and shall not be
responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel, and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection in respect of any such action taken,
omitted or suffered by it hereunder in good faith and in accordance
with the advice or opinion of such counsel.
SECTION 9.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 9.10 and 9.11.
SECTION 9.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than its certificate of authentication.
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SECTION 9.5. Notice of Default or Events of Default.
If a default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the default or Event of Default within 90 days after it occurs. Except in the
case of a default or an Event of Default in payment of the principal of or
interest on any Security, the Trustee may withhold the notice if and so long as
a committee of its Trust Officers in good faith determines that withholding
notice is in the interests of Securityholders.
SECTION 9.6. Reports by Trustee to Holders.
If such report is required by TIA Section 313, within 60 days after
each January 15, beginning with the January 15 following the date of this
Indenture, the Trustee shall mail to each Securityholder a brief report dated as
of such January 15 that complies with TIA Section 313(a). The Trustee also shall
comply with TIA Section 313(b)(2) and (c).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed. The Company shall notify the Trustee
whenever the Securities become listed on any stock exchange or listed or
admitted to trading on any quotation system and any changes in the stock
exchanges or quotation systems on which the Securities are listed or admitted to
trading.
SECTION 9.7. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation (as agreed to from time to time by the Company and the Trustee) for
its services (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust). The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses may include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee (which for purposes of this
Section 9.7 shall include its officers, directors, employees and agents) for,
and hold it harmless against, any loss, liability or expense (including
reasonable legal fees and expenses) incurred by it in connection with its duties
under this Indenture or any action or failure to act as authorized or within the
discretion or rights or powers conferred upon the Trustee hereunder including
the reasonable costs and expenses of the Trustee and its counsel in defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Trustee shall notify
the Company promptly of any claim asserted against the Trustee for which it may
seek indemnity. The Company need not pay for any settlement without its written
consent, which shall not be unreasonably withheld.
The Company need not reimburse the Trustee for any expense or indemnify
it against any loss or liability incurred by it resulting from its gross
negligence or bad faith.
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To secure the Company's payment obligations in this Section 9.7, the
Trustee shall have a senior claim to which the Securities are hereby made
subordinate on all money or property held or collected by the Trustee, except
such money or property held in trust to pay the principal of and interest on the
Securities. The obligations of the Company under this Section 9.7 shall survive
the satisfaction and discharge of this Indenture or the resignation or removal
of the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (5) or (6) of Section 8.1 occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 9.8. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the Securities then outstanding may remove the
Trustee by so notifying the Trustee and may, with the Company's written consent,
appoint a successor Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 9.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. The resignation or removal of a Trustee shall not be effective until a
successor Trustee shall have delivered the written acceptance of its appointment
as described below.
If a successor Trustee does not take office within 45 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of 10% in principal amount of the Securities then outstanding may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 9.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee and be released from its obligations (exclusive of any
liabilities that the retiring Trustee may have incurred while acting as Trustee)
hereunder, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Holder.
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A retiring Trustee shall not be liable for the acts or omissions of any
successor Trustee after its succession.
Notwithstanding replacement of the Trustee pursuant to this Section
9.8, the Company's obligations under Section 9.7 shall continue for the benefit
of the retiring Trustee.
SECTION 9.9. Successor Trustee by Merger, Etc..
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust assets to, another corporation,
the resulting, surviving or transferee corporation, without any further act,
shall be the successor Trustee, provided such transferee corporation shall
qualify and be eligible under Section 9.10. Such successor Trustee shall
promptly mail notice of its succession to the Company and each Holder.
SECTION 9.10. Eligibility; Disqualification.
The Trustee shall always satisfy the requirements of paragraphs (1),
(2) and (5) of TIA Section 310(a). If at any time the Trustee shall cease to
satisfy any such requirements, it shall resign immediately in the manner and
with the effect specified in this Article 9. The Trustee shall be subject to the
provisions of TIA Section 310(b). Nothing herein shall prevent the Trustee from
filing with the SEC the application referred to in the penultimate paragraph of
TIA Section 310(b).
SECTION 9.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 10
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 10.1. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for and except as further provided below),
and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 2.7 and (ii) Securities for whose
payment money
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has theretofore been deposited in trust and thereafter repaid
to the Company as provided in Section 10.3) have been
delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at the
Final Maturity Date within one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of clause (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee or a Paying Agent (other than the Company or any of its
Affiliates) as trust funds in trust for the purpose cash in an amount
sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation,
for principal and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Final Maturity
Date or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 9.7 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the provisions of Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, 3.8,
3.9, 3.10, 3.11, 3.12, 3.13 and 12.5, Article 4, the last paragraph of Section
6.2 and this Article 10, shall survive.
SECTION 10.2. Application of Trust Money.
Subject to the provisions of Section 10.3, the Trustee or a Paying
Agent shall hold in trust, for the benefit of the Holders, all money deposited
with it pursuant to Section 10.1 and shall apply the deposited money in
accordance with this Indenture and the Securities to the payment of the
principal of and interest on the Securities. Money so held in trust shall not be
subject to the subordination provisions of Article 5.
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SECTION 10.3. Repayment to Company.
The Trustee and each Paying Agent shall promptly pay to the Company
upon request any excess money (i) deposited with them pursuant to Section 10.1
and (ii) held by them at any time.
The Trustee and each Paying Agent shall pay to the Company upon request
any money held by them for the payment of principal or interest that remains
unclaimed for two years after a right to such money has matured; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such payment, may at the expense of the Company cause to be published once
in a newspaper of general circulation in The City of New York or mail to each
Holder entitled to such money notice that such money remains unclaimed and that
after a date specified therein, which shall be at least 30 days from the date of
such publication or mailing, any unclaimed balance of such money then remaining
will be repaid to the Company. After payment to the Company, Holders entitled to
money must look to the Company for payment as general creditors.
SECTION 10.4. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 10.2 by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the Company's
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to Section 10.1 until such
time as the Trustee or such Paying Agent is permitted to apply all such money in
accordance with Section 10.2; provided, however, that if the Company has made
any payment of the principal of or interest on any Securities because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive any such payment from the money
held by the Trustee or such Paying Agent.
ARTICLE 11
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.1. Without Consent of Holders.
The Company and the Trustee may amend or supplement this Indenture or
the Securities without notice to or consent of any Securityholder:
(a) to comply with Sections 4.11 and 7.1;
(b) to cure any ambiguity, defect or inconsistency or to make
any other change that does not adversely affect the rights of any
Securityholder;
(c) to comply with the provisions of the TIA; or
(d) to appoint a successor Trustee.
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SECTION 11.2. With Consent of Holders.
The Company and the Trustee may amend or supplement this Indenture or
the Securities with the written consent of the Holders of at least a majority in
aggregate principal amount of the Securities then outstanding. The Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Securities without notice to any
Securityholder. However, notwithstanding the foregoing but subject to Section
11.4, without the written consent of each Securityholder affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 8.4, may not:
(1) reduce the percentage of the aggregate principal amount of
the outstanding Securities whose Holders must consent to an amendment,
supplement or waiver;
(2) reduce the rate of or change the time for payment of
interest on any Security;
(3) reduce the principal of or premium on or change the fixed
maturity of any Security or change the definition of "Change in
Control" or "Change in Control Purchase Date" applicable to any
Security or the amount payable by the Company to the Holder of any
Security upon a Change in Control, or alter any of the other Change in
Control provisions or any of the redemption provisions in a manner
adverse to the Holder of any Security;
(4) alter the conversion provisions with respect to any
Security in a manner adverse to the Holder thereof;
(5) waive a default in the payment (whether at maturity, upon
redemption, on an interest payment date, on a Change in Control
Purchase Date or otherwise) of the principal of (including any premium)
or interest on any Security;
(6) make any changes in Section 8.4 or in this Section 11.2,
except to increase any percentage in aggregate principal amount of
outstanding Securities required for any amendment, supplement or
waiver;
(7) modify the provisions of Article 5 in a manner adverse to
the Holders; or
(8) make any Security payable in money other than that stated
in the Security.
It shall not be necessary for the consent of the Holders under this
Section 11.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 11.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any
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defect therein, shall not, however, in any way impair or affect the validity of
any such amendment, supplement or waiver.
An amendment or supplement under this Section 11.2 or under Section
11.1 may not make any change that adversely affects the rights under Article 5
of any holder of an issue of Senior Indebtedness unless the holders of that
issue, pursuant to its terms, consent to the change.
SECTION 11.3. Compliance With Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as in effect at the date of such amendment or
supplement.
SECTION 11.4. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to its Security or portion of a Security if the Trustee receives the
notice of revocation before the date the amendment, supplement or waiver becomes
effective.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 11.2. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
SECTION 11.5. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
SECTION 11.6. Trustee to Sign Amendments, etc..
The Trustee shall sign any amendment or supplement authorized pursuant
to this Article 11 if the amendment or supplement does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, in its sole discretion, but need not sign it. In signing or
refusing to sign such amendment or supplement, the Trustee shall be entitled to
receive and, subject to Section 9.1, shall be fully protected in relying upon,
an Opinion of Counsel stating that such amendment or supplement is authorized or
permitted by this Indenture. The Company may not sign an amendment or supplement
until the Board of Directors approves it.
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ARTICLE 12
MISCELLANEOUS
SECTION 12.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by any of Sections 310 to 317, inclusive, of the TIA through
operation of Section 318(c) thereof, such imposed duties shall control.
SECTION 12.2. Notices.
Any notice, request or communication shall be given in writing and
delivered in person or mailed by first-class mail, postage prepaid, addressed as
follows:
If to the Company:
software.net Corporation
(doing business as Beyond.com)
1195 West Fremont Avenue
Sunnyvale, California 94087
Attention: Chief Financial Officer
If to the Trustee:
LaSalle National Bank
135 South LaSalle Street, Suite 1960
Chicago, Illinois 60603
Attention: Corporate Trust Department
Such notices or communications shall be effective when received.
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
by first-class mail to it at its address shown on the register kept by the
Primary Registrar.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication to a Securityholder is mailed in
the manner provided above, it is duly given, whether or not the addressee
receives it.
SECTION 12.3. Communications by Holders With Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA Section 312(c).
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SECTION 12.4. Certificate and Opinion as to Conditions Precedent.
(a) Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee
at the request of the Trustee:
(1) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent (including any covenants,
compliance with which constitutes a condition precedent), if any,
provided for in this Indenture relating to the proposed action have
been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent (including any covenants,
compliance with which constitutes a condition precedent) have been
complied with.
(b) Each Officers' Certificate and Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 12.5. Record Date for Vote or Consent of Securityholders.
The Company (or, in the event deposits have been made pursuant to
Section 10.1, the Trustee) may set a record date for purposes of determining the
identity of Holders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture, which record date shall be the
later of ten days prior to the first solicitation of such vote or consent or the
date of the most recent list of Securityholders furnished to the Trustee
pursuant to Section 2.5 prior to such solicitation. Notwithstanding the
provisions of Section 11.4, if a record date is fixed, those persons who were
Holders of Securities at the close of business on such record date (or their
duly designated proxies), and only those persons, shall be entitled to take such
action by vote or consent or to revoke any vote or consent previously given,
whether or not such persons continue to be Holders after such record date.
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SECTION 12.6. Rules by Trustee, Paying Agent, Registrar and Conversion
Agent.
The Trustee may make reasonable rules (not inconsistent with the terms
of this Indenture) for action by or at a meeting of Holders. Any Registrar,
Paying Agent or Conversion Agent may make reasonable rules for its functions.
SECTION 12.7. Legal Holidays.
A "Legal Holiday" is a Saturday, Sunday or a day on which state or
federally chartered banking institutions in New York, New York are not required
to be open. If a payment date is a Legal Holiday, payment may be made on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
SECTION 12.8. Governing Law.
This Indenture and the Securities shall be governed by, and construed
in accordance with, the laws of the State of New York.
SECTION 12.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary of the Company. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10. No Recourse Against Others.
All liability described in paragraph 18 of the Securities of any
director, officer, employee or shareholder, as such, of the Company is waived
and released.
SECTION 12.11. Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 12.12. Multiple Counterparts.
The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent the same agreement.
SECTION 12.13. Separability.
In case any provisions in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 12.14. Table of Contents, Headings, etc..
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as
of the date and year first above written.
SOFTWARE.NET CORPORATION
By: /s/ William S. McKiernan
-----------------------------------------
Name: William S. McKiernan
Title: Chairman of the Board of Directors
LASALLE NATIONAL BANK, as Trustee
By: /s/ Alvita C. Griffin
-----------------------------------------
Name: Alvita C. Griffin
Title: Trust Officer
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EXHIBIT A
[FORM OF FACE OF SECURITY]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE
NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED
IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.](1)
[THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE EXPIRATION OF THE HOLDING
PERIOD UNDER RULE 144(k) (OR ANY SUCCESSOR
- ----------
(1) These paragraphs should be included only if the Security is a global
Security.
<PAGE> 73
PROVISION) UNDER THE SECURITIES ACT WHICH IS APPLICABLE TO THIS SECURITY (THE
"RESALE RESTRICTION TERMINATION DATE"), ONLY (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (C) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (D) PURSUANT TO AND IN COMPLIANCE WITH RULE
144 UNDER THE SECURITIES ACT, IF AVAILABLE, OR (E) PURSUANT TO AND IN COMPLIANCE
WITH ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (SUBJECT TO THE CONDITION THAT, IF THIS SECURITY IS SOLD OR
TRANSFERRED PURSUANT TO THIS CLAUSE (E), THIS SECURITY MUST UPON SUCH SALE OR
TRANSFER CEASE TO BE A "RESTRICTED SECURITY" WITHIN THE MEANING OF RULE 144 (OR
ANY SUCCESSOR PROVISION) UNDER THE SECURITIES ACT), SUBJECT IN EACH OF THE
FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF THE HOLDER'S
PROPERTY BE AT ALL TIMES WITHIN ITS CONTROL, AND SUBJECT TO THE RIGHT OF THE
COMPANY, ANY REGISTRAR FOR THIS SECURITY AND THE TRUSTEE, PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E), TO REQUIRE THE DELIVERY
OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN
THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED
BY THE TRANSFEROR TO THE TRUSTEE OR A REGISTRAR. THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A
REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED
TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY
AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.](2)
- ----------
(2) These paragraphs to be included only if the Security is a Transfer
Restricted Security.
2
<PAGE> 74
SOFTWARE.NET CORPORATION
(Doing Business as Beyond.com)
INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE
CUSIP: [83403E AA 6 - For Restricted Global Securities] R-_____
7 1/4% Convertible Subordinated Notes Due December 1, 2003
Software.net Corporation, a Delaware corporation doing business as
Beyond.com (the "Company" or "Beyond.com", which terms shall include any
successor corporation under the Indenture referred to on the reverse hereof),
promises to pay to ___________, or registered assigns, the principal sum of
______________ Dollars ($______________) on December 1, 2003 [or such greater or
lesser amount as is indicated on the Schedule of Exchanges of Notes on the other
side of this Note].(3)
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
This Note is convertible as specified on the other side of this Note.
Additional provisions of this Note are set forth on the other side of this Note.
[SIGNATURE PAGE FOLLOWS]
- ----------
(3) This phrase should be included only if the Security is a global Security.
3
<PAGE> 75
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
SOFTWARE.NET CORPORATION
By:_____________________________________
Name:
Title:
[SEAL]
Attest:
By:_____________________________________
Name:
Title:
Dated:
Trustee's Certificate of Authentication: This is
one of the Securities referred to in the
within-mentioned Indenture.
LASALLE NATIONAL BANK,
as Trustee
By:_____________________________________
Authorized Signatory
4
<PAGE> 76
[FORM OF REVERSE SIDE OF SECURITY]
SOFTWARE.NET CORPORATION
(Doing Business as Beyond.com)
7 1/4% Convertible Subordinated Notes Due December 1, 2003
1. Interest
Software.net Corporation, a Delaware corporation doing business as
Beyond.com (the "Company" or "Beyond.com", which terms shall include any
successor corporation under the Indenture hereinafter referred to), promises to
pay interest on the principal amount of this Note at the rate of 7 1/4% per
annum. The Company shall pay interest semiannually on June 1 and December 1 of
each year, commencing June 1, 1999. Interest on the Notes shall accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from November 23, 1998; provided, however, that if there is not an
existing default in the payment of interest and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
interest payment date, interest shall accrue from such interest payment date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment
The Company shall pay interest on this Note (except defaulted interest)
to the person who is the Holder of this Note at the close of business on the May
15th or November 15th, as the case may be, next preceding the related interest
payment date. The Holder must surrender this Note to a Paying Agent to collect
payment of principal. The Company will pay principal and interest in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. The Company may, however, pay principal and interest
in respect of any Certificated Security by check or wire payable in such money.
It may mail an interest check to the Holder's registered address.
Notwithstanding the foregoing, so long as this Note is registered in the name of
a Depositary or its nominee, all payments hereon shall be made by wire transfer
of immediately available funds to the account of the Depositary or its nominee.
3. Paying Agent, Registrar and Conversion Agent
Initially, LaSalle National Bank (the "Trustee", which term shall
include any successor trustee under the Indenture hereinafter referred to) will
act as Paying Agent, Registrar and Conversion Agent. The Company may change any
Paying Agent, Registrar or Conversion Agent without notice to the Holder. The
Company or any of its Subsidiaries may, subject to certain limitations set forth
in the Indenture, act as Paying Agent or Registrar.
4. Indenture, Limitations
This Note is one of a duly authorized issue of Securities of the
Company designated as its 7 1/4% Convertible Subordinated Notes Due December 1,
2003 (the "Notes"), issued under an Indenture dated as of November 23, 1998
(together with any supplemental indentures thereto, the
5
<PAGE> 77
"Indenture"), between the Company and the Trustee. The terms of this Note
include those stated in the Indenture and those required by or made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended, as in
effect on the date of the Indenture. This Note is subject to all such terms, and
the Holder of this Note is referred to the Indenture and said Act for a
statement of them.
The Notes are subordinated unsecured obligations of the Company limited
to $63,250,000 aggregate principal amount, subject to Section 2.2 of the
Indenture. The Indenture does not limit other debt of the Company, secured or
unsecured, including Senior Indebtedness.
5. Optional Redemption
The Notes are subject to redemption, at any time on or after December
6, 2001, as a whole or from time to time in part, at the election of the
Company. The Redemption Prices (expressed as percentages of the principal
amount) are as follows for Notes redeemed during the periods set forth below:
<TABLE>
<CAPTION>
Period Redemption Price
------ ----------------
<S> <C>
December 6, 2001 through November 30, 2002..................... 101.813%
December 1, 2002 and thereafter................................ 100.000%
</TABLE>
in each case together with accrued interest up to but not including the
Redemption Date; provided that installments of interest that are due and payable
on interest payment dates falling on or prior to the relevant Redemption Date
will be payable to the Holders in whose names the Notes are registered at the
close of business on the relevant record dates.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at its registered address. Notes in denominations larger
than $1,000 may be redeemed in part, but only in whole multiples of $1,000. On
and after the Redemption Date, subject to the deposit with the Paying Agent of
funds sufficient to pay the Redemption Price plus accrued interest, if any,
accrued to but excluding the Redemption Date, interest ceases to accrue on Notes
or portions of them called for redemption.
7. Purchase of Notes at Option of Holder Upon a Change in Control
At the option of the Holder and subject to the terms and conditions of
the Indenture, the Company shall become obligated to purchase all or any part
specified by the Holder (so long as the principal amount of such part is $1,000
or an integral multiple of $1,000 in excess thereof) of the Notes held by such
Holder on the date that is 30 Business Days after the occurrence of a Change in
Control, at a purchase price equal to 100% of the principal amount thereof
together with accrued interest up to but not including the Change in Control
Purchase Date. The Holder shall have the right to withdraw any Change in Control
Purchase Notice (in whole or in a portion thereof that is $1,000 or an integral
multiple of $1,000 in excess thereof) at any time prior to the
6
<PAGE> 78
close of business on the Business Day next preceding the Change in Control
Purchase Date by delivering a written notice of withdrawal to the Paying Agent
in accordance with the terms of the Indenture.
8. Conversion
A Holder of a Note may convert the principal amount of such Note (or
any portion thereof equal to $1,000 or any integral multiple of $1,000 in excess
thereof) into shares of Common Stock at any time prior to the close of business
on December 1, 2003; provided, however, that if the Note is called for
redemption, the conversion right will terminate at the close of business on the
Business Day immediately preceding the redemption date for such Note or such
earlier date as the Holder presents such Note for redemption (unless the Company
shall default in making the redemption payment when due, in which case the
conversion right shall terminate at the close of business on the date such
default is cured and such Note is redeemed). The initial Conversion Price is
$18.34 per share, subject to adjustment under certain circumstances. The number
of shares of Common Stock issuable upon conversion of a Note is determined by
dividing the principal amount of the Note or portion thereof converted by the
Conversion Price in effect on the Conversion Date. No payment or adjustment will
be made for accrued interest on a converted Note, except as described in the
next succeeding paragraph, or for dividends or distributions on shares of Common
Stock issued upon conversion of a Note. No fractional shares will be issued upon
conversion; in lieu thereof, an amount will be paid in cash based upon the
closing price (as defined in the Indenture) of the Common Stock on the Trading
Day immediately prior to the Conversion Date.
To convert a Note, a Holder must (a) complete and manually sign the
conversion notice set forth below and deliver such notice to a Conversion Agent,
(b) surrender the Note to a Conversion Agent, (c) furnish appropriate
endorsements and transfer documents if required by a Registrar or a Conversion
Agent, and (d) pay any transfer or similar tax, if required. Interest accrued to
but excluding December 6, 2001 shall be paid on any Note called for redemption
and surrendered for conversion on or before the close of business on the
Business Day immediately preceding December 6, 2001 (with interest accrued from
and including December 1, 2001 to but excluding December 6, 2001 being paid to
the Holder surrendering such Note for conversion). If a Holder surrenders a Note
for conversion after the close of business on the record date for the payment of
an installment of interest and before the close of business on the related
interest payment date then, notwithstanding such conversion, the interest
payable on such interest payment date shall be paid to the Holder in whose name
such Note was registered at the close of business on such record date. In such
event, unless the Note has been called for redemption, such Note, when
surrendered for conversion, must be accompanied by payment of an amount equal to
the interest payable on such interest payment date on the principal amount of
the Note or portion thereof then converted. If the Company defaults in the
payment of interest payable on such interest payment date, the Company shall
promptly repay such funds to such Holder. A Holder may convert a portion of a
Note equal to $1,000 or any integral multiple thereof.
A Note in respect of which a Holder had delivered a Change in Control
Purchase Notice exercising the option of such Holder to require the Company to
purchase such Note may be
7
<PAGE> 79
converted only if the Change in Control Purchase Notice is withdrawn in
accordance with the terms of the Indenture.
9. Conversion Arrangement on Call for Redemption
Any Notes called for redemption, unless surrendered for conversion
before the close of business on the Redemption Date, may be deemed to be
purchased from the Holders of such Notes at an amount not less than the
Redemption Price, together with accrued interest, if any, to, but not including,
the Redemption Date, by one or more investment bankers or other purchasers who
may agree with the Company to purchase such Notes from the Holders, to convert
them into Common Stock of the Company and to make payment for such Notes to the
Paying Agent in trust for such Holders.
10. Subordination
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, subordinate and junior in right of payment to
the prior payment in full of all Senior Indebtedness of the Company. Any Holder
by accepting this Note agrees to and shall be bound by such subordination
provisions and authorizes the Trustee to give them effect.
In addition to all other rights of Senior Indebtedness described in the
Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness and
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any terms of any instrument relating to the
Senior Indebtedness or any extension or renewal of the Senior Indebtedness.
11. Denominations, Transfer, Exchange
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. A Holder may register the transfer of
or exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes or other governmental charges that may be imposed
in relation thereto by law or permitted by the Indenture.
12. Persons Deemed Owners
The Holder of a Note may be treated as the owner of it for all
purposes.
13. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent will pay the money back to the Company at
its written request. After that, Holders entitled to money must look to the
Company for payment.
8
<PAGE> 80
14. Amendment, Supplement and Waiver
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and an existing default or
Event of Default and its consequence or compliance with any provision of the
Indenture or the Notes may be waived in a particular instance with the consent
of the Holders of a majority in principal amount of the Notes then outstanding.
Without the consent of or notice to any Holder, the Company and the Trustee may
amend or supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency or make any other change that does not
adversely affect the rights of any Holder.
15. Successor Corporation
When a successor corporation assumes all the obligations of its
predecessor under the Notes and the Indenture in accordance with the terms and
conditions of the Indenture, the predecessor corporation will (except in certain
circumstances specified in the Indenture) be released from those obligations.
16. Defaults and Remedies
An Event of Default is: default for 30 days in payment of any interest
on any Notes; default in payment of any principal (including, without
limitation, any premium, if any) on the Notes when due (whether at maturity,
upon redemption, on a Change of Control Purchase Date, or otherwise); failure by
the Company for 60 days after notice to it to comply with any of its other
agreements contained in the Indenture or the Notes; certain events of
bankruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary; and the acceleration of certain other indebtedness of the Company or
any Significant Subsidiary. If an Event of Default (other than as a result of
certain events of bankruptcy, insolvency or reorganization of the Company or any
Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the Notes then outstanding may declare all
unpaid principal of and accrued interest to the date of acceleration on the
Notes then outstanding to be due and payable immediately, all as and to the
extent provided in the Indenture. If an Event of Default occurs as a result of
certain events of bankruptcy, insolvency or reorganization of the Company or any
Significant Subsidiary, unpaid principal of and accrued interest on the Notes
then outstanding shall become due and payable immediately without any
declaration or other act on the part of the Trustee or any Holder, all as and to
the extent provided in the Indenture. Holders may not enforce the Indenture or
the Notes except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders notice of any continuing default (except a
default in payment of principal or interest) if it determines that withholding
notice is in their interests. The Company is required to file periodic reports
with the Trustee as to the absence of default.
9
<PAGE> 81
17. Trustee Dealings With the Company
LaSalle National Bank, the Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits from and
perform services for the Company or an Affiliate of the Company, and may
otherwise deal with the Company or an Affiliate of the Company, as if it were
not the Trustee.
18. No Recourse Against Others
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or the Indenture nor for any claim based on, in respect of or by reason of such
obligations or their creation. The Holder of this Note by accepting this Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of this Note.
19. Discharge Prior to Maturity
If all of the Notes have been delivered to the Trustee for cancellation
(subject to certain exceptions provided in the Indenture) or all the Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable or will become due and payable at their Final Maturity Date within one
year or are to be called for redemption within one year, all on the terms and
conditions provided in the Indenture, and if the Company deposits with the
Trustee or a Paying Agent cash in an amount sufficient to pay the principal of
and interest on the Notes to the date of such deposit (in the case of Notes
which have become due and payable) or to the Final Maturity Date or the
Redemption Date, as the case may be, the Company will be discharged from the
Indenture except for certain provisions thereof.
20. Authentication
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
21. Abbreviations and Definitions
Customary abbreviations may be used in the name of the Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
All terms defined in the Indenture and used in this Note but not
specifically defined herein are defined in the Indenture and are used herein as
so defined.
22. Indenture to Control; Governing Law
In the case of any conflict between the provisions of this Note and the
Indenture, the provisions of the Indenture shall control. This Note shall be
governed by, and construed in accordance with, the laws of the State of New
York.
10
<PAGE> 82
The Company will furnish to any Holder, upon written request and
without charge, a copy of the Indenture. Requests may be made to: software.net
Corporation (doing business as Beyond.com), 1195 West Fremont Avenue, Sunnyvale,
California 94087, Attention: Chief Financial Officer.
11
<PAGE> 83
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him or her.
Your Signature:
------------------------------------
Date:
--------------------- -----------------------------------------
(Sign exactly as your name appears on
the other side of this Note)
* Signature guaranteed by:
------------------------------------------------------
By:
-----------------------------------------------------------------------------
- ----------
* The signature must be guaranteed by an institution which is a member of one
of the following recognized signature guaranty programs: (i) the Securities
Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange
Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP);
or (iv) such other guaranty program acceptable to the Trustee.
12
<PAGE> 84
CONVERSION NOTICE
To convert this Note into Common Stock of the Company, check the box:
[ ]
To convert only part of this Note, state the principal amount to be
converted (must be $1,000 or a multiple of $1,000): $_____________
If you want the stock certificate made out in another person's name,
fill in the form below:
- --------------------------------------------------------------------------------
(Insert other person's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type other person's name, address and zip code)
Your Signature:
------------------------------------
Date:
--------------------- -----------------------------------------
(Sign exactly as your name appears on
the other side of this Note)
* Signature guaranteed by:
------------------------------------------------------
By:
-----------------------------------------------------------------------------
- ----------
* The signature must be guaranteed by an institution which is a member of one
of the following recognized signature guaranty programs: (i) the Securities
Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange
Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP);
or (iv) such other guaranty program acceptable to the Trustee.
13
<PAGE> 85
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased, in whole or in part,
by the Company pursuant to Section 3.8 of the Indenture, check the following
box: [ ]
If you want to have only part of this Note purchased by the Company,
state the principal amount you want to be purchased (must be $1,000 or a
multiple of $1,000): $_____________
Your Signature:
------------------------------------
Date:
--------------------- -----------------------------------------
(Sign exactly as your name appears on
the other side of this Note)
* Signature guaranteed by:
------------------------------------------------------
By:
-----------------------------------------------------------------------------
- ----------
* The signature must be guaranteed by an institution which is a member of one
of the following recognized signature guaranty programs: (i) the Securities
Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange
Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP);
or (iv) such other guaranty program acceptable to the Trustee.
14
<PAGE> 86
SCHEDULE OF EXCHANGES OF NOTES(4)
The following exchanges, redemptions, repurchases or conversions of a
part of this global Note have been made:
<TABLE>
<CAPTION>
Principal amount of Signature of
Amount of decrease Amount of increase this global Note Authorized
in principal amount in principal amount following such Signatory of
Date of Transaction of this global Note of this global Note decrease or increase Securities Custodian
------------------- ------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------
(4) This schedule should be included only if the Security is a global Security.
15
<PAGE> 87
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
TRANSFER RESTRICTED SECURITIES(5)
Re: 7 1/4% Convertible Subordinated Notes Due December 1, 2003 (the
"Notes") of software.net Corporation (doing business as Beyond.com)
This certificate relates to $________________ principal amount of Notes
owned in (check applicable box)
[ ] book-entry or [ ] definitive form by _____________________ (the
"Transferor").
The Transferor has requested a Registrar or the Trustee to exchange or
register the transfer of such Notes.
In connection with such request and in respect of each such
Note, the Transferor does hereby certify that the Transferor is
familiar with transfer restrictions relating to the Notes as provided
in Section 2.12 of the Indenture dated as of November 23, 1998 between
software.net Corporation (doing business as Beyond.com) and LaSalle
National Bank (the "Indenture"), and the transfer of such Note is being
made pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act") (check
applicable box) or the transfer or exchange, as the case may be, of
such Note does not require registration under the Securities Act
because (check applicable box):
[ ] Such Note is being transferred pursuant to an effective
registration statement under the Securities Act.
[ ] Such Note is being acquired for the Transferor's own account,
without transfer.
[ ] Such Note is being transferred to the Company or a Subsidiary (as
defined in the Indenture) of the Company.
[ ] Such Note is being transferred to a person the Transferor
reasonably believes is a "qualified institutional buyer" (as defined in
Rule 144A or any successor provision thereto ("Rule 144A") under the
Securities Act) that is purchasing for its own account or for the
account of a "qualified institutional buyer", in each case to whom
notice has been given that the transfer is being made in reliance on
such Rule 144A, and in each case in reliance on Rule 144A.
- ----------
(5) This certificate should only be included if this Security is a Transfer
Restricted Security.
16
<PAGE> 88
[ ] Such Note is being transferred pursuant to and in compliance
with an exemption from the registration requirements under the
Securities Act in accordance with Rule 144 (or any successor thereto)
("Rule 144") under the Securities Act.
Such Note is being transferred pursuant to and in compliance
with an exemption from the registration requirements of the Securities
Act (other than an exemption referred to above) and as a result of
which such Note will, upon such transfer, cease to be a "restricted
security" within the meaning of Rule 144 under the Securities Act.
The Transferor acknowledges and agrees that, if the transferee
will hold any such Notes in the form of beneficial interests in a
global Note which is a "restricted security" within the meaning of Rule
144 under the Securities Act, then such transfer can only be made
pursuant to Rule 144A under the Securities Act and such transferee must
be a "qualified institutional buyer" (as defined in Rule 144A).
_________________________________________
(Insert Name of Transferor)
By:______________________________________
Date:_____________________________
17
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of November 23, 1998, by and among software.net Corporation,
doing business as Beyond.com, a Delaware corporation (the "Company"), and Credit
Suisse First Boston Corporation, C.E. Unterberg, Towbin and Donaldson, Lufkin &
Jenrette Securities Corporation (the "Initial Purchasers") pursuant to the
Purchase Agreement dated November 17, 1998 (the "Purchase Agreement") by and
among the Company and the Initial Purchasers. In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement. The execution of
this Agreement is a condition to the closing under the Purchase Agreement.
The Company agrees with the Initial Purchasers, (i) for their benefit
as Initial Purchasers and (ii) for the benefit of the holders from time to time
of the Notes (including the Initial Purchasers) and the holders from time to
time of the Common Stock issued upon conversion of the Notes (each of the
foregoing a "Holder" and together the "Holders," which terms include the
beneficial owners of Notes held in global book-entry form), as follows:
1. Definitions. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:
Affiliate: "Affiliate" means, with respect to any specified
person, (i) any other person directly or indirectly controlling or controlled
by, or under direct or indirect common control with, such specified person or
(ii) any executive officer or director of such specified person. For purposes of
this definition, the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") of a person means the
possession, direct or indirect, of the power (whether or not exercised) to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract, or otherwise.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
Common Stock: The shares of common stock, par value $0.001 per
share, of the Company and any other shares of common stock as may constitute
"Common Stock" for purposes of the Indenture, in each case, as issuable or
issued upon conversion of the Notes.
Damages Accrual Period: See Section 2(e) hereof.
Damages Payment Date: Each of the semi-annual interest payment
dates provided in the Indenture and the Notes.
Deferral Period: See Section 2(d)(ii) hereof.
-1-
<PAGE> 2
Effectiveness Period: The period commencing with the date
hereof and ending on the earlier of the date that is two years after the latest
date of original issuance of the Notes and the date that all Registrable
Securities have ceased to be Registrable Securities.
Event: See Section 2(e) hereof.
Event Date: See Section 2(e) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Filing Date: The latest date of original issuance of the
Notes.
Holder: See the second paragraph of this Agreement.
Indenture: The Indenture, dated as of November 23, 1998,
between the Company and LaSalle National Bank, Trustee, pursuant to which the
Notes are being issued, as amended or supplemented from time to time in
accordance with the terms hereof.
Initial Purchasers: See the first paragraph of this Agreement.
Initial Shelf Registration: See Section 2(a) hereof.
Liquidated Damages: See Section 2(e) hereof.
Losses: See Section 6 hereof.
Managing Underwriters: The investment banking firm or firms
that shall manage or co-manage an Underwritten Offering.
Notes: The 7 1/4% Convertible Subordinated Notes Due December
1, 2003 of the Company being issued and sold pursuant to the Purchase Agreement
and the Indenture.
Notice Holder: See Section 2(d)(i) hereof.
Purchase Agreement: See the first paragraph of this Agreement.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any amendment or prospectus
supplement, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Record Holder: (i) with respect to any Damages Payment Date
relating to any Note as to which any Liquidated Damages have accrued, the
registered holder of such Note on the record date with respect to the interest
payment date under the Indenture and the Note on
-2-
<PAGE> 3
which such Damages Payment Date shall occur and (ii) with respect to any Damages
Payment Date relating to any Common Stock as to which any such Liquidated
Damages have accrued, the registered holder of such Common Stock on the May 15
or November 15, as the case may be, immediately prior to the applicable Damages
Payment Date.
Registrable Securities: The Notes and the Common Stock into
which the Notes are convertible or converted, whether or not such Notes have
been converted and any Common Stock issued with respect thereto upon any stock
dividend, split or similar event until, in the case of any such Note or any such
Common Stock, (i) it is effectively registered under the Securities Act and
disposed of in accordance with the Registration Statement covering it, (ii) it
is saleable by the holder thereof pursuant to Rule 144(k) or (iii) it is sold to
the public pursuant to Rule 144, and the legends with respect to transfer
restrictions required under the Indenture (other than any such legends required
solely as the consequence of the fact that the Registrable Securities (or the
Notes, upon the conversion of which, such Registrable Securities were issued or
are issuable) are owned by, or were previously owned by, the Company or an
Affiliate of the Company and other than legends required by any depositary for
book-entry Notes) are removed or removable in accordance with the terms of the
Indenture.
Registration Expenses: See Section 5 hereof.
Registration Statement: Any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
Rule 144A: Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations promulgated by the SEC thereunder.
Selling Period: See Section 2(d)(i) hereof.
Shelf Registration: See Section 2(a) hereof.
Special Counsel: Venture Law Group, A Professional
Corporation, or such other successor counsel as shall be specified by the
holders of a majority of the Registrable Securities, the fees and expenses of
which will be paid by the Company pursuant to Section 5 hereof.
Subsequent Shelf Registration: See Section 2(b) hereof.
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TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The Trustee under the Indenture.
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public, provided that the Managing Underwriters of an
Underwritten Offering shall be approved by the Company, which approval shall not
be unreasonably withheld.
2. Shelf Registration.
(a) Shelf Registration. The Company shall prepare and file
with the SEC, as soon as practicable but in any event on or prior to the date
sixty (60) days following the Filing Date a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 of the Securities
Act (a "Shelf Registration") registering the resale from time to time by Holders
thereof of all of the Registrable Securities (the "Initial Shelf Registration").
The Initial Shelf Registration shall be on Form S-1, Form S-3 or another
appropriate form permitting registration of such Registrable Securities for
resale by such Holders in the manner or manners designated by them (including,
without limitation, one or more Underwritten Offerings). The Company shall use
its reasonable efforts to cause the Initial Shelf Registration to be declared
effective under the Securities Act as soon as practicable and, in any event,
within one hundred and twenty (120) days following the Filing Date and to keep
the Initial Shelf Registration effective under the Securities Act until the
earlier of the expiration of the Effectiveness Period or the date a Subsequent
Shelf Registration, as defined below, covering all of the Registrable Securities
has been declared effective under the Securities Act.
(b) If the Initial Shelf Registration or any Subsequent Shelf
Registration, as defined below, ceases to be effective for any reason as a
result of the issuance of a stop order by the SEC at any time during the
Effectiveness Period, the Company shall use its reasonable efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and in any
event shall within thirty (30) days of such cessation of effectiveness amend the
Shelf Registration in a manner reasonably expected to obtain the withdrawal of
the order suspending the effectiveness thereof, or file an additional Shelf
Registration covering all of the Registrable Securities (a "Subsequent Shelf
Registration"). If a Subsequent Shelf Registration is filed, the Company shall
use its reasonable efforts to cause the Subsequent Shelf Registration to be
declared effective as soon as practicable after such filing and to keep such
Registration Statement continuously effective until the end of the Effectiveness
Period.
(c) The Company shall supplement and amend the Shelf
Registration if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration, if
required by the Securities Act, or if reasonably requested by the Initial
Purchasers or by the Trustee on behalf of the Holders of a majority of the
Registrable Securities covered by such Registration Statement or by any Managing
Underwriter of such Registrable Securities in the event of an Underwritten
Offering of the Registrable Securities.
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(d) Each Holder of Registrable Securities agrees that if such
Holder wishes to sell its Registrable Securities pursuant to a Shelf
Registration and related Prospectus, it will do so only in accordance with this
Section 2(d). Each Holder of Registrable Securities agrees to give written
notice to the Company at least five Business Days prior to any intended
distribution of Registrable Securities under the Shelf Registration, which
notice shall specify the date on which such Holder intends to begin such
distribution and any information with respect to such Holder and the intended
distribution of Registrable Securities by such Holder as may be required to
amend the Registration Statement or supplement the related Prospectus with
respect to such intended distribution of Registrable Securities by such Holder
(the "Requisite Information"). In the event a Holder fails to provide the
Requisite Information in its initial notice of its intention to distribute the
Registrable Securities pursuant to the Registration Statement, the Company will
promptly request such Holder to provide such Requisite Information. As soon as
practicable after the date such notice is provided, and in any event within five
Business Days after such date, the Company shall either:
(i) (A) If necessary, prepare and file with the
Commission a post-effective amendment to the Shelf Registration or a supplement
to the related Prospectus or a supplement or amendment to any document
incorporated therein by reference or file any other required document so that
such Registration Statement will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and so that, as thereafter
delivered to purchasers of the Registrable Securities being sold thereunder,
such Prospectus will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (B) provide the Notice Holders (as defined below) copies of any
documents filed pursuant to Section 2(d)(i)(A); and (C) inform the Notice
Holders that the Company has complied with its obligations in Section 2(d)(i)(A)
(or that, if the Company has filed a post-effective amendment to the Shelf
Registration which has not yet been declared effective, the Company will notify
the Notice Holders to that effect, will use its reasonable efforts to secure the
effectiveness of such post-effective amendment and will immediately notify the
Notice Holders when the amendment has become effective); each Holder who has
given notice of intention to distribute such Holder's Registrable Securities in
accordance with Section 2(d) hereof (a "Notice Holder") will sell all or any of
such Registrable Securities pursuant to the Shelf Registration and related
Prospectus only during the forty-five (45)-day period commencing with the date
on which the Company gives notice, pursuant to Section 2(d)(i)(C), that the
Registration Statement and Prospectus may be used for such purpose (such
forty-five (45)-day period is referred to as a "Selling Period"). The Notice
Holders will not sell any Registrable Securities pursuant to such Registration
Statement or Prospectus after such Selling Period without giving a new notice of
intention to sell pursuant to Section 2(d) hereof and receiving a further notice
from the Company pursuant to Section 2(d)(i)(C) hereof.
(ii) in the event (A) of the happening of any event
of the kind described in Section 3(d)(ii), 3(d)(iii), 3(d)(iv), 3(d)(v) or
3(d)(vi) hereof or (B) that, in the judgment of the Company, it is advisable to
suspend use of the Prospectus for a discrete period of time due to pending
material corporate developments or similar material events that have not yet
been publicly disclosed and as to which the Company believes public disclosure
will be prejudicial to the Company, the Company shall deliver a certificate in
writing, signed by an authorized executive officer of the Company, to the Notice
Holders, the Special Counsel and the Managing Underwriters, if any, to the
effect of the foregoing and, upon receipt of such certificate, each such Notice
Holder's Selling Period will not commence until such Notice Holder's receipt of
copies of the supplemented or amended Prospectus provided for in
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<PAGE> 6
Section 2(d)(i)(A) hereof, or until it is advised in writing by the Company that
the Prospectus may be used, and has received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference
in such Prospectus. The Company will use its reasonable efforts to ensure that
the use of the Prospectus may be resumed, and the Selling Period will commence,
as soon as practicable and, in the case of a pending development or event
referred to in Section 2(d)(ii)(B) hereof, as soon as the earlier of (x) public
disclosure of such pending material corporate development or similar material
event or (y) in the judgment of the Company, public disclosure of such material
corporate development or similar material event would not be prejudicial to the
Company. Notwithstanding the foregoing, (A) the Company shall not under any
circumstances be entitled to exercise its right under this Section 2(d)(ii) to
defer the commencement of a Selling Period more than one (1) time in any three
(3) month period or two (2) times in any twelve (12) month period, and the
period in which a Selling Period is suspended shall not exceed fifteen (15) days
unless the Company shall deliver to such Notice Holders a second notice to the
effect set forth above, which shall have the effect of extending the period
during which such Selling Period is deferred by up to an additional fifteen (15)
days, or such shorter period of time as is specified in such second notice, and
(B) in no event shall the Company be permitted to extend the period during which
such Selling Period is deferred from and after the date a Notice Holder provides
notice to the Company in accordance with this Section 2(d) of its intention to
distribute Registrable Securities (a "Deferral Period") beyond such thirty (30)
day period, provided, that the Company may suspend the use of such Prospectus
for longer periods so long as the Company complies with its obligations, if any,
to pay Liquidated Damages in accordance with Section 2(e) hereof.
Notwithstanding the foregoing set forth in this
Section 2(d)(ii), a deferral or suspension (which deferral or suspension
pursuant to (A) or (B) below shall not exceed the time periods otherwise
permitted under this Section 2(d)(ii)) by the Company of a Selling Period in
order to (A) until such time as the Company first satisfies the eligibility
requirements for the use of Form S-3 under the Securities Act, amend a
Registration Statement on Form S-1 (an "S-1 Registration Statement") and
supplement the related Prospectus, which amendment and supplement are required
in the reasonable good faith judgment of the Company to (i) reflect the
existence of any fact or happening of any event which makes any statement of a
material fact in such S-1 Registration Statement or related Prospectus untrue or
which would require the making of any changes in such S-1 Registration Statement
or Prospectus in order that, in the case of such S-1 Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made not
misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, (ii) include
audited or quarterly financial statements as required under the Securities Act
or the rules or regulations thereunder or (iii) respond to comments received by
the SEC with respect to such Registration Statement, or (B) amend a Registration
Statement or supplement the related Prospectus in order to enable the
underwritten offering of the Registrable Securities included therein shall not
be counted for purposes of the limitations set forth in the last sentence of the
first paragraph of this Section 2(d)(ii), provided, however, that the Company
shall use its reasonable efforts to have such amendment declared effective as
soon as possible after commencement of the deferral or suspension.
(e) The parties hereto agree that the Holders of Registrable
Securities will suffer damages, and that it would not be feasible to ascertain
the extent of such damages with precision, if (i) the Initial Shelf Registration
Statement has not been filed on or prior to 120 days after the Filing Date, (ii)
the Initial Shelf Registration has not been declared effective on or prior
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<PAGE> 7
to 120 days after the Filing Date due to the fact that the Company has not used
reasonable efforts as required under Section 2(a) above and taking into account
then existing circumstances (which may include, but are not limited to, the
events set forth under clause (A) of the second paragraph of Section 2(d)(ii)),
(iii) prior to the end of the Effectiveness Period, the SEC shall have issued a
stop order suspending the effectiveness of the Shelf Registration or proceedings
have been initiated with respect to the Shelf Registration under Section 8(d) or
8(e) of the Securities Act, (iv) the aggregate number of days in any one
Deferral Period exceeds the periods permitted pursuant to Section 2(d)(ii)
hereof, or (v) the number of Deferral Periods exceeds the number permitted
pursuant to Section 2(d)(ii) hereof (each of the events of a type described in
any of the foregoing clauses (i) through (v) are individually referred to herein
as an "Event," and 120 days after the Filing Date in the case of clauses (i) and
(ii) (and with respect to clause (ii), subject to the Company's obligations to
use reasonable efforts as set forth above in such clause), the date on which the
effectiveness of the Shelf Registration has been suspended or proceedings with
respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities
Act have been commenced in the case of clause (iii), the date on which the
duration of a Deferral Period exceeds the periods permitted by Section 2(d)(ii)
hereof in the case of clause (iv), and the date of the commencement of a
Deferral Period that causes the limit on the number of Deferral Periods under
Section 2(d)(ii) hereof to be exceeded in the case of clause (v), being referred
to herein as an "Event Date"). Events shall be deemed to continue until the date
of the termination of such Event, which shall be the following dates with
respect to the respective types of Events: the date the Initial Shelf
Registration Statement is filed in the case of an Event of the type described in
clause (i), the date the Initial Shelf Registration Statement is declared
effective in the case of an Event of the type described in clause (ii), the date
that all stop orders suspending effectiveness of the Shelf Registration have
been removed and the proceedings initiated with respect to the Shelf
Registration under Section 8(d) or 8(e) of the Securities Act have terminated,
as the case may be, in the case of Events of the types described in clause
(iii), termination of the Deferral Period which caused the aggregate number of
days in any one Deferral Period to exceed the number permitted by Section
2(d)(ii) to be exceeded in the case of Events of the type described in clause
(iv), and termination of the Deferral Period the commencement of which caused
the number of Deferral Periods permitted by Section 2(d)(ii) to be exceeded in
the case of Events of the type described in clause (v). For purposes of this
Section 2(e), the Holders hereby agree that a designated representative of the
Holders requesting Registrable Securities to be included in the Initial Shelf
Registration shall notify the Company if, in the judgment of such Holders, the
Company has not used reasonable efforts to have the Initial Shelf Registration
declared effective in accordance with the Company's obligations hereunder;
provided, however, such notice shall not be determinative of whether or not the
Company has used such reasonable efforts.
Accordingly, upon the occurrence of any Event and until such time as
there are no Events which have occurred and are continuing (a "Damages Accrual
Period"), commencing on the Event Date on which such Damages Accrual Period
began, the Company agrees to pay as liquidated damages, and not as a penalty, an
additional amount (the "Liquidated Damages"): (A)(i) to each holder of a Note
that is a Notice Holder, accruing at a rate equal to one-half of one percent per
annum (50 basis points) on the aggregate principal amount of Notes held by such
Notice Holder and (ii) to each holder of Common Stock that is a Notice Holder,
accruing at a rate equal to one-half of one percent per annum (50 basis points)
calculated on an amount equal to the
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<PAGE> 8
product of (x) the then-applicable Conversion Price (as defined in the
Indenture), times (y) the number of shares of Common Stock held by such holder;
and (B) if the Damages Accrual Period continues for a period in excess of thirty
(30) days from the Event Date, from and after the end of such thirty (30) days
until such time as there are no Events which have occurred and are continuing,
(i) to each holder of a Note (whether or not a Notice Holder), accruing at a
rate equal to one-half of one percent per annum (50 basis points) on the
aggregate principal amount of Notes held by such holder and (ii) to each holder
of Common Stock (whether or not a Notice Holder), accruing at a rate equal to
one-half of one percent per annum (50 basis points) calculated on an amount
equal to the product of (x) the then-applicable Conversion Price (as defined in
the Indenture), times (y) the number of shares of Common Stock held by such
holder. Notwithstanding the foregoing, no Liquidated Damages shall accrue under
clause (A) of the preceding sentence during any period for which Liquidated
Damages accrue under clause (B) of the preceding sentence or as to any
Registrable Securities from and after the earlier of (x) the date such
securities are no longer Registrable Securities, and (y) the expiration of the
Effectiveness Period. The rate of accrual of the Liquidated Damages with respect
to any period shall not exceed the rate provided for in this paragraph
notwithstanding the occurrence of multiple concurrent Events.
The Company shall pay the Liquidated Damages due on any Notes or Common
Stock by depositing with the Trustee under the Indenture (in the case of Notes)
or with the registrar for the Common Stock (in the case of Common Stock) in
trust, for the benefit of the holders of Notes or Common Stock or Notice Holder,
as the case may be, entitled thereto, on or prior to the applicable Damages
Payment Date, sums sufficient to pay the Liquidated Damages accrued or accruing
since the last preceding Damages Payment Date through such Damages Payment Date.
The Liquidated Damages shall be paid by the Company to the Record Holders on
each Damages Payment Date by wire transfer of immediately available funds to the
accounts specified by them or by mailing checks to their registered addresses as
they appear in the Note register (as defined in the Indenture), in the case of
the Notes, and in the register of the Company for the Common Stock, in the case
of the Common Stock, if no such accounts have been specified on or before the
Damage Payment Date; provided, however, that any Liquidated Damages accrued with
respect to any Note or portion thereof called for redemption on a redemption
date, redeemed or repurchased in connection with a Change in Control (as defined
in the Indenture) on a repurchase date, or converted into Common Stock on a
conversion date prior to the Damages Payment Date, shall, in any such event, be
paid instead to the holder who submitted such Note or portion thereof for
redemption, repurchase or conversion on the applicable redemption date,
repurchase date or conversion date, as the case may be, on such date (or
promptly following the conversion date, in the case of conversion of a Note) or,
if such Note is held in global book-entry form, by wire transfer to the
applicable depositary. The Trustee and the registrar for Common Stock shall be
entitled, on behalf of the holders of Notes, Common Stock and Notice Holders, to
seek any available remedy for the enforcement of this Agreement, including for
the payment of such Liquidated Damages. Notwithstanding the foregoing, the
parties agree that the sole damages payable for a violation of the terms of this
Agreement with respect to which Liquidated Damages are expressly provided shall
be such Liquidated Damages. Nothing shall preclude a Notice Holder or holder of
Registrable Securities from pursuing or obtaining specific performance or other
equitable relief with respect to this Agreement.
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<PAGE> 9
All of the Company's obligations set forth in this Section 2(e) which
are outstanding with respect to any Registrable Securities at the time such
security ceases to be a Registrable Security shall survive until such time as
all such obligations with respect to such security have been satisfied in full
(notwithstanding termination of the Agreement pursuant to Section 8(o)).
The parties hereto agree that the Liquidated Damages provided for in
this Section 2(e) constitute a reasonable estimate of the damages that may be
incurred by holders of Registrable Securities (other than the Initial
Purchasers) by reason of the failure of the Shelf Registration to be filed or
declared effective or unavailable (absolutely or as a practical matter) for
effecting resales of Registrable Securities, as the case may be, in accordance
with the provisions hereof.
3. Registration Procedures. In connection with the Company's
registration obligations under Section 2 hereof, the Company shall effect such
registrations to permit the sale of the Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company shall as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the Holders thereof in
accordance with the intended method or methods of distribution thereof, and use
its reasonable efforts to cause each such Registration Statement to become
effective and remain effective as provided herein; provided, that before filing
any such Registration Statement or Prospectus or any amendments or supplements
thereto (other than documents that would be incorporated or deemed to be
incorporated therein by reference and that the Company is required by applicable
securities laws or stock exchange requirements to file) the Company shall
furnish to the Special Counsel and the Managing Underwriters of such offering,
if any, copies of all such documents proposed to be filed, which documents will
be subject to the review of the Special Counsel and such Managing Underwriters,
and the Company shall not file any such Registration Statement or amendment
thereto or any Prospectus or any supplement thereto (other than such documents
which, upon filing, would be incorporated or deemed to be incorporated by
reference therein and that the Company is required by applicable securities laws
or stock exchange requirements to file) to which the Holders of a majority of
the Registrable Securities covered by such Registration Statement, the Managing
Underwriters or the Special Counsel shall reasonably object in writing within
two (2) full Business Days.
(b) The Company shall take such action as may be necessary so
that (i) any Shelf Registration Statement and any amendment thereto and any
Prospectus forming part thereof and any amendment or supplement thereto (and
each report or other document incorporated therein by reference in each case)
complies in all material respects with the Securities Act and the Exchange Act,
(ii) any Shelf Registration Statement and any amendment thereto does not, when
it becomes effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading and (iii) any Prospectus forming part of any Shelf Registration
Statement, and any amendment or supplement to such Prospectus, does not include
an untrue statement of a material fact or omit to state a
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<PAGE> 10
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(c) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period specified in Section 2; cause the related Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in such Registration Statement
as so amended or such Prospectus as so supplemented.
(d) Notify the Notice Holders, the Special Counsel and the
Managing Underwriters, if any, promptly, and (if requested by any such person)
confirm such notice in writing, (i) when a Prospectus, any Prospectus
supplement, a Registration Statement or a post-effective amendment to a
Registration Statement has been filed with the SEC, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC or any other federal or state
governmental authority for amendments or supplements to a Registration Statement
or related Prospectus or for additional information, (iii) of the issuance by
the SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation or
threatening of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the existence of any fact or happening of any event which makes
any statement of a material fact in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue or which would require the making of any changes in the
Registration Statement or Prospectus in order that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, and that in the case of the Prospectus, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (vi) of the Company's determination that a post-effective
amendment to a Registration Statement would be appropriate.
(e) Use its reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement, or the lifting
of any suspension of the qualification (or exemption from qualification) of any
of the Registrable Securities for sale in any jurisdiction, at the earliest
possible moment.
(f) Use its reasonable efforts to, if requested by the
Managing Underwriters, if any, or the Holders of a majority of the Registrable
Securities being sold, (i) promptly
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<PAGE> 11
incorporate in a Prospectus supplement or post-effective amendment to a
Registration Statement such information as the Special Counsel, the Managing
Underwriters, if any, or such Holders, in connection with any offering of
Registrable Securities, agree should be included therein as required by
applicable law, and (ii) make all required filings of such Prospectus supplement
or such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; provided, that the Company shall not be
required to take any actions under this Section 3(f) that are not, in the
reasonable opinion of counsel for the Company, in compliance with applicable
law.
(g) Furnish to each selling Holder (if so requested), the
Special Counsel and each Managing Underwriter, if any, without charge, at least
one (1) conformed copy of the Registration Statement or Statements and any
amendment thereto, including financial statements but excluding schedules, all
documents incorporated or deemed to be incorporated therein by reference and all
exhibits (unless requested in writing by such selling Holder, counsel or
underwriter).
(h) Deliver to each Holder selling Registrable Securities, the
Special Counsel and each Managing Underwriter, if any, in connection with any
offering of Registrable Securities, without charge, as many copies of the
Prospectus or Prospectuses relating to such Registrable Securities (including
each preliminary prospectus) and any amendment or supplement thereto as such
persons may reasonably request; and the Company hereby consents to the use of
such Prospectus or each amendment or supplement thereto by each of the selling
Holders of Registrable Securities and the Underwriters, if any, in connection
with any offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto.
(i) To the extent the Registrable Securities do not constitute
"covered securities" as defined under Section 18 of the Securities Act, prior to
any public offering of Registrable Securities, to register or qualify or
cooperate with the selling Holders, the Managing Underwriters, if any, and the
Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder or Managing
Underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, however, that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it is not then
so qualified or (ii) take any action that would subject it to general service of
process in suits or to taxation in any such jurisdiction where it is not then so
subject.
(j) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such
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<PAGE> 12
selling Holder, in which case the Company will cooperate in all reasonable
respects with the filing of such Registration Statement and the granting of such
approvals, as may be necessary to enable the selling Holder or Holders thereof
or the Managing Underwriters, if any, to consummate the disposition of such
Registrable Securities.
(k) During any Selling Period (other than during a Deferral
Period), immediately upon the existence of any fact or the occurrence of any
event as a result of which a Registration Statement shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or a
Prospectus shall contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, promptly prepare and file a post-effective amendment to
each Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference or file any other required document
(such as a Current Report on Form 8-K) that would be incorporated by reference
into the Registration Statement so that the Registration Statement shall not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and so that the Prospectus will not contain any untrue statement
of a material fact or omit to state any material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, and, in the case of a post-effective amendment
to a Registration Statement, use its reasonable efforts to cause it to become
effective as soon as practicable.
(l) In the event of an Underwritten Offering, enter into such
agreements and take all such other reasonable actions in connection therewith
(including those reasonably requested by the Managing Underwriters, if any, or
the Holders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection, whether or not an underwriting agreement is entered into, and
if the registration is an underwritten registration, (i) make such
representations and warranties, subject to the Company's ability to do so, to
the Holders of such Registrable Securities and the underwriters with respect to
the business of the Company and its subsidiaries, the Registration Statement,
Prospectus and documents incorporated by reference or deemed incorporated by
reference, if any, in each case, in form, substance and scope as are customarily
made by issuers to underwriters in underwritten offerings and confirm the same
if and when requested; (ii) use its reasonable efforts to obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the Managing
Underwriters, if any, Special Counsel and the Holders of a majority of the
Registrable Securities being sold) addressed to each of the underwriters
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such Special
Counsel and Managing Underwriters; (iii) use its reasonable efforts to obtain
"cold comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountants of any subsidiary of the Company or any business acquired or to be
acquired by the
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<PAGE> 13
Company for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each of the
Managing Underwriters, if any, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with Underwritten Offerings; and (iv) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority of the Registrable
Securities being sold, the Special Counsel and the Managing Underwriters, if
any, to evidence the continued validity of the representations and warranties of
the Company and its subsidiaries made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company. The above shall be
done at each closing under such underwriting or similar agreement as and to the
extent required thereunder.
(m) If requested in connection with a disposition of
Registrable Securities pursuant to a Registration Statement, make available for
inspection by a representative of the Holders of Registrable Securities being
sold, any Managing Underwriter participating in any disposition of Registrable
Securities, if any, and any attorney or accountant retained by such selling
holders or underwriter, financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
executive officers, directors and employees of the Company and its subsidiaries
to supply all information reasonably requested by any such representative,
Managing Underwriter, attorney or accountant in connection with such
disposition; subject to reasonable assurances by each such person that such
information will only be used in connection with matters relating to such
Registration Statement, provided, however, that such persons shall first agree
in writing with the Company that any information that is reasonably and in good
faith designated by the Company in writing as confidential at the time of
delivery of such information shall be kept confidential by such persons, unless
(i) disclosure of such information is required by court or administrative order
or is necessary to respond to inquiries of regulatory authorities, (ii)
disclosure of such information is required by law (including any disclosure
requirements pursuant to Federal securities laws in connection with the filing
of any Registration Statement or the use of any prospectus referred to in this
Agreement), (iii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by any such
person or (iv) such information becomes available to any such person from a
source other than the Company and such source is not bound by a confidentiality
agreement.
(n) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earning statements
(which need not be audited) satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule promulgated under
the Securities Act) no later than 45 days after the end of any 12-month period
(or 90 days after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
commencing after the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
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<PAGE> 14
(o) Cooperate with the selling holders of Registrable
Securities to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any restrictive
legends and enable such Registrable Securities to be in such denominations and
registered in such names as the holders may require, subject to any restrictions
contained in the Indenture.
(p) Provide the transfer agent for the Common Stock with
printed certificates for the Registrable Securities which are in a form eligible
for deposit with The Depository Trust Company, and, unless any Registrable
Securities shall be in book-entry only form, the Company shall cooperate with
the Holders to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold pursuant to any Shelf
Registration Statement free of any restrictive legends and in such permitted
denominations and registered in such names as Holders may request in connection
with the sale of Registrable Securities pursuant to such Shelf Registration
Statement.
(q) Cause all Registrable Securities (other than the Notes)
covered by the Registration Statement to be listed on each securities exchange
or quotation system on which the Company's Common Stock is then listed no later
than the date the Registration Statement is declared effective and, in
connection therewith, to the extent applicable, to make such filings under the
Exchange Act (e.g., the filing of a Registration Statement on Form 8-A) and to
have such filings declared effective thereunder.
(r) Cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc.
(s) Notwithstanding any provision of this Agreement to the
contrary, the Company shall not be required to amend or supplement the Shelf
Registration pursuant to the Agreement if (i) such amendment or supplement would
require the Company to disclose a material financing, acquisition or corporate
transaction and the Company shall have determined that such disclosure is not in
the best interests of the Company and the holders of its outstanding Common
Stock or (ii) the Company shall have determined in good faith that there is a
valid business purpose or reason for suspending the use of the Prospectus
included in such Shelf Registration in accordance herewith instead of making
such amendment or supplement; provided, that in each such case the Company
complies with its obligations, if any, to pay Liquidated Damages.
(t) The Company shall cause the Indenture to be qualified
under the TIA in a timely manner; and in connection with such qualification, the
Company shall cooperate with the Trustee under the Indenture and the Holders (as
defined in the Indenture) to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the terms of
the TIA; and the Company shall execute and use all reasonable efforts to cause
the Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner.
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<PAGE> 15
4. Holder's Obligations. Each Holder agrees, by acquisition of the
Notes and Registrable Securities, that no Holder of Registrable Securities shall
be entitled to sell any of such Registrable Securities pursuant to a
Registration Statement or to receive a Prospectus relating thereto, unless such
Holder has furnished the Company with the notice required pursuant to Section
2(d) hereof and such other information regarding such Holder and the
distribution of such Registrable Securities as may be required to be included in
the Registration Statement or the Prospectus or as the Company may from time to
time reasonably request. The Company may exclude from such registration the
Registrable Securities of any Holder who does not furnish such information
provided above for so long as such information is not so furnished. Each Holder
of Registrable Securities as to which any Registration Statement is being
effected agrees promptly to furnish to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such Holder not misleading. Any sale of any Registrable Securities by
any Holder shall constitute a representation and warranty by such Holder that
the information relating to such Holder and its plan of distribution is as set
forth in the Prospectus delivered by such Holder in connection with such
disposition, that such Prospectus does not as of the time of such sale contain
any untrue statement of a material fact relating to such Holder or its plan of
distribution and that such Prospectus does not as of the time of such sale omit
to state any material fact relating to such Holder or its plan of distribution
necessary to make the statements in such Prospectus, in light of the
circumstances under which they were made, not misleading.
5. Registration Expenses. All fees and expenses incident to the
Company's performance of or compliance with this Agreement shall be borne by the
Company whether or not any of the Registration Statements become effective. Such
fees and expenses shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (x) with respect
to filings required to be made with the National Association of Securities
Dealers, Inc. and (y) of compliance with federal securities or Blue Sky laws
(including, without limitation, fees and disbursements of Special Counsel in
connection with Blue Sky qualifications of the Registrable Securities in such
jurisdictions as the Managing Underwriters, if any, or Holders of a majority of
the Registrable Securities being sold may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities in a form eligible for deposit with The Depository Trust
Company and of printing prospectuses if the printing of prospectuses is
requested by the Special Counsel or the holders of a majority of the Registrable
Securities included in any Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) reasonable fees and disbursements of counsel for the
Company and the Special Counsel (not to exceed $5,000) in connection with the
Shelf Registration (provided that the Company shall not be liable for the fees
and expenses of more than one separate firm for all parties participating in any
transaction hereunder), (v) fees and disbursements of all independent certified
public accountants referred to in Section 3(l)(iii) hereof (including the
expenses of any special audit and "cold comfort" letters required by or incident
to such performance) and (vi) Securities Act liability insurance obtained by the
Company in its sole discretion. In addition, the Company shall pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the securities to be registered on any securities exchange on which
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<PAGE> 16
similar securities issued by the Company are then listed and the fees and
expenses of any person, including special experts, retained by the Company.
Notwithstanding the provisions of this Section 5, each seller of Registrable
Securities shall pay all selling expenses and all registration expenses to the
extent that the Company is prohibited by applicable Blue Sky laws from paying
for or on behalf of such seller of Registrable Securities, and the Managing
Underwriters shall pay the fees of their counsel in connection with any
Underwritten Offering (other than Blue Sky qualifications) .
6. Indemnification.
(a) Indemnification by the Company. The Company shall
indemnify and hold harmless each Initial Purchaser, each Holder and each person,
if any, who controls the Initial Purchasers or any Holder (within the meaning of
either Section 15 of the Securities Act or Section 20(a) of the Exchange Act)
from and against all losses, liabilities, damages and expenses (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
(collectively, "Losses"), caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading,
except insofar as such Losses are caused by the information relating to the
Initial Purchasers or any Holder furnished to the Company in writing by the
Initial Purchasers or such Holder expressly for use therein; provided, that the
Company shall not be liable to any Holder of Registrable Securities (or any
person controlling such Holder) to the extent that any such Losses are caused by
an untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if either (A)(i) such Holder failed to send
or deliver a copy of the Prospectus with or prior to the delivery of written
confirmation of the sale by such Holder to the person asserting the claims from
which such Losses result and (ii) the Prospectus would have corrected such
untrue statement or alleged untrue statement or such omission or alleged
omission, or (B)(x) such untrue statement or alleged untrue statement, omission
or alleged omission is corrected in an amendment or supplement to the Prospectus
and (y) having previously been furnished by or on behalf of the Company with
copies of the Prospectus as so amended or supplemented, such Holder thereafter
fails to deliver such Prospectus as so amended or supplemented, with or prior to
the delivery of written confirmation of the sale of a Registrable Security to
the person asserting the claim from which such Losses result. The Company shall
also indemnify each underwriter and each person who controls such person (within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act) to the same extent and with the same limitations as provided above with
respect to the indemnification of the Initial Purchasers or the Holders of
Registrable Securities.
(b) Indemnification by Holder of Registrable Securities. Each
Holder agrees, and such agreement shall be evidenced by the Holder delivering
the notice described in Section 2(d) hereof, severally and not jointly to
indemnify and hold harmless the Initial Purchasers, the other selling Holders,
the Company, its directors, its officers who sign a Registration Statement, and
each person, if any, who controls the Company, the Initial Purchasers and any
other selling
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<PAGE> 17
Holder (within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act), from and against all losses arising out of or based
upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or arising out of or based upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
relating to such Holder so furnished in writing by such Holder to the Company
expressly for use in such Registration Statement or Prospectus. In no event
shall the liability of any selling Holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds received by such Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for the Initial Purchasers and all persons, if
any, who control the Initial Purchasers within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Holders and all persons, if any, who control any Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act,
and (c) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign a
Registration Statement and each person, if any, who controls the Company within
the meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. In such case involving the
Initial Purchasers and persons who control the Initial Purchasers, such firm
shall be designated in writing by Credit Suisse First Boston Corporation. In
such case involving the Holders and such persons who control Holders, such firm
shall be designated in writing by the holders of the majority of Registrable
Securities sold pursuant to the Registration Statement. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if
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<PAGE> 18
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement does not
include an unconditional release of the indemnified party from all liability on
any claims that are the subject matter of such action, (ii) such settlement is
entered into more than forty-five (45) days after receipt by such indemnifying
party of the aforesaid request and (iii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to an indemnified party under Section 6(a) or 6(b)
hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such Losses, as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the initial placement (before deducting expenses) of the Notes
pursuant to the Purchase Agreement. Benefits received by any Initial Purchaser
shall be deemed to be equal to the total purchase discounts and commissions
received by it pursuant to the Purchase Agreement, and benefits received by any
other Holders shall be deemed to be equal to the value of receiving Notes or
Common Stock registered under the Securities Act. Benefits received by any
underwriter shall be deemed to be equal to the total underwriting discounts and
commissions, as set forth on the cover page of the Prospectus forming a part of
the Registration Statement which resulted in such Losses. The relative fault of
the Holders on the one hand and the Company on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Holders or by the Company
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this paragraph are several in
proportion to the respective number of Registrable Securities they have sold
pursuant to a Registration Statement, and not joint.
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<PAGE> 19
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method or allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the Losses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any reasonable legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding this
Section 6(d), an indemnifying party that is a selling Holder of Registrable
Securities shall not be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities sold by such
indemnifying party and distributed to the public were offered to the public
exceeds the amount of any damages which such indemnifying party has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
The indemnity, contribution and expense reimbursement obligations of
the Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder, under the Purchase Agreement or otherwise. The
provisions of this Section 6 shall survive so long as Registrable Securities
remain outstanding, notwithstanding any transfer of the Registrable Securities
by any Holder or any termination of this Agreement.
The indemnity and contribution provisions contained in this Section 6
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Initial Purchasers, any Holder or any person controlling any Holder, or the
Company, its officers or directors or any person controlling the Company and
(iii) the sale of any Registrable Securities by any Holder.
7. Information Requirements.
(a) The Company shall file the reports required to be filed by
it under the Securities Act and the Exchange Act, and if at any time the Company
is not required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144 and Rule 144A under the
Securities Act. The Company further covenants that it will cooperate with any
Holder of Registrable Securities and take such further reasonable action as any
Holder of Registrable Securities may reasonably request (including, without
limitation making such reasonable representations as any such Holder may
reasonably request), all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144 and Rule 144A
under the Securities Act. Upon the request of any Holder of Registrable
Securities, the Company shall deliver to such Holder a written statement as to
whether it has complied with such filing requirements. Notwithstanding the
foregoing, nothing in this Section 7 shall be deemed to require the Company to
register any of its securities under any section of the Exchange Act.
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<PAGE> 20
(b) The Company shall file the reports required to be filed by
it under the Exchange Act and shall comply with all other requirements set forth
in the instructions to Form S-3 in order to allow the Company to be eligible to
file registration statements on Form S-3 as soon as is permissible under the
Securities Act. As soon as practicable after the Company first satisfies the
eligibility requirements for the use Form S-3, the Company shall convert any
Registration Statement on Form S-1 to Form S-3.
8. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement, provided that the sole damages payable for a violation of
the terms of this Agreement for which Liquidated Damages are expressly provided
pursuant to Section 2(e) hereof shall be such Liquidated Damages. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall, to the extent permitted by law,
waive the defense that a remedy at law would be adequate.
(b) No Conflicting Agreements. The Company has not, as of the
date hereof, entered into and shall not, on or after the date of this Agreement,
enter into any agreement with respect to its securities which conflicts with the
rights granted to the Holders of Registrable Securities in this Agreement. The
Company represents and warrants that the rights granted to the Holders of
Registrable Securities hereunder do not in any way conflict with the rights
granted to the holders of the Company's securities under any other agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of holders
of a majority of the then outstanding Common Stock constituting Registrable
Securities (with holders of Notes deemed to be the holders, for purposes of this
Section, of the number of outstanding shares of Common Stock into which such
Notes are convertible). Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect the rights of other holders of Registrable Securities may
be given by holders of at least a majority of the Registrable Securities being
sold by such holders; provided, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing and shall be deemed given (i)
when made, if made by hand delivery, (ii) upon confirmation, if made by
telecopier or (iii) one Business Day after being deposited with a reputable
next-day courier, postage prepaid, to the parties as follows:
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<PAGE> 21
(w) if to a holder of Registrable Securities, at the
most current address given by such holder to the Company in accordance with the
provisions of Section 8(e);
(x) if to the Company, to:
software.net Corporation, doing business as
Beyond.com
1195 West Fremont Avenue
Sunnyvale, CA 94087
Attention: Chief Executive Officer
Facsimile: (408) 530-0800
with a copy to:
Jackson Tufts Cole & Black LLP
60 South Market Street, 10th Floor
San Jose, CA 95113-2336
Attention: Richard Scudellari
Facsimile: (408) 998-4889
(y) if to the Special Counsel to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Glen R. Van Ligten
Facsimile: (650) 233-8386
and
(z) if to the Initial Purchasers to:
Credit Suisse First Boston Corporation
As Representatives of the Several Purchasers
Eleven Madison Avenue
New York, New York 10010-3629
or to such other address as such person may have furnished to the other persons
identified in this Section 8(d) in writing in accordance herewith.
(e) Owner of Registrable Securities. The Company will
maintain, or will cause its registrar and transfer agent to maintain, a register
with respect to the Registrable Securities in which all transfers of Registrable
Securities of which the Company has received notice will be recorded. The
Company may deem and treat the person in whose name
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<PAGE> 22
Registrable Securities are registered in such register of the Company as the
owner thereof for all purposes, including, without limitation, the giving of
notices under this Agreement.
(f) Approval of Holders. Whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its affiliates (as such
term is defined in Rule 405 under the Securities Act) (other than the Initial
Purchasers or subsequent Holders of Registrable Securities if such subsequent
Holders are deemed to be such affiliates solely by reason of their holdings of
such Registrable Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
(g) Successors and Assigns. Any person who purchases any
Registrable Securities from an Initial Purchaser shall be deemed, for purposes
of this Agreement, to be an assignee of such Initial Purchaser. The Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties and shall inure to the benefit of and be binding upon each
holder of any Registrable Securities.
(h) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated thereby, and the parties hereto
shall use their best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, illegal, void or unenforceable.
(l) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and the
registration rights granted by the Company with respect to the Notes and the
Common Stock of the Company into which Notes are convertible. Except as provided
in the Purchase Agreement, there are no restrictions, promises, warranties or
undertakings, other than
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<PAGE> 23
those set forth or referred to herein, with respect to the registration rights
granted by the Company with respect to the Notes and the Common Stock of the
Company into which the Notes are convertible. This Agreement supersedes all
prior agreements and understandings among the parties with respect to such
registration rights.
(m) Attorneys' Fees. In any action or proceeding brought to
enforce provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(n) Further Assurances. Each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action, do
or cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
(o) Termination. This Agreement and the obligations of the
parties hereunder shall terminate upon the end of the Effectiveness Period,
except for any liabilities or obligations under Sections 4, 5 or 6 hereof and
the obligations to make payments of and provide for Liquidated Damages under
Section 2(e) hereof to the extent such damages accrue prior to the end of the
Effectiveness Period, each which shall remain in effect in accordance with their
terms.
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<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
SOFTWARE.NET CORPORATION (doing
business as beyond.com)
By: /s/ Mark L. Breier
-------------------------------
Name: Mark L. Breier
Title: President and Chief Executive Officer
Agreed, November 17, 1998
Accepted as of the date first above written:
By: CREDIT SUISSE FIRST BOSTON CORPORATION
Acting severally on behalf of itself and the
several Initial Purchasers named in the first
paragraph of the Agreement
By: /s/ William J.B. Brady
----------------------------
Name: William J.B. Brady, III
Title: Managing Director
<PAGE> 1
EXHIBIT 4.5
$55,000,000
SOFTWARE.NET CORPORATION, DOING BUSINESS AS BEYOND.COM
7.25% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 1, 2003
PURCHASE AGREEMENT
Credit Suisse First Boston Corporation
C.E. Unterberg, Towbin
Donaldson, Lufkin & Jenrette Securities Corporation
As Representatives of the Several Purchasers
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Ladies and Gentlemen:
1. Introductory. software.net Corporation doing business as beyond.com,
a Delaware corporation (the "Company"), proposes, subject to the terms and
conditions stated herein, to issue and sell to Credit Suisse First Boston
Corporation ("CSFBC"), and to each of the several initial purchasers named in
Schedule A hereto (each individually, a "Purchaser," and collectively, the
"Purchasers") U.S. $55,000,000 principal amount of 7.25% Convertible
Subordinated Notes Due December 1, 2003 (the "Firm Securities"), and, at the
election of CSFBC, an aggregate of up to an additional $8,250,000 principal
amount 7.25% Convertible Subordinated Notes Due December 1, 2003 (the "Optional
Securities"). The Firm Securities and the Optional Securities are herein
collectively referred to as the "Offered Securities," and are issuable under
that certain Indenture dated as of November 23, 1998 (the "Indenture
Agreement"), between the Company and LaSalle National Bank, as Trustee. The
Offered Securities will be convertible into Common Stock, par value $0.001 per
share, (the "Underlying Securities"). Together, the Offered Securities and the
Underlying Securities are referred to herein as the "Securities." The Securities
will be sold on a private placement basis pursuant to an exemption under Section
4(2) of the United States Securities Act of 1933, as amended (the "Securities
Act"). Persons that acquire such Securities may only resell or otherwise
transfer such Securities if such Securities are registered under the Securities
Act, or if an exemption from the registration requirements of the Securities Act
is available.
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Purchasers that:
(a) A preliminary offering memorandum and an offering
memorandum relating to the Securities has been prepared by the Company. Such
preliminary offering memorandum and final offering memorandum, includes all
documents incorporated by reference therein and any supplements or amendments
thereto. Such documents in the aggregate are
<PAGE> 2
collectively referred to as the "Offering Document." On the date of this
Agreement, the Offering Document does not include any untrue statement of a
material fact or omit to state any material fact required to be stated herein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The preceding sentence
does not apply to statements in or omissions from the Offering Document based
upon written information furnished to the Company by any Purchaser through CSFBC
specifically for use therein, it being understood and agreed that the only such
information is that described as such in Section 7(b).
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the law of its jurisdiction of
incorporation with full power and authority to own, lease and operate its
properties and assets and conduct its business as described in the Offering
Document, is duly qualified to transact business and is in good standing in each
jurisdiction in which its ownership, leasing or operation of its properties or
assets or the conduct of its business requires such qualification, except where
the failure to be so qualified does not amount to a material liability or
disability to the Company and its subsidiaries, taken as a whole, and has full
power and authority to execute, deliver and perform its obligations under this
Agreement, the Indenture, the Registration Rights Agreement and the Offered
Securities; each subsidiary of the Company is a corporation duly incorporated
and validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and is duly qualified to transact business and is
in good standing in each jurisdiction in which its ownership, leasing or
operation of its properties or assets or the conduct of its business requires
such qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Company and its subsidiaries, taken
as a whole, and each has full power and authority to own, lease and operate its
properties and assets and conduct its business as described in the Offering
Document; all of the issued and outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and are fully paid and
nonassessable and are owned beneficially by the Company free and clear of any
security interests, liens, encumbrances, equities or claims, except as disclosed
in the Offering Document.
(c) The Company and its subsidiaries possess all consents,
licenses, certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have a
materially adverse effect on or constitute a materially adverse change in, or
constitute a development involving a prospective materially adverse effect on or
change in, the condition (financial or otherwise), earnings, properties,
business affairs or business prospects, net worth or results of operations of
the Company or any of its subsidiaries, taken as a whole, except as described in
or contemplated by the Offering Document.
(d) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and marketable
title to all personal property owned by each of them, in each case free and
clear of any security interests, liens, encumbrances, equities,
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<PAGE> 3
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not interfere with the use made or proposed to
be made of such property by the Company or such subsidiary, and any real
property and buildings held under lease by the Company or any such subsidiary
are held under valid, subsisting and enforceable leases, with such exceptions as
are not material and do not interfere with the use made or proposed to be made
of such property and buildings by the Company or such subsidiary, in each case
except as described in or contemplated by the Offering Document.
(e) The authorized capital stock of the Company conforms as to
legal matters in all material respects to the description thereof contained in
the Offering Document.
(f) The shares of Common Stock, par value $0.001 per share, of
the Company (the "Common Stock"), outstanding immediately prior to the issuance
of the Offered Securities have been duly authorized and are validly issued,
fully paid and nonassessable.
(g) This Agreement has been duly authorized, executed and
delivered by the Company.
(h) The Offered Securities have been duly authorized by the
Company, and when executed, authenticated and delivered to and paid for by the
Purchasers in accordance with the terms of this Agreement and the Indenture, the
Offered Securities will be (i) valid and binding obligations of the Company,
enforceable in accordance with their terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally, and by equitable remedies and equitable principles of general
applicability, (ii) not subject to any preemptive rights or similar rights, and
(iii) entitled to the benefits of the Indenture pursuant to which such
securities are to be issued.
(i) The Underlying Securities reserved for issuance upon
conversion of the Offered Securities (i) have been duly authorized and reserved
in sufficient numbers for such issue by the Company and, (ii) when issued upon
conversion of the Offered Securities in accordance with the terms of such
Offered Securities, will be validly issued, fully paid and non-assessable and
(iii) are not and upon issuance will not be subject to any preemptive rights or
similar rights.
(j) Each of the Indenture and the Registration Rights
Agreement has been duly authorized, and, when executed and delivered by the
Company and the other parties thereto, will have been duly executed and
delivered by, and will be a valid and binding agreement of, the Company,
enforceable in accordance with its respective terms except: (i) as the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by equitable remedies and equitable
principles of general applicability; and (ii) with respect to the Registration
Rights Agreement, as the enforceability of indemnification and contribution
provisions may be limited by public policy limitations.
(k) The execution and delivery by the Company of, and the
performance by the Company of its obligations under this Agreement, the
Indenture, the Registration Rights Agreement and the Offered Securities do not
and will not contravene any provision of applicable
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<PAGE> 4
law or the Certificate of Incorporation or Bylaws of the Company, as amended
and/or restated, or, any agreement or other instrument binding upon the Company
or any of its subsidiaries that is material to the Company and its subsidiaries,
taken as a whole, or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency or court is required for the performance by the
Company of its obligations or for the consummation of the transactions
contemplated by this Agreement in connection with the issuance and sale of the
Offered Securities, except such as may be required by the securities or "blue
sky" laws of the various states in connection with the offer and sale of the
Securities, and except as may be required under the Registration Rights
Agreement.
(l) Neither the Company nor any of its subsidiaries subsequent
to the respective dates as of which information is given in the Offering
Document has sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and, to the Company's knowledge, there has
been no materially adverse change (including, without limitation, a change in
management or control), or development involving a prospective materially
adverse change, in the condition (financial or otherwise), management, earnings,
property, business affairs or business prospects, stockholders' equity, net
worth or results of operations of the Company or any of its subsidiaries, taken
as a whole, other than as described in or contemplated by the Offering Document.
No receiver or liquidator (or similar person) has been
appointed in respect of the Company or any subsidiary of the Company or in
respect of any part of the assets of the Company or any assets of any subsidiary
of the Company; no resolution, order of any court, regulatory body, governmental
body or otherwise, or petition or application for an order, has been passed,
made or presented for the winding up of the Company or any subsidiary of the
Company or for the protection of the Company or any such subsidiary from its
creditors; and the Company has not, and no subsidiary of the Company has stopped
or suspended payments of its debts, become unable to pay its debts or otherwise
become insolvent.
(m) There are no legal or governmental proceedings pending,
or, to the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject, other than proceedings accurately described in
all material respects in the Offering Document and proceedings that would not
have a material adverse effect on the Company and its subsidiaries, taken as a
whole, or on the power or ability of the Company to perform its obligations
under this Agreement, the Indenture, the Registration Rights Agreement or the
Offered Securities or to consummate the transactions contemplated by such
documents or the Offering Document.
(n) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not have a
materially adverse effect on the Company and its subsidiaries, taken as a whole)
and has paid all taxes required to be paid by it and any other assessment, fine
or penalty levied against it, to the extent that any of the foregoing is due and
payable, except for
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<PAGE> 5
any such assessment, fine or penalty that is currently being contested in good
faith or as described in or contemplated by the Offering Document.
(o) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of their respective properties is bound.
(p) Ernst & Young LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered their
report with respect to the audited consolidated financial statements and
schedules included in the Offering Document, are independent public accountants
within the meaning of the Securities Act, and the applicable rules and
regulations thereunder.
(q) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Offering Document were
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved, in all material respects,
and they present fairly and accurately the financial condition of the Company as
at the dates at which they were prepared and the results of operations of the
Company in respect of the periods for which they were prepared.
(r) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(s) Assuming the accuracy of the representations of the
Purchasers in Section 4, the offer and sale of the Offered Securities (and any
implied offer and sale of the Underlying Securities) by the Company to the
Purchasers in the manner contemplated by this Agreement will be exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereof; and it is not necessary to qualify the Indenture in respect of the
Offered Securities under the United States Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). Additionally, neither the Company nor any
affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act,
an "Affiliate") of the Company directly or indirectly: (i) has sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, or will
sell, offer for sale, solicit offers to buy or otherwise negotiate in respect
of, any security (as defined in the Securities Act) which is or will be
integrated with the sale of the Offered Securities (including, without
limitation, the sale of the Offered Securities by the Company to the Purchasers,
the resale of the Offered Securities by the Purchasers to subsequent purchasers
and the resale of the Offered Securities or the Underlying Securities by
subsequent purchasers to others) in a manner that
-5-
<PAGE> 6
would require the registration under the Securities Act of the Offered
Securities or the Underlying Securities; or (ii) has engaged or will engage in
any form of general solicitation or general advertising in connection with the
offering of the Offered Securities (as those terms are used in Regulation D
under the Securities Act), or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(t) The Company is not an open-end investment company, unit
investment trust or face-amount certificate company that is or is required to be
registered under Section 8 of the United States Investment Company Act of 1940
(the "Investment Company Act"); and the Company is not and, after giving effect
to the offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Offering Document, will not be an
"investment company" as defined in the Investment Company Act.
(u) Assuming the accuracy of the representations of the
Purchasers in Section 4, it is not necessary in connection with the offer, sale
and delivery of the Offered Securities (and any implied offer and sale of the
Underlying Securities) to the Purchasers or the offer, resale and delivery of
the Offered Securities by the Purchasers to subsequent purchasers in the manner
contemplated by this Agreement to register the Offered Securities under the
Securities Act or to qualify the Indenture under the Trust Indenture Act.
(v) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to occupational
safety and health or to the storage, handling or transportation of hazardous or
toxic materials and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable federal and state
occupational safety and health and environmental laws and regulations to conduct
their respective businesses, and the Company and each such subsidiary is in
compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, have a materially adverse effect on or constitute a
materially adverse change in, or constitute a development involving a
prospective materially adverse effect on or change in, the condition (financial
or otherwise), earnings, properties, business affairs or business prospects, net
worth or results of operations of the Company or any of its subsidiaries, taken
as a whole, except as described in or contemplated by the Offering Document.
(w) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, properties, business affairs or business
prospects, net worth or results of operations of the Company or any
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<PAGE> 7
of its subsidiaries, taken as a whole, except as described in or contemplated by
the Offering Document.
(x) Except as disclosed in the Offering Document, the Company
and its subsidiaries own or possess, or can acquire on reasonable terms, all
material patents, patent applications, trademarks, service marks, trade names,
licenses, know-how, copyrights, trade secrets and proprietary or other
confidential information necessary to operate the business now operated by them,
and neither the Company nor any such subsidiary has received any notice of
infringement of or conflict with asserted rights of any third party with respect
to any of the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a materially adverse effect
on or constitute a materially adverse change in, or constitute a development
involving a prospective materially adverse effect on or change in, the condition
(financial or otherwise), earnings, properties, business affairs or business
prospects, stockholders' equity, net worth or results of operations of the
Company or any of its subsidiaries, taken as a whole, except as described in or
contemplated by the Offering Document.
(y) The Offering Document contains all information specified
in, and meets the requirements of, Rule 144A(d)(4) under the Securities Act; and
the Offered Securities satisfy the eligibility requirements set forth in Rule
144A(d)(3) under the Securities Act, and are otherwise eligible for resale
pursuant to Rule 144A and no securities of the same class (within the meaning of
Rule 144A(d)(3) under the Securities Act) as the Offered Securities are, or at
the First Closing Date or the Optional Closing Date will be, listed on any
national securities exchange registered under Section 6 of the Securities
Exchange Act of 1934 (the "Exchange Act") or quoted in a U.S. automated
inter-dealer quotation system.
(z) To the extent separately agreed by the parties, each of
the Company's directors and executive officers and the stockholders listed on
Exhibit A hereto has entered into a written agreement with the Company in the
form of Exhibit B hereto (each such agreement, a "Lock-up Agreement"), and
executed originals of each Lock-up Agreement have been delivered to you.
(aa) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
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<PAGE> 8
(bb) No labor dispute with the employees of the Company or any
of its subsidiaries exists or, to the Company's knowledge, is threatened or
imminent that could have a materially adverse effect on or constitute a
materially adverse change in, or constitute a development involving a
prospective materially adverse effect on or change in, the condition (financial
or otherwise), properties, management, earnings, business affairs or business
prospects, net worth or results of operations of the Company or any of its
subsidiaries, taken as a whole, except as described in or contemplated by the
Offering Document.
(cc) Except as disclosed in the Offering Document, there are
no contracts, agreements or understandings between the Company and any person
with respect to the Offering that would give rise to a valid claim against the
Company or any Purchaser for a brokerage commission, finder's fee or other like
payment.
(dd) The Company has reviewed its operations and is in the
early stages of conducting an audit of the Year 2000 compliance of any third
parties with which the Company has a material relationship to evaluate the
extent to which the business or operations of the Company or any of its
subsidiaries will be affected by the Year 2000 Problem. As a result of such
review and except to the extent otherwise disclosed in the Offering Memorandum,
the Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a material adverse effect on the general affairs, management,
the current or future consolidated financial position, business prospects,
stockholders' equity or results of operations of the Company and its
subsidiaries or results in any material loss or interference with the Company's
business or operations. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Purchasers, and each Purchaser agrees, severally and not jointly, to purchase
from the Company, at a purchase price of 96% of the principal amount thereof
(the "Purchase Price"), plus accrued interest, if any from November 23, 1998 to
the date of closing and delivery, the respective principal amounts of Firm
Securities set forth opposite the names of the several purchasers in Schedule A
hereto.
The Company will deliver against payment of the purchase price the Firm
Securities in the form of one or more permanent global securities in definitive
form (the "Firm Global Securities") deposited with the Trustee as custodian for
The Depository Trust Company ("DTC") and registered in the name of Cede & Co.,
as nominee for DTC. Interests in any Firm Global Securities will be held only in
book-entry form through DTC, except in the limited circumstances described in
the Offering Document. Payment for the Firm Securities shall be made by the
Purchasers in Federal (same day) funds by official check or checks or wire
transfer to an account at a bank acceptable to CSFBC at 10:00 A.M. (New York
time), on November 23, 1998 or at
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<PAGE> 9
such other time not later than seven (7) full business days thereafter as CSFBC
and the Company determine, such time being herein referred to as the "First
Closing Date." The Firm Global Securities will be made available for checking at
the above office of the Trustee at least 24 hours prior to the First Closing
Date.
In addition, the Purchasers may, upon written notice (the "Notice")
from CSFBC given to the Company from time to time, and, in any event not more
than thirty (30) days subsequent to the First Closing Date, purchase all or less
than all of the Optional Securities at the Purchase Price, plus accrued
interest, if any. The Company agrees to sell to the Purchasers the number of
Optional Securities specified in such notice and the Purchasers agree, severally
and not jointly, to purchase such Optional Securities. Such Optional Securities
shall be purchased, if at all, from the Company for the account of each
Purchaser in the same proportion as the number of Firm Securities set forth
opposite such Purchaser's name in Schedule A hereto bears to the total number of
Firm Securities (subject to adjustment by CSFBC to eliminate fractions). No
Optional Securities shall be sold or delivered unless the Firm Securities
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Securities or any portion thereof may be exercised from
time to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by CSFBC to the Company.
In the event that Optional Securities are purchased, the Company will
deliver against payment of the Purchase Price, the Optional Securities in the
form of one or more permanent global securities in definitive form (the
"Optional Global Securities") deposited with the Trustee as custodian for DTC
and registered in the name of Cede & Co., as nominee for DTC. Interests in any
Optional Global Securities will be held only in book-entry form through DTC,
except in the limited circumstances described in the Offering Document. If
purchased, payment for the Optional Securities on an Optional Closing Date (as
defined below) shall be made by the Purchasers in Federal (same day) funds by
official check or checks or wire transfer to an account at a bank acceptable to
CSFBC at 10:00 A.M. (New York time) on the Optional Closing Date. The Optional
Closing Date shall be determined by CSFBC and the Company, but not more than
seven (7) full business days after Notice of the election to purchase the
Optional Securities is given to the Company. The Optional Global Securities will
be made available for checking at the above office of the Trustee at least 24
hours prior to the Optional Closing Date. Each time for the delivery of and
payment for the Optional Securities, is referred to herein as the "Optional
Closing Date," which may be the First Closing Date (the First Closing Date and
each Optional Closing Date, if any, being referred to, as applicable, as a
"Closing Date").
4. Representations by Purchasers; Resale by Purchasers.
(a) Each Purchaser severally represents and warrants to the
Company that it is a "qualified institutional buyer" ("QIB") within the meaning
of Rule 144A ("Rule 144A") under the Securities Act and an "accredited investor"
within the meaning of Regulation D under the Securities Act.
(b) Each Purchaser severally acknowledges that the Offered
Securities have not been registered under the Securities Act and may not be
offered or sold except pursuant to an
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<PAGE> 10
exemption from the registration requirements of the Securities Act or pursuant
to an effective registration statement. Each Purchaser severally represents and
agrees that it has offered and sold the Offered Securities and will offer and
sell the Offered Securities (i) as part of their distribution at any time and
(ii) otherwise until the later of the termination of the offering and the latest
Closing Date, only to persons it reasonably believes to be QIBs within the
meaning of and in accordance with Rule 144A. Accordingly, such Purchaser, its
Affiliates and all persons acting on its or their behalf have complied and will
comply with the offering restrictions under the Securities Act.
(c) Each Purchaser severally agrees that it and each of its
Affiliates has not entered and will not enter into any contractual arrangement
with respect to the distribution of the Offered Securities except for any such
arrangements with the other Purchasers or Affiliates of the other Purchasers or
with the prior written consent of the Company.
(d) Each Purchaser severally agrees that it and each of its
Affiliates have not and will not offer or sell the Offered Securities by means
of any form of general solicitation or general advertising, within the meaning
of Rule 502(c) under the Securities Act, including, but not limited to (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. Each Purchaser severally agrees, with
respect to resales made in reliance on Rule 144A of any of the Offered
Securities, to deliver either with the confirmation of such resale but in any
event prior to settlement of such resale a notice to the effect that the resale
of such Offered Securities has been made in reliance upon the exemption from the
registration requirements of the Securities Act provided by Rule 144A.
(e) Purchases by Fiduciaries. In the case of Securities
offered or sold to a subsequent purchaser which is acting as fiduciary or agent
for one or more investor accounts or other third parties, each Purchaser shall
reasonably believe that each such investor account or third party, as the case
may be, is a "qualified institutional buyer," as defined in Rule 144A.
(f) Subsequent Purchaser Notification. Each Purchaser will
take reasonable steps to inform, and cause each of its Affiliates to take
reasonable steps to inform, persons acquiring Offered Securities from such
Purchaser or Affiliate, as the case may be, that the Offered Securities and the
Underlying Securities (A) have not been registered under the Securities Act, any
state securities laws or other applicable securities laws and, unless so
registered, may not be offered or sold except pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the Securities
Act and applicable state "blue sky" securities laws, (B) are being sold to them
in reliance on Rule 144A and (C) may not be offered, sold or otherwise
transferred except in accordance with the restrictions on transfer set forth in
the Offering Document under "Transfer Restrictions."
(g) Restrictions on Transfer. The transfer restrictions and
the other provisions set forth in the Offering Document under the heading
"Transfer Restrictions," including the legend required thereby, shall apply to
the Offered Securities and the Underlying Securities.
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Following the initial sale of the Offered Securities by the Purchasers to
subsequent purchasers pursuant to the terms hereof, the Purchasers shall not be
liable or responsible to the Company for any losses, damages or liabilities
suffered or incurred by the Company, including any losses, damages or
liabilities under the Securities Act, arising from or relating to any resale or
transfer of any Offered Securities or Underlying Securities.
(h) Delivery of Offering Document. Each Purchaser will deliver
prior to the offer and sale of the Offered Securities to a subsequent purchaser,
a copy of the Offering Document, as then amended and supplemented.
5. Certain Agreements of the Company. The Company agrees with the
several Purchasers that:
(a) The Company will advise CSFBC promptly of any proposal to
amend or supplement the Offering Document and will not effect such amendment or
supplementation without CSFBC's consent, which shall not be unreasonably
withheld. If, at any time prior to the completion of the resale of the Offered
Securities by the Purchasers any event occurs as a result of which the Offering
Document as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any such time to amend or
supplement the Offering Document to comply with any applicable law the Company
promptly will notify CSFBC of such event and promptly will prepare, at its own
expense, an amendment or supplement which will correct such statement or
omission or effect such compliance. Neither CSFBC's consent to, nor the
Purchasers' delivery to offerees or investors of, any such amendment or
supplement shall constitute a waiver of any of the conditions set forth in
Section 6.
(b) The Company will furnish to CSFBC copies of any
preliminary offering memorandum, the Offering Document and all amendments and
supplements to such documents, in each case as soon as available and in such
quantities as CSFBC requests. At any time when the Company is not subject to
Section 13 or 15(d) of the Exchange Act and is not exempt from reporting
pursuant to Rule 12g3-2(b) under the Exchange Act, the Company will promptly
furnish or cause to be furnished to CSFBC and, upon request, to each of the
other Purchasers and, upon request of holders, beneficial owners and prospective
purchasers of the Offered Securities, to such holders, beneficial owners and
purchasers, copies of the information required to be delivered to holders,
beneficial owners and prospective purchasers of the Offered Securities pursuant
to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto)
in order to permit compliance with Rule 144A in connection with resales by such
holders and beneficial owners of the Offered Securities. The Company will pay
the expenses of printing and distributing to the Purchasers all such documents.
(c) The Company will arrange for the qualification of the
Offered Securities for sale and the determination of their eligibility for
investment under the laws of such states in the United States as CSFBC
designates and will continue such qualifications in effect so long as required
for the resale of the Offered Securities by the Purchasers provided that the
Company
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<PAGE> 12
will not be required to qualify as a foreign corporation or to file a general
consent to service of process in any such state.
(d) During the period of two years after the later of the
First Closing Date and the last Optional Closing Date, the Company will, upon
request, furnish to CSFBC, each of the other Purchasers and any holder of
Offered Securities a copy of the restrictions on transfer applicable to the
Securities.
(e) During the period of two years after the later of the
First Closing Date and the last Optional Closing Date, the Company will not be
or become, an open-end investment company, unit investment trust or face-amount
certificate company that is or is required to be registered under Section 8 of
the Investment Company Act.
(f) The Company will pay all expenses incidental to the
performance of its obligations under this Agreement, the Registration Rights
Agreement (except as otherwise specified) and the Indenture, including (i) the
fees and expenses of the Trustee and its professional advisers; (ii) all
expenses in connection with the execution, issue, authentication, packaging and
initial delivery of the Offered Securities, the preparation and printing of this
Agreement, the Securities, the Indenture, the Offering Document and amendments
and supplements thereto, and any other document relating to the issuance, offer,
sale and delivery of the Offered Securities; (iii) the cost of qualifying the
Offered Securities for trading in The PortalSM Market ("PORTAL") of The Nasdaq
Stock Market, Inc. and any expenses incidental thereto, (iv) the cost of
maintaining its listing on the National Market of the Nasdaq Stock Market and
qualifying for listing the Underlying Securities, and any expenses incidental
thereto, (v) for any expenses (including fees and disbursements of counsel)
incurred in connection with qualification of the Offered Securities for sale
under the laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, (vi) for any fees charged by investment rating
agencies for rating of the Offered Securities, and (vii) for expenses incurred
in distributing the Offering Document (including any amendments and supplements
thereto). The Company will reimburse the Purchasers for all travel expenses of
the Purchasers and the Company's officers, employees and agents and any other
expenses of the Purchasers and the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities.
(g) In connection with the offering, until CSFBC shall have
notified the Company and the other Purchasers of the completion of the resale of
the Offered Securities, neither the Company nor any of its Affiliates has or
will, either alone or with one or more other persons, bid for or purchase for
any account in which it or any of its Affiliates has a beneficial interest any
Offered Securities or attempt to induce any person to purchase any Offered
Securities; and neither it nor any of its Affiliates will make bids or purchases
for the purpose of creating actual, or apparent, active trading in, or of
raising the price of, the Offered Securities.
(h) For a period of 90 days after the date of the initial
offering of the Offered Securities by the Purchasers, the Company will not
offer, sell, contract to sell, pledge, or otherwise dispose of, directly or
indirectly, any U.S. dollar-denominated debt securities issued or
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<PAGE> 13
guaranteed by the Company and having a maturity of more than one year from the
date of issue, except issuances of Offered Securities 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 hereof, grants of
employee stock options pursuant to the terms of a plan in effect on the date
hereof, issuances of Offered Securities pursuant to the exercise of such options
or the exercise of any other employee stock options outstanding on the date
hereof or issuances of Offered Securities pursuant to the Company's dividend
reinvestment plan, if any. The Company will not at any time offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
securities under circumstances where such offer, sale, pledge, contract or
disposition would cause the exemption afforded by Section 4(2) of the Securities
Act to cease to be applicable to the offer and sale of the Securities.
(i) In connection with the sale of the Offered Securities to
the Purchasers the Company will file the notice on Form D required by Rule 503
under the Securities Act within the time required by such Rule and otherwise in
compliance with such rule. A copy of such notice shall be furnished promptly to
CSFBC.
(j) Restriction on Repurchases. Any Offered Securities that
are purchased, otherwise acquired or otherwise legally or beneficially owned by
the Company or any Affiliate of the Company may not be offered, sold or
otherwise transferred and will be cancelled. Any Underlying Securities that,
prior to the expiration of the holding period under Rule 144(k), are acquired by
the Company or an Affiliate may not be offered, sold or otherwise transferred
except pursuant to an effective registration statement under the Securities Act
or pursuant to Rule 144 under the Securities Act ("Rule 144"), in each case, in
a transaction which results in such Underlying Securities no longer being
"restricted securities" (as defined in Rule 144).
(k) Legends. The Company will cause the certificates
evidencing the Offered Securities and Underlying Securities to be bear legends
in substantially the form set forth in the Offering Document under the caption
"Transfer Restrictions" until such time as such Offered Securities or Underlying
Shares, as the case may be, cease to be "restricted securities" within the
meaning of Rule 144. The Company will notify the Trustee, each registrar or
transfer agent for the Securities and the transfer agent for the Common Stock of
the restrictions on transfer applicable to the Offered Securities and the
Underlying Securities, will take such steps as may be necessary or appropriate
to ensure that the Trustee is familiar with and complies with the restrictions
on transfer set forth in the Indenture, and, prior to each Closing Date, will
give such transfer agent appropriate "stop transfer" instructions with respect
to all Underlying Securities which are "restricted securities" (as defined in
Rule 144).
6. Conditions of the Obligations of the Purchasers. The obligations of
the several Purchasers to purchase and pay for the Firm Securities on the First
Closing Date and for the Optional Securities on each Optional Closing Date will
be subject to the accuracy of the representations and warranties on the part of
the Company herein, to the accuracy of the statements of officers of the Company
made pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions precedent:
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<PAGE> 14
(a) The Purchasers shall have received a letter, dated the
date of this Agreement, of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder ("Rules and Regulations")
and to the effect that:
(i) In their opinion the financial statements
examined by them and included in the Offering Document comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act and Rules and Regulations and the Exchange Act;
(ii) they have performed the procedures specified by
the American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards No. 71,
Interim Financial Information, on the unaudited financial statements included in
the Offering Document;
(iii) on the basis of the review referred to in
clause (ii) above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements
included in the Offering Document do not comply as to form in all material
respects with the applicable accounting requirements of the Securities Act and
the Rules and Regulations and the Exchange Act or any material modifications
should be made to such unaudited financial statements for them to be in
conformity with generally accepted accounting principles;
(B) at the date of the latest available
balance sheet read by such accountants, or at a subsequent specified date not
more than three business days prior to the date of this Agreement, there was any
change in the capital stock or any increase in short-term indebtedness or
long-term debt of the Company and its consolidated subsidiaries or, at the date
of the latest available balance sheet read by such accountants, there was any
decrease in consolidated net current assets or net assets, as compared with
amounts shown on the latest balance sheet included in the Offering Document;
(C) for the period from the closing date of
the latest income statement included in the Offering Document, to the closing
date of the latest available income statement read by such accountants, there
were any decreases, as compared with the corresponding period of the previous
year and with the period of corresponding length ended the date of the latest
income statement included in the Offering Document, in consolidated net sales,
net operating income or in the total or per share amounts of consolidated income
before extraordinary items or net income or in the ratio of earnings to fixed
charges;
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Offering Document disclose have occurred or may
occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial information
contained in the Offering Document (in each case to the extent that such dollar
amounts, percentages and other financial information are derived from the
general accounting records of the Company and its subsidiaries subject to the
internal controls of the Company's accounting system or are derived directly
from such records by analysis or computation) with
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<PAGE> 15
the results obtained from inquiries, a reading of such general accounting
records and other procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
(b) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) a change in U.S. or international
financial, political or economic conditions or currency exchange rates or
exchange controls as would, in the judgment of CSFBC, be likely to prejudice
materially the success of the proposed issue, sale or distribution of the
Offered Securities, whether in the primary market or in respect of dealings in
the secondary market, or (ii) (A) any change, or any development or event
involving a prospective change, in the condition (financial or other), business,
properties or results of operations of the Company or its subsidiaries which, in
the judgment of a majority in interest of the Purchasers, including CSFBC is
material and adverse and makes it impractical or inadvisable to proceed with
completion of the offering or the sale of and payment for the Offered
Securities; (B) any downgrading in the rating of any debt securities of the
Company by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Securities Act), or any public
announcement that any such organization has under surveillance or review its
rating of any debt securities of the Company (other than an announcement with
positive implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (C) any suspension or limitation of trading in
securities generally on the New York Stock Exchange or any setting of minimum
prices for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter market; (D)
any banking moratorium declared by U.S. Federal or, New York authorities; or (E)
any outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial national
or international calamity or emergency if, in the judgment of a majority in
interest of the Purchasers including CSFBC, the effect of any such outbreak,
escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the offering or sale of and payment
for the Offered Securities.
(c) The Purchasers shall have received opinions, collectively,
dated the Closing Date of Jackson, Tufts, Cole & Black, LLP, counsel for the
Company, and Winthrop, Stimson, Putnam & Roberts, counsel to the Company that:
(i) The Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the State
of Delaware, and has the corporate power and authority to own its property and
to conduct its business as described in the Offering Document. The Company is
qualified to transact intrastate business as a foreign corporation in good
standing under the laws of each of the States of the United States where the
ownership, leasing or operation of the Company's properties or assets or the
conduct of its business as described in the Offering Document requires such
qualifications, except where the failure to be so qualified does not amount to a
material liability or disability to the Company.
(ii) Each domestic subsidiary of the Company has been
duly incorporated, is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in the
Offering Document and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
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<PAGE> 16
except to the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its subsidiaries,
taken as a whole; all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are fully paid
and nonassessable, and are owned directly by the Company, free and clear of all
liens, encumbrances, equities or claims.
(iii) Each of the Purchase Agreement, the Indenture
and the Registration Rights Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the Company,
and, the Indenture is enforceable against the Company in accordance with its
terms (assuming due authorization, execution and delivery by the Trustee).
(iv) The Offered Securities have been duly authorized
by all necessary corporate action on the part of the Company and have been duly
executed by the Company and authenticated. The Offered Securities, when
delivered and paid for by the Purchasers, will be valid and binding obligations
of the Company, enforceable in accordance with their terms and will be entitled
to the benefits of the Indenture, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and general equity principles.
(v) The Underlying Securities to be issued upon
conversion of the Offered Securities have been duly authorized for issuance by
the Company upon such conversion, and the Board of Directors of the Company has
adopted resolutions reserving the Underlying Securities. When issued upon
conversion, in accordance with the terms of the Offered Securities, the
Underlying Securities will be validly issued, fully paid and non-assessable,
and, to our knowledge, there are no preemptive or other rights to subscribe for
or purchase any of the Underlying Securities upon conversion of the Offered
Securities.
(vi) The authorized capital stock of the Company
conforms as to legal matters to the description thereof contained in the
Offering Document.
(vii) The shares of Common Stock outstanding on the
Closing Date have been duly authorized and are validly issued, fully paid and
nonassessable.
(viii) The execution and delivery by the Company of,
and the performance by the Company of its obligations under, the Purchase
Agreement, the Indenture and the Registration Rights Agreement and the Offered
Securities, will not contravene any provision of applicable U.S. federal or
California law or the Delaware General Corporate Law ("DGCL"), or of the
Certificate of Incorporation or Bylaws of the Company, or any Reviewed
Agreement, or, to our knowledge, any judgment, order or decree of any U.S.
federal or state governmental body, agency or court having jurisdiction over the
Company or any of its properties and no consent, approval, authorization or
order of or qualification with any U.S. federal or California governmental body
or agency or any Delaware governmental body or agency as a result of the DGCL is
required for the performance by the Company of its obligations under the
Purchase Agreement, the Indenture, the Registration Rights Agreement, or the
Offered Securities except such as are specified and have been obtained and such
as may be required by the securities or "blue sky" laws of the various states in
connection with the purchase and distribution of the Offered Securities by you
and except for the filing of a shelf registration statement and compliance with
applicable "blue sky" laws as required by the Registration Rights Agreement.
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<PAGE> 17
(ix) The Securities satisfy the eligibility
requirements of Rule 144A(d)(3) under the Securities Act.
(x) Such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject other than proceedings fairly summarized in
all material respects in each Offering Document and other proceedings that would
not have a material adverse effect on the Company and its subsidiaries, taken as
a whole, or on the power or ability of the Company to perform its obligations
under the Purchase Agreement, the Indenture, the Registration Rights Agreement
or the Offered Securities or to consummate the transactions contemplated by the
Offering Document.
(xi) The statements in the Final Offering Document
under the captions "Description of Notes," "Description of Capital Stock," "Plan
of Distribution," "Transfer Restrictions," "Summary of the Offering," "Risk
Factors -- Uncertain Effect of Certain Charter Provisions," "Risk Factors --
Subordination and Absence of Financial Covenants" (exclusive of the second
sentence of the first paragraph thereof), "Risk Factors -- Reliance on Marketing
Alliances with America Online, Excite, Netscape and Network Associates"
(exclusive of the last paragraph thereof), "Management's Discussion & Analysis
- -- Overview" (solely with respect to the contents of the contracts discussed
therein), "Business -- Marketing and Sales -- Strategic Relationships"
(exclusive of the last paragraph thereof) and "Business -- Relationship with
Cybersource," insofar as such statements constitute a summary of the legal
matters or documents referred to therein, fairly summarize in all material
respects the matters referred to therein.
(xii) The Company is not, and after giving effect to
the offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Offering Document, will not be an
"investment company" as such term is defined in the Investment Company Act of
1940, as amended.
(xiii) Each document incorporated by reference in the
Offering Document (except for financial statements and schedules and other
financial data and statistical data included therein as to which such counsel
need not express any opinion), complied as to form when filed with the
Commission in all material respects with the Exchange Act or the Securities Act,
as applicable, and the rules and regulations of the Commission thereunder.
(xiv) Based upon the representations, warranties and
agreements of the Company and of the Purchasers contained in the Purchase
Agreement and on the representations and agreements of the Purchasers and each
of the purchasers of the Offered Securities in the initial resale by the
Purchasers contained in the Offering Document, and assuming compliance
therewith, the offer and sale of the Offered Securities and the Underlying
Securities to the Purchasers under the Purchase Agreement and the initial resale
of such Offered Securities and the Underlying Securities by the Purchasers in
accordance with of the Purchase Agreement, is exempt from or not subject to the
registration requirements of the Securities Act, and, the Indenture is exempt
from the qualification requirements of the Trust Indenture Act, it being
understood that no opinion is expressed as to any subsequent resale of any
Offered Securities or Underlying Securities.
(xv) Such counsel have no reason to believe that the
Offering Document, as of the date hereof and as of the Closing Date, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
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<PAGE> 18
misleading; the descriptions in the Offering Document of statutes, legal and
governmental proceedings and contracts and other documents are accurate and
fairly present the information required to be shown; it being understood that
such counsel need express no opinion as to the financial statements or other
financial data contained in the Offering Document.
Such counsels' opinions shall relate to California, Delaware,
New York and United States federal law.
Such counsels' opinions may include, when and where
applicable, such assumptions, qualifications, exceptions and limitations as are
customary for opinions with respect to the foregoing matters.
(d) The Purchasers shall have received from Venture Law Group,
A Professional Corporation, counsel for the Purchasers, such opinion or
opinions, dated the Closing Date, to the following effect:
(i) Based upon the representations, warranties and
agreements of the Company and of the Purchasers contained in the Purchase
Agreement and on the representations and agreements contained in the Section
"Restrictions on Transfer" of the Offering Document, it is not necessary in
connection with the offer, sale and delivery of the Offered Securities to the
Purchasers under the Purchase Agreement or in connection with the initial resale
of such Securities by the Purchasers in accordance with the Section 4 of the
Purchase Agreement to register the Securities under the Securities Act, or to
qualify the Indenture under the Trust Indenture Act, it being understood that no
opinion is expressed as to any subsequent resale of any Offered Securities or
Underlying Securities.
(ii) The statements in the Offering Document under
the captions "Description of Capital Stock" and "Plan of Distribution," insofar
as such statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly summarize in all material respects the
matters referred to therein.
(iii) The statements in the Offering Document under
the caption "Certain Federal Income Tax Considerations," insofar as such
statements constitute a summary of the U.S. federal tax laws referred to
therein, are accurate and fairly summarize in all material respects the federal
tax laws referred to therein.
(iv) The Purchase Agreement, the Indenture and the
Registration Rights Agreement, have been duly authorized, executed and delivered
by the Company.
In addition, such counsel shall state that it has no reason to
believe that (except for financial statements and schedules and other financial
data included therein as to which such counsel need not express any belief) the
Offering Document when issued contained, or as of the date such opinion is
delivered contains, any untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. With
respect to this paragraph, counsel may state their opinion and belief are based
upon their participation in the preparation of the Offering Document, but are
without independent check or verification except as specified.
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Such counsel's opinions may include when and where applicable,
such assumptions, qualifications, exceptions and limitations as are customary
for opinions with respect to the foregoing matters.
Such counsel's opinions shall relate to California, Delaware
corporate and United States federal law.
(e) You shall have received from Brown & Wood LLP, special New
York debt counsel for the Purchasers, to the following effect:
(i) The Purchase Agreement and the Registration
Rights Agreement have been duly executed and delivered by the Company under the
law of the State of New York.
(ii) The Indenture has been duly executed and
delivered by the Company under the law of the State of New York, and is a valid
and binding agreement of the Company under the laws of the State of New York,
enforceable against the Company under the laws of the State of New York in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent transfer or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles.
(iii) Upon the execution of the Offered Securities by
the Company and the authentication of the Offered Securities by the Trustee in
accordance with the Indenture, and upon delivery of the Offered Securities
against payment of the consideration therefor in accordance with the Purchase
Agreement, the Offered Securities will be the valid and binding obligations of
the Company under the laws of the State of New York, enforceable against the
Company under the laws of the State of New York in accordance with their terms
and entitled to the benefits of the Indenture, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
fraudulent transfer or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
(iv) The statements set forth under the headings
"Description of Notes" (except under the subcaptions "--Book-Entry Notes" and
"--Registration Rights") and, "Certain Federal Income Tax Considerations" in the
Offering Document, insofar as such statements purport to summarize certain
provisions of the Offered Securities and the Indenture, or certain U.S. federal
tax laws referred to therein, fairly summarize in all material respects such
provisions and U.S. federal tax laws.
(v) Based upon, and assuming the accuracy and
compliance with, the representations, warranties and agreements of the Company
and of the Purchasers contained in the Purchase Agreement and the
representations, warranties and agreements of the purchasers of the Offered
Securities contained in the Offering Document, it is not necessary in connection
with the offer, sale and delivery of the Offered Securities to the Purchasers
under the Purchase Agreement or in connection with the initial resale of such
Securities by the Purchasers to register the Securities under the Securities
Act, or to qualify the Indenture under the Trust Indenture Act, it being
understood that no opinion is expressed as to any subsequent resale of any
Offered Securities or Underlying Securities.
Such counsel's opinions may include such assumptions,
qualifications, exceptions and limitations as are customary for opinions with
respect to the foregoing matters, including assumptions that the foregoing
instruments and agreements have been duly authorized, executed
-19-
<PAGE> 20
and delivered by, and constitute valid, binding, enforceable obligations of, the
Company under Delaware law and the Certificate of Incorporation and Bylaws of
the Company.
Such counsel's opinions shall relate solely to New York law
and solely as to tax matters in clause (iv) and clause (v), United States
federal law.
(f) The Purchasers shall have received a certificate, dated
the Closing Date, of the President and the principal financial or accounting
officer of the Company in which such officers, to the best of their knowledge
after reasonable investigation, shall state that the representations and
warranties of the Company in this Agreement are true and correct, that the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder at or prior to the Closing Date, and
that, subsequent to the respective dates of the most recent financial statements
in the Offering Document, there has been no material adverse change, nor any
development or event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Offering Document or as described in such certificate.
(g) The Purchasers shall have received a letter, dated the
Closing Date, of Ernst Young LLP which meets the requirements of subsection (a)
of this Section, except that the specified date referred to in such subsection
will be a date not more than three business days prior to the Closing Date for
the purposes of this subsection.
(h) On or before the Closing, the Securities shall be eligible
for clearance and settlement through the facilities of DTC; and an executed
original copy of the DTC agreement shall have been delivered to DTC in New York,
New York no later than the business day prior to the Closing.
The Company will furnish the Purchasers with such conformed copies of such
opinions, certificates, letters and documents as the Purchasers reasonably
request. CSFBC may in its sole discretion waive on behalf of the Purchasers
compliance with any conditions to the obligations of the Purchasers hereunder,
whether in respect of an Optional Closing Date or otherwise.
-20-
<PAGE> 21
7. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each
Purchaser against any losses, claims, damages or liabilities, joint or several,
to which such Purchaser may become subject, under the Securities Act or the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Offering Document, or any amendment or supplement thereto, or any related
preliminary offering circular or the Exchange Act Reports necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and will reimburse each Purchaser for any legal or other
expenses reasonably incurred by such Purchaser in connection with investigating
or defending any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any Purchaser
through CSFBC specifically for use therein, it being understood and agreed that
the only such information consists of the information described as such in
subsection (b) below.
(b) Each Purchaser will severally and not jointly indemnify
and hold harmless the Company against any losses, claims, damages or liabilities
to which the Company may become subject, under the Securities Act or the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Offering Document, or any amendment or supplement thereto, or any related
preliminary offering circular, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Purchaser
through CSFBC specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Purchaser consists of the following information in
the Offering Document furnished on behalf of each Purchaser: the last paragraph
at the bottom of the cover page concerning the terms of the offering by the
Purchasers, the legend concerning over-allotments and stabilizing on the inside
front cover page and the second (indented), third, fourth, and eighth paragraphs
under the caption "Plan of Distribution."
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above. In case any such action is
brought against any
-21-
<PAGE> 22
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Purchasers on the other from the offering of
the Offered Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and the Purchasers on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Purchasers on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company bear to the total discounts and commissions received by the
Purchasers from the Company under this Agreement. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Purchasers
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Purchaser shall be required to contribute
any amount in excess of the amount by which the total price at which the Offered
Securities purchased by it were resold exceeds the amount of any damages which
such Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. The Purchasers'
obligations in this subsection (d) to contribute are several in proportion to
their respective purchase obligations and not joint.
-22-
<PAGE> 23
(e) The obligations of the Company under this section shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Purchaser within the meaning of the Securities Act or the Exchange Act; and
the obligations of the Purchasers under this section shall be in addition to any
liability which the respective Purchasers may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act.
8. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Purchasers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Purchaser, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Securities. If for any reason the purchase of the Offered
Securities by the Purchasers is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
5 and the respective obligations of the Company and the Purchasers pursuant to
Section 7 shall remain in effect and if any Offered Securities have been
purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall remain in effect. If the purchase of the
Offered Securities by the Purchasers is not consummated, the Company will
reimburse the Purchasers for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
9. Notices. All communications hereunder will be in writing and, if
sent to the Purchasers will be mailed, delivered or telegraphed and confirmed to
the Purchasers, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department -
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at 1195 West Fremont Avenue,
Sunnyvale, California 94087, Attention: Chief Financial Officer, provided,
however, that any notice to a Purchaser pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Purchaser.
10. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
controlling persons referred to in Section 7, and no other person will have any
right or obligation hereunder, except that holders of Offered Securities shall
be entitled to enforce the agreements for their benefit contained in the second
and third sentences of Section 5(b) hereof against the Company as if such
holders were parties hereto.
11. Representation of Purchasers; Amendments. You will act for the
several Purchasers in connection with this purchase, and any action under this
Agreement taken by you jointly or by CSFBC will be binding upon all the
Purchasers. CSFBC shall have the power, with the Company, to amend this
Agreement.
-23-
<PAGE> 24
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without regard to
principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
-24-
<PAGE> 25
Please confirm your agreement to the foregoing by signing in the space
provided below for that purpose and returning to us a copy hereof, whereupon
this Agreement shall constitute a binding agreement between us.
Very truly yours,
software.net CORPORATION
By: /s/ Mark L. Breier
----------------------------------------
Name: Mark L. Breier
--------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
Agreed, November 17, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
Acting severally on behalf of itself and
the several Purchasers named herein.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ William J.B. Brady
------------------------------
Name: William J.B. Brady, III
----------------------------
Title: Managing Director
---------------------------
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
FIRM OFFERED SECURITIES
PURCHASER TO BE PURCHASED
- --------- ---------------
<S> <C>
Credit Suisse First Boston Corporation................................ $54,998,000
C.E. Unterberg, Towbin................................................ 1,000
Donaldson, Lufkin & Jenrette Securities Corporation................... 1,000
-----------
Total............................................... $55,000,000
=============
</TABLE>
<PAGE> 27
Exhibit A
List of Lockups
NAME
Mala Anand
Mark Breier
Alan DeClerck
Bert Kolde
Linda Levinson
James R. Lussier
William S. McKiernan
Steven P. Novak
John Pettitt
Michael J. Praisner
Richard Scudellari
Brian Sroub
America Online, Inc.
DLJ Diversified Partners, L.P.
DLJ Diversified Partners-A, L.P.
DLJ First ESC, L.P.
DLJ ESC II, L.P.
Global Retail Partners, L.P.
Global Retail Partners Funding, Inc.
GRP Partners, L.P.
C.E. Unterberg Towbin Capital Partners I, L.P.
UT Technology Partners, LDC
UT Capital Partners International, LDC
Unterberg Harris Private Equity Partners, LP
Unterberg Harris Private Equity Partners, CV
Vulcan Ventures Inc.
<PAGE> 28
Exhibit B
Form of Lockup
November 13, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
as Representative of the several
Initial Purchasers to be named in the
within-mentioned Purchase Agreement
Eleven Madison Avenue
New York, New York 10010-3629
Re: Proposed Offering by software.net Corporation (d/b/a Beyond.com)
Ladies and Gentlemen:
The undersigned, a stockholder, officer and/or director of software.net
(d/b/a Beyond.com), a Delaware corporation (the "Company"), understands that
Credit Suisse First Boston Corporation ("CS First Boston") proposes to enter
into a Purchase Agreement (the "Purchase Agreement") with the Company providing
for the offering of up to $55,000,000 of Convertible Subordinated Notes Due 2003
(the "Securities"). In recognition of the benefit that such an offering will
confer upon the undersigned as a stockholder, officer and/or director of the
Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of
ninety (90) days from the date of the Purchase Agreement, the undersigned will
not, without the prior written consent of CS First Boston, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of or transfer any shares
of the Company's Common Stock, $0.001 par value (the "Common Stock"), or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act, with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise. If for any reason the Purchase Agreement shall be terminated
prior to the expiration date of the above-described ninety (90) day period, the
agreement set forth above shall likewise be terminated.
The undersigned agrees and acknowledges that he, she or it is a party
to an agreement (the "Existing Lockup") by and among the undersigned, Deutsche
Morgan Grenfell, Inc., Merrill
<PAGE> 29
Lynch, Pierce, Fenner & Smith Incorporated, Donaldson Lufkin & Jenrette
Securities Corporation and C.E. Unterberg, Towbin, as representatives of the
several Underwriters (as defined in the Existing Lockup), pursuant to which the
undersigned has agreed, among other matters, not to offer, pledge, sell,
transfer or otherwise dispose any securities convertible into, or exercisable or
exchangeable for, shares of the Company's Common Stock for a period ending one
hundred eighty (180) days after the effective date of the Company's registration
statement on Form S-1 relating to the Company's initial public offering. The
undersigned agrees and acknowledges that nothing in this agreement supersedes,
modifies or negates any of the undersigned's obligations under the Existing
Lockup.
Very truly yours,
_________________________________________
By:______________________________________
Name:____________________________________
Title:___________________________________
<PAGE> 1
EXHIBIT 5.1
[JACKSON TUFTS COLE & BLACK, LLP LETTERHEAD]
January __, 1999
Beyond.com Corporation
1195 West Fremont Ave.
Sunnyvale, CA 94087
Re: Beyond.com Corporation (the "Company") -- Registration Statement on
Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 which is expected
to be filed with the Securities and Exchange Commission (the "Commission") on or
about the date hereof (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of the
offer and sale of up to $63,250,000 aggregate principal amount of the Company's
7 1/4% Convertible Subordinated Notes Due December 1, 2003 (the "Notes") and
3,448,745 shares of common stock, par value $0.001 per share (the "Common
Stock") of the Company, issuable on conversion thereof (the "Shares"), to be
sold from time to time by the selling securityholders listed in the Registration
Statement.
As counsel to the Company in connection with this transaction, we have
examined and relied on such documents, corporate records and other instruments,
including the Indenture dated as of November 23, 1998, between the Company and
LaSalle National Bank (the "Indenture") and certificates of officers of the
Company, and made such further investigation and inquiry as we have deemed
necessary to reach the opinions expressed herein. In making the foregoing
examination, we have assumed the genuineness of all signatures on original
documents and of all copies submitted to us.
Based solely upon the foregoing, subject to the comments and exceptions
hereinafter stated, it is our opinion that:
1. The Notes have been duly authorized for issuance.
2. The Indenture has been duly authorized, executed and delivered.
3. The Shares, when issued and delivered in accordance with the terms of
the Notes and the Indenture upon conversion of the Notes, will be
legally issued, fully paid and nonassessable.
We express no opinion as to the laws of any jurisdiction other than the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America, in each case as in effect of the date hereof.
<PAGE> 2
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and in any amendment thereto.
Very truly yours,
/s/ JACKSON TUFTS COLE & BLACK, LLP
-----------------------------------------
2
<PAGE> 1
EXHIBIT 5.2
[Winthrop, Stimson, Putnam & Roberts Letterhead]
January 20, 1999
Beyond.com Corporation
1195 West Fremont Ave.
Sunnyvale, CA 94087
Re: Registration Statement on Form S-1 of Beyond.com Corporation
Ladies and Gentlemen:
We are acting as special New York counsel for Beyond.com Corporation, a
Delaware corporation (formerly software.net Corporation, the "Company"), in
connection with the registration under the Securities Act of 1933 (the "Act"),
of $63,250,000 principal amount of the Company's 7 1/4% Convertible Subordinated
Notes Due December 1, 2003 (the "Notes") and 3,448,745 shares of the Company's
Common Stock, par value $0.001 per share, issuable on conversion thereof (the
"Shares"), to be sold from time to time by the selling securityholders listed in
a Registration Statement on Form S-1, which is expected to filed with the
Securities and Exchange Commission (the "Commission") on or about the date
hereof (as amended, the "Registration Statement").
In rendering this opinion, we have examined and relied on such documents,
corporate records and other instruments, including the Indenture (the
"Indenture") dated as of December 23, 1998, between the Company and LaSalle
National Bank (the "Trustee") and made such further investigation and inquiry as
we have deemed necessary to reach the opinions expressed herein. We have not
examined the Notes, except specimens thereof. In making the foregoing
examination, we have assumed the genuineness of all signatures on original
documents of all copies submitted to us.
Based solely upon the foregoing, subject to the qualifications and
exceptions hereinafter stated, it is our opinion that, assuming (i) that the
Company has sufficient legal capacity under the laws of its jurisdiction of
incorporation to enter into and carry out its obligations under the Indenture
and the Notes; (ii) the due authorization and execution and delivery by the
Company in accordance with such authorization and as contemplated by the form of
such agreement of the Indenture; (iii) the due authorization by the Company of
the Notes; and (iv) due authorization, execution and delivery by the Trustee of
the Indenture, (x) the Indenture is a valid and binding obligation of the
Company, enforceable against the Company in accordance with the terms thereof,
except as (i) limited or otherwise affected by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other similar
laws of general application relating to or affecting creditor's rights, and (ii)
limited by general principles of equity (regardless of whether considered in a
proceeding at law or in equity) including, without limitation, the availability
or unavailability of equitable remedies and an implied covenant of
<PAGE> 2
good faith and fair dealing, and (y) the Notes, assuming they have been executed
by the Company and authenticated by the Trustee in accordance with the
provisions of the Indenture and delivered to the initial purchasers thereof,
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with the terms thereof except as (i) limited
or otherwise affected by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws of general application
relating to or affecting creditors' rights and (ii) limited by general
principles of equity (regardless of whether considered in a proceeding at law or
in equity), including, without limitation, the availability or unavailability of
equitable remedies and an implied covenant of good faith and fair dealing, and
will be entitled to the benefits of the Indenture.
We express no opinion as to the laws of any jurisdiction other than the
laws of the State of New York and the Delaware General Corporation Law as in
effect of the date hereof. Notwithstanding anything to the contrary contained
herein, we express no opinion as to rights to indemnity and contribution.
We hereby consent to the filing of this opinion as Exhibit 5.2 to the
Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ WINTHROP, STIMSON, PUTNAM & ROBERTS
-----------------------------------------
<PAGE> 1
EXHIBIT 10.31
[BEYOND.COM LETTERHEAD]
October 26, 1998
John D. Vigouroux
111 E. Floresta Way
Portola Valley, CA 94028
Dear John:
I am very pleased to offer you the position of BEYOND.COM'S Vice President of
Business Development. As Vice President of Business Development, you will report
directly to Mark Breier, in his capacity as CEO and President of BEYOND.COM.
Your salary will be $175,000 annually, and will generally be reviewed on an
annual basis. In addition, during your employment, you will be eligible for all
benefits made available to other similarly situated employees of the company
from time to time. These benefits may be added to or deleted from the benefits
package offered by the company at any time at the discretion of the Board of
Directors of the company.
When you commence your employment with the company, the company intends to grant
you a stock option to purchase 145,000 shares of the company's common stock. One
quarter (1/4) of the option shares (36,250) will become exercisable after you
have completed one full year of employment with the company, and, thereafter one
forty-eighth (1/48) of the option shares (3,020) will become exercisable
following each month you remain employed by the company. The grant of the stock
options will be subject to the other terms and provisions of the company's stock
option plan and stock option agreement and the satisfaction of all federal and
state securities laws.
In addition, you will be guaranteed a bonus of $25,000 in your first full year
of employment, which will be payable in four equal installments at the end of
each of your first four quarters of continued employment with BEYOND.COM. In
addition, you will be eligible to participate in the Executive Bonus Plan
Program. This Program will be formulated at a future date and will be subject to
approval from the Board of Directors of the company. Should an Executive Bonus
Plan Program be approved, you would be eligible to participate in this program
and will be guaranteed to receive the minimum already guaranteed to you as part
of this program.
<PAGE> 2
At all times your employment will be "at will". Under California law this means
that it is not for a specified period of time and at any time either you or the
company can terminate the employment, with or without cause, by giving notice to
the other party.
Lastly, if the CEO & President terminates your employment with the company for
any reason other than just cause, the company will pay as agreed upon severance
an amount equal to your then base salary for the lesser of (a) three months, or
(b) the number of months before you obtain a position with another company. You
agree that the payments set forth in this offer letter constitute all payments
that you shall be entitled to, and under any theory, in the event of any
termination of employment.
This offer is made with the understanding that you will start employment with
beyond.com on or before November 16, 1998. John, we look forward to having you
join the team and believe you have the ability to make a significant
contribution to our success.
Sincerely,
/s/ KASHIF SHAN
- ------------------------------
Kashif Shan
Employment Manager
Agreed and Accepted: Date: 10/27/98
/s/ JOHN D. VIGOURONX
- -------------------------------
John D. Vigouronx
Start Date:
10/27/98
<PAGE> 1
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
Beyond.com Corporation
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------ ------ ------ ------- --------
1994 1995 1996 1997 1998
------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
Loss from continuing operations $(227) $(511) $(779) $(1,743) $(31,073)
Interest expense 0 0 11 6 1,293
Interest portion of rental expense 0 1 14 49 79
----- ----- ----- ------- --------
Earnings $(227) $(510) $(754) $(1,688) $(29,701)
===== ===== ===== ======= ========
Interest expense 0 0 11 6 1,293
Interest portion of rental expense 0 1 14 49 79
----- ----- ----- ------- --------
Fixed charges $ 0 $ 1 $ 25 $ 55 $ 1,372
===== ===== ===== ======= ========
Ratio of earnings to fixed charges N/A N/A N/A N/A N/A
===== ===== ===== ======= ========
DEFICIENCY OF EARNINGS TO COVER
FIXED CHARGES $(227) $(511) $(779) $(1,743) $(31,073)
===== ===== ===== ======= ========
</TABLE>
For purposes of this computation, the ratio of earnings to fixed charges
has been calculated by dividing fixed charges into loss from continuing
operations before income taxes plus fixed charges. Fixed charges consist of
interest expense and a portion of lease rental charges considered to represent
interest cost.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
January 11, 1999 in the Registration Statement (Form S-1) and related Prospectus
of Beyond.com Corporation for the registration of $63,250,000 of 7.25%
Convertible Subordinated Notes Due December 1, 2003, 3,448,745 shares of common
stock, issuable upon conversion of the convertible subordinated notes, and 8,582
shares of common stock.
Our audits also included the financial statement schedule of Beyond.com
Corporation listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
January 21, 1999
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------
LASALLE NATIONAL BANK
(Exact name of trustee as specified in its charter)
36-0884183
(I.R.S. Employer
Identification No.)
135 South LaSalle Street, Chicago, Illinois 60603
(Address of principal executive offices) (Zip Code)
-----------------------
M. ROBERT K. QUINN
Group Senior Vice President
General Counsel and Secretary
Telephone: (312) 904-2010
135 South LaSalle Street
Chicago, Illinois 60603
(Name, address and telephone number of agent for service)
-----------------------
software.net Corporation (Doing Business as Beyond.com)
(Exact name of obligor as specified in its charter)
Delaware 94-3212136
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1195 West Fremont Avenue
Sunnyvale, California 94087
(Address of Principal Executive Offices) (Zip Code)
-----------------------
$55,000,000 7 1/4% Convertible Subordinated Notes Due December 1, 2003
(Title of the indenture securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
1. Comptroller of the Currency, Washington D.C.
2. Federal Deposit Insurance Corporation, Washington, D.C.
3. The Board of Governors of the Federal Reserve Systems,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS.
If the obligor or any underwriter for the obligor is an affiliate of the
trustee, describe each such affiliation.
Neither the obligor nor any underwriter for the obligor is an
affiliate of the trustee.
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
Furnish the following information as to each class of voting securities of the
trustee:
Not applicable
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the following information:
(a) Title of the securities outstanding under each other indenture.
Not applicable
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of Section
310(b)(1) of the Act arises as a result of the trusteeship under
such other indenture, including a statement as to how the indenture
securities will rank as compared with the securities issued under
such other indenture.
Not applicable
<PAGE> 3
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.
If the trustee or any of the directors or executive officers of the trustee is a
director, officer, partner, employee, appointee, or representative of the
obligor or of any underwriter for the obligor, identify each such person having
any such connection and state the nature of each such connection.
Not applicable
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
Furnish the following information as to the voting securities of the trustee
owned beneficially by the obligor and each director, partner and executive
officer of the obligor.
Not applicable
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
Furnish the following information as to the voting securities of the trustee
owned beneficially by each underwriter for the obligor and each director,
partner, and executive officer of each such underwriter.
Not applicable
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Furnish the following information as to securities of the obligor owned
beneficially or held as collateral security for obligations in default by the
trustee.
Not applicable
ITEM 9. SECURITIES OF THE UNDERWRITER OWNED OR HELD BY THE TRUSTEE.
If the trustee owns beneficially or holds as collateral security for obligations
in default any securities of an underwriter for the obligor, furnish the
following information as to each class of securities of such underwriter any of
which are so owned or held by the trustee.
Not applicable
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
If the trustee owns beneficially or holds as collateral security for obligations
in default voting securities of a person who, to the knowledge of the trustee
(1) owns 10 percent or more of the voting securities of the obligor or (2) is an
affiliate, other than a subsidiary, of the obligor, furnish the following
information as to the voting securities of such person.
Not applicable
<PAGE> 4
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
If the trustee owns beneficially or holds as collateral security for obligations
in default any securities of a person who, to the knowledge of the trustee, owns
50 percent or more of the voting securities of the obligor, furnish the
following information as to each class of securities of such person any of which
are so owned or held by the trustee.
Not applicable
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
If the obligor is indebted to the trustee, furnish the following information.
Not applicable
ITEM 13. DEFAULTS BY THE OBLIGOR.
a) State whether there is or has been a default with respect to the securities
under this indenture. Explain the nature of any such default.
Not applicable
b) If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, state whether there has
been a default under any such indenture or series, identify the indenture or
series affected, and explain the nature of any such default.
Not applicable
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
If any underwriter is an affiliate of the trustee, describe each such
affiliation.
Not applicable
ITEM 15. FOREIGN TRUSTEE.
Identify the order or rule pursuant to which the foreign trustee is authorized
to act as sole trustee under indentures qualified or to be qualified.
Not applicable
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility and
qualification.
1. A copy of the Articles of Association of LaSalle National Bank
now in effect.
2. A copy of the certificate of authority to commence business.
3. A copy of the authorization to exercise corporate trust
powers.
<PAGE> 5
4. A copy of the existing By-Laws of LaSalle National Bank.
5. Not applicable.
6. The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
8. Not applicable.
9. Not applicable.
<PAGE> 6
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
LaSalle National Bank, a corporation organized and existing under the laws of
the United States of America, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Chicago, State of Illinois, on the 10th day of
December, 1998.
LASALLE NATIONAL BANK
By: /s/ Sarah H. Webb
-------------------------
Sarah H. Webb
First Vice President
<PAGE> 7
EXHIBIT 1
ARTICLES OF ASSOCIATION
<PAGE> 8
ARTICLES
OF
ASSOCIATION
LA SALLE NATIONAL BANK (LOGO)
LA SALLE NATIONAL BANK
CHICAGO, ILLINOIS
<PAGE> 9
(LOGO)
LaSalle National Bank
ARTICLES OF ASSOCIATION
FIRST. The title of this association, which shall carry on the business
of banking under the laws of the United States shall be "LaSalle National Bank."
SECOND. The place where the main banking house or office of this
association shall be located, its operations of discount and deposit carried on,
and its general business conducted, shall be Chicago, County of Cook, State of
Illinois.
THIRD. The Board of Directors of this association shall consist of such
number of its shareholders, not less than five nor more than twenty-five, as
from time to time shall be determined by a majority of the votes to which all of
its shareholders are at the time entitled. A majority of the Board of Directors
shall be necessary to constitute a quorum for the transaction of business. The
Board of Directors, by vote of a majority of the full board, may, between annual
meetings of shareholders increase the membership of the Board where the number
of directors last elected by shareholders was 15 or less, by not more than two
members, and where the number of directors last elected by shareholders was 16
or more, by not more than four members and by a like vote appoint qualified
persons to fill the vacancies created thereby; provided that the number of
Directors shall at no time exceed twenty-five.
FOURTH. The regular annual meeting of the shareholders of this
association shall be held at its main banking house, or other convenient place
duly authorized by the board of directors on such day of each year as is
specified therefor in the bylaws.
FIFTH. The amount of capital stock which this association is authorized
to issue shall be Twenty Million Dollars ($20,000,000.00) divided into 2,000,000
shares of common capital stock of the par value of $10.00 each; but said capital
stock may be increased or decreased from time to time, in accordance with the
provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares
thereof, other than to key officers and employees of the association upon the
exercise of options granted pursuant to the terms of a stock option plan then in
effect, as to which sales all pre-emptive rights are waived, each shareholder
shall be entitled to subscribe for such additional shares in proportion to the
number of shares of said capital stock owned by him at the time the increase is
authorized by the shareholders, unless another time subsequent to the date of
the shareholders' meeting is specified in a resolution adopted by the
shareholders at the time the increase is authorized. The board of directors
shall have the power to prescribe a reasonable period of time within which the
pre-emptive rights to subscribe to the new shares of capital stock may be
exercised.
The association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The board of directors shall appoint one of its members president
of this association, who shall be chairman of the board, but the board of
directors may appoint a director in lieu of the president to be chairman of the
board, who shall perform such duties as may be designated by the board of
directors. The board of directors shall have the power to appoint one or more
vice presidents, a cashier and such other officers as may be required to
transact the business of this association; to fix the salaries to be paid to all
officers of this association; and to dismiss such officers, or any of them.
The board of directors shall have the power to define the duties of
officers and employees of this association, to require bonds from them, and to
fix the penalty thereof; to regulate the manner in which
<PAGE> 10
directors shall be elected or appointed, and to appoint judges of the election;
to make all bylaws that it may be lawful for them to make for the general
regulation of the business of this association and the management of its
affairs; and generally to do and perform all acts that it may be lawful for a
board of directors to do and perform.
SEVENTH. This association shall have succession from the date of its
organization certificate until such time as it be dissolved by act of its
shareholders in accordance with the provisions of the banking laws of the United
States, or until its franchise becomes forfeited by reason of violation of law,
or until terminated by either a general or a special act of Congress, or until
its affairs be placed in the hands of a receiver and finally wound up by him.
EIGHTH. The board of directors of this association, or any three or more
shareholders owning, in the aggregate, not less than ten percentum of the stock
of this association, may call a special meeting of shareholders at any time:
Provided, however, that, unless otherwise provided by law, not less than ten
days prior to the date fixed for any such meeting, a notice of the time, place,
and purpose of the meeting shall be given by first-class mail, postage prepaid,
to all shareholders of record of this association at their respective addresses
as shown upon the books of the association. These articles of association may be
amended at any regular or special meeting of the shareholders by the affirmative
vote of the shareholders owning at least a majority of the stock of this
association, subject to the provisions of the banking laws of the United States.
The notice of any shareholders' meeting, at which an amendment to the articles
of association of this association is to be considered, shall be given as
herein-above set forth.
NINTH. Any person, his heirs, executors, or administrators, may be
indemnified or reimbursed by the association for reasonable expenses actually
incurred in connection with any action, suit, or proceeding, civil or criminal,
to which he or they shall be made a party by reason of his being or having been
a director, officer, or employee of the association or of any firm, corporation,
or organization which he served in any such capacity at the request of the
association: Provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding as to
which he shall finally be adjudged to have been guilty of or liable for
negligence or wilful misconduct in the performance of his duties to the
association: And, provided further, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding which
has been made the subject of a compromise settlement except with the approval of
a court of competent jurisdiction, or the holders of record of a majority of the
outstanding shares of the association, or the board of directors, acting by vote
of directors not parties to the same or substantially the same action, suit, or
proceeding, constituting a majority of the whole number of the directors. The
foregoing right of indemnification or reimbursement shall not be exclusive of
other rights to which such person, his heirs, executors, or administrators, may
be entitled as a matter of law.
********
<PAGE> 11
EXHIBIT 2
CERTIFICATE OF AUTHORITY
TO COMMENCE BUSINESS
<PAGE> 12
STATE OF ILLINOIS
AUDITOR'S OFFICE
NO. 333 (LOGO)
NATIONAL BANK TRUST CERTIFICATE
Springfield, FEBRUARY 15th 1928
I, OSCAR NELSON, Auditor of Public Accounts of the State of Illinois, do
hereby certify that the NATIONAL BUILDERS BANK OF CHICAGO located at CHICAGO,
County of COOK and State of Illinois, a corporation organized under and by
authority of the statutes of the United States governing National Banks and
authority granted by the Federal Reserve Act for the purpose of accepting and
executing trusts, has this day deposited in this office, securities in the sum
of TWO HUNDRED THOUSAND Dollars, $200,000.00 of the character designated by
Section 6 of the Act of the Legislature of the State of Illinois entitled "An
Act to provide for and regulate the administration of trusts by trust
companies."
The said deposit is made for the benefit of the creditors of said
NATIONAL BUILDERS BANK OF CHICAGO under and by virtue of the provisions of the
Act above referred to and the said securities are now held by me in this office
in my official capacity as such Auditor of Public Accounts, for the uses and
purposes aforesaid.
I further certify that by virtue of the Acts aforesaid, the NATIONAL
BUILDERS BANK OF CHICAGO is hereby authorized to accept and execute trusts and
receive deposits of trust funds under the provisions and limitations of "An Act
to provide for and regulate the administration of trusts in Illinois."
IN TESTIMONY WHEREOF, I hereunto subscribe my name and affix
(SEAL) the seal of my office, the day and year first above written.
/s/ Oscar Nelson
--------------------------------
AUDITOR OF PUBLIC ACCOUNTS.
STATE OF ILLINOIS.
<PAGE> 13
NO. 13146.
TREASURY DEPARTMENT (LOGO)
OFFICE OF COMPTROLLER OF THE CURRENCY
Washington, D.C., NOVEMBER 29, 1927.
WHEREAS, by satisfactory evidence presented to the undersigned, it has
been made to appear that "NATIONAL BUILDERS BANK OF CHICAGO" in the CITY of
CHICAGO in the County of COOK and State of ILLINOIS has complied with all the
provisions of the Statutes of the United States, required to be complied with
before an association shall be authorized to commence the business of Banking;
NOW THEREFORE I, J.W. MCINTOSH, Comptroller of the Currency, do hereby
certify that "NATIONAL BUILDERS BANK OF CHICAGO" in the CITY of CHICAGO in the
County of COOK and State of ILLINOIS is authorized to commence the business of
Banking as provided in Section Fifty one hundred and sixty nine of the Revised
Statutes of the United States.
IN TESTIMONY WHEREOF witness my hand and Seal of (SEAL)
(SEAL) office this TWENTY-NINTH day of NOVEMBER, 1927.
/s/ J.W. McIntosh
---------------------------------
Comptroller of the Currency
<PAGE> 14
CERTIFICATE OF CHANGE OF CORPORATE TITLE
(LOGO)
NO. 13146.
TREASURY DEPARTMENT
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C., MAY 1, 1940.
WHEREAS, by satisfactory evidence presented to me, it appears that under
authority of sections 2, 3, and 4, of the Act of Congress approved May 1, 1886,
entitled "An Act to enable national banking associations to increase their
capital stock and to change their names or location," shareholders owning
two-thirds of the stock of the national banking association heretofore known
as-- "NATIONAL BUILDERS BANK OF CHICAGO," located in CHICAGO, County of COOK,
State of ILLINOIS, have voted to change the name of said association to--
"LASALLE NATIONAL BANK," and have complied with all the provisions of the said
Act relative to national banking associations changing their name.
NOW, THEREFORE, IT IS HEREBY CERTIFIED, that the name of the said
association has been changed to-- "LASALLE NATIONAL BANK," and that such change
of name is hereby approved under authority conferred by said Act.
(SEAL) IN TESTIMONY WHEREOF, witness my hand and seal of office this
FIRST day of MAY, 1940.
/s/
----------------------------------
ACTING Comptroller of the Currency.
<PAGE> 15
EXHIBIT 3
AUTHORIZATION TO EXERCISE
CORPORATE TRUST POWERS
<PAGE> 16
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM [LETTERHEAD]
WASHINGTON
May 9, 1940
LaSalle National Bank,
Chicago, Illinois.
Gentlemen:
The Board of Governors of the Federal Reserve System has been officially
advised by the Comptroller of the Currency that on May 1, 1940, National
Builders Bank of Chicago, Chicago, Illinois, changed its title to LaSalle
National Bank, and accordingly there is enclosed herewith a certificate showing
that LaSalle National Bank has authority to exercise the fiduciary powers
enumerated therein.
Kindly acknowledge receipt of this certificate.
Very truly yours,
S. R. Carpenter
-------------------------
S. R. Carpenter,
Assistant Secretary.
Enclosure
<PAGE> 17
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
I, S. R. Carpenter, Assistant Secretary of the Board of Governors of the
Federal Reserve System (formerly known as the Federal Reserve Board), do hereby
certify that it appears from the records of the Board of Governors of the
Federal Reserve System that:
(1) Pursuant to the authority vested in the Federal Reserve Board by an
Act of Congress approved December 23, 1913, known as the Federal Reserve Act, as
amended, the Federal Reserve Board on December 8, 1927, granted to National
Builders Bank of Chicago, Chicago, Illinois, the right to act, when not in
contravention of State or local law, as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates, assignee, receiver,
committee of estates of lunatics, or in any other fiduciary capacity in which
State banks, trust companies or other corporations which come into competition
with national banks are permitted to act under the laws of the State of
Illinois;
(2) Under the provisions of an Act of Congress approved May 1, 1886,
National Builders Bank of Chicago, Chicago, Illinois, on May 1, 1940, changed
its title to LaSalle National Bank; and
(3) By virtue of the foregoing, LaSalle National Bank, Chicago,
Illinois, has authority to act, when not in contravention of State or local law,
as trustee, executor, administrator, registrar of stocks and bonds, guardian of
estates, assignee, receiver, committee of estates of lunatics, or in any other
fiduciary capacity in which State banks, trust companies or other corporations
which come into competition with national banks are permitted to act under the
laws of the State of Illinois, subject to regulations prescribed by the Board of
Governors of the Federal Reserve System.
IN WITNESS WHEREOF, I have hereunto subscribed my name and caused the
seal of the Board of Governors of the Federal Reserve System to be affixed at
the City of Washington in the District of Columbia.
/s/ S. R. Carpenter
---------------------------------
Assistant Secretary.
Dated May 9, 1940
<PAGE> 18
EXHIBIT 4
BY-LAWS OF LA SALLE NATIONAL BANK
<PAGE> 19
BYLAWS
OF
LA SALLE NATIONAL BANK
CHICAGO, ILLINOIS
LA SALLE NATIONAL BANK (LOGO)
Organized Under the National Banking Laws
of the United States
<PAGE> 20
BYLAWS
of the
LA SALLE NATIONAL BANK
(a National Banking Association which association
is herein referred to as the "bank")
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1.1. ANNUAL MEETING. The regular annual meeting of the
shareholders for the election of directors and the transaction of whatever other
business may properly come before the meeting, shall be held at the main office
of the Bank, 135 South LaSalle Street, Chicago, Illinois, or such other place as
the Board of Directors may designate, at 9:00 A.M., on the third Wednesday of
March of each year. Notice of such meeting shall be mailed, postage prepaid, at
least ten days prior to the date thereof, addressed to each shareholder at his
address appearing on the books of the Bank. If for any cause, an election of
directors is not made on the said day, the Board of Directors shall order the
election to be held on some subsequent day as soon thereafter as practicable,
according to the provisions of law; and notice thereof shall be given in the
manner herein provided for the annual meeting.
SECTION 1.2. SPECIAL MEETINGS. Except as otherwise specifically provided
by statute, special meetings of the shareholders may be called for any purpose
at anytime by the board of directors or by any three or more shareholders
owning, in the aggregate, not less than ten percent of the stock of the bank.
Every such special meeting, unless otherwise provided by law, shall be called by
mailing, postage pre-paid, not less than ten days prior to the date fixed for
such meeting, to each shareholder at his address appearing on the books of the
bank, a notice stating the purpose of the meeting.
SECTION 1.3. NOMINATIONS FOR DIRECTOR. Nominations for election to the
board of directors may be made by the board of directors or by any shareholder
of any outstanding class of capital stock of the bank entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of the
existing management of the bank, shall be made in writing and shall be delivered
or mailed to the president of the bank and to the Comptroller of the Currency,
Washington, D.C., not less than 14 days nor more than 50 days prior to any
meeting of shareholders called for the election of directors, provided, however,
that if less than 21 days' notice of the meeting is given to the shareholders,
such nomination shall be mailed or delivered to the president of the bank and to
the Comptroller of the Currency not later than the close of business on the
seventh day following the day on which the notice of meeting was mailed. Such
notification shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of each proposed nominee; (d) the name and address of
the notifying shareholder; and (e) the number of shares of capital stock of the
bank owned by the notifying shareholder. Nominations not made in accordance
herewith, may, in his discretion, be disregarded by the chairman of the meeting,
and upon his instructions, the vote tellers may disregard all votes cast for
each such nominee.
SECTION 1.4. JUDGES OF ELECTION. Every election of directors shall be
managed by three judges, who shall be appointed by the board of directors prior
lo the time of said election. The judges of election shall hold and conduct the
election at which they are appointed to serve; and after the election, they
shall file with the cashier a certificate under their hands, certifying the
result thereof and the names of the directors elected. The judges of election.
at the request of the chairman of the meeting, shall act as tellers of any other
vote by ballot taken at such meeting, and shall certify the result thereof.
<PAGE> 21
SECTION 1.5. PROXIES. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this bank shall act as proxy. Proxies shall be valid only for one meeting, to
be specified therein, and any adjournments of such meeting. Proxies shall be
dated and shall be filed with the records of the meeting.
SECTION 1.6. QUORUM. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the articles of association.
ARTICLE II
DIRECTORS
SECTION 2.1. BOARD OF DIRECTORS. The board of directors (hereinafter
referred to as the "board"), shall have power to manage and administer the
business affairs of the bank. Except as expressly limited by law, all corporate
powers of the bank shall be vested in and may be exercised by said board.
SECTION 2.2. NUMBER. The board shall consist of not less than five or
more than twenty-five shareholders, the exact number within such minimum and
maximum limits to be fixed and determined from time to time by resolution of a
majority of the full board or by resolution of the shareholders at any meeting
thereof; provided, however, that a majority of the full board may not increase
the number of directors by more than two if the number of directors last elected
by shareholders was fifteen or less and by not more than four where the number
of directors last elected by shareholders was sixteen or more, provided that in
no event shall the number of directors exceed twenty-five.
SECTION 2.3. ORGANIZATION MEETING. The cashier, upon receiving the
certificate of the judges, of the result of any election, shall notify the
directors-elect of their election and of the time at which they are required to
meet at the main office of the bank for the purpose of organizing the new board
and electing and appointing officers of the bank for the succeeding year. Such
meeting shall be appointed to be held on the day of election or as soon
thereafter as practicable, and, in any event, within thirty days thereof. If, at
the time fixed for such meeting, there shall not be a quorum present the
directors present may adjourn the meeting, from time to time, until a quorum is
obtained.
SECTION 2.4 REGULAR MEETINGS. The regular meetings of the board shall be
held, without notice, on the third Wednesday of each month at the main office.
When any regular meeting of the board falls upon a holiday, the meeting shall be
held on the next banking business day unless the board shall designate some
other day.
SECTION 2.5 SPECIAL MEETINGS. Special meetings of the board may be
called by the chairman of the board, the president, or at the request of three
or more directors. Each member of the board shall be given notice stating the
time and place, by telegram, letter or in person, of each such special meeting.
SECTION 2.6. QUORUM. A majority of the directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a less number
may adjourn any meeting from time to time, and the meeting may be held, as
adjourned, without further notice.
<PAGE> 22
SECTION 2.7. VACANCIES. When any vacancy occurs among the directors, the
remaining members of the board, in accordance with the laws of the United
States, may appoint a director to fill such vacancy at any regular meeting of
the board, or at a special meeting called for that purpose.
SECTION 2.8. RETIREMENT POLICY. A retirement policy adopted by the board
of directors shall be applicable to directors who are not active officers of the
bank.
ARTICLE III
COMMITTEES OF THE BOARD
SECTION 3.1. EXECUTIVE COMMITTEE. There shall be an executive committee
of the board. The members of the executive committee shall be chosen by the
board from time to time, shall hold office during its pleasure, and shall
consist of the chairman of the board, the chairman of the executive committee
selected by the board, who may but need not be the same person designated to be
president, and the president, ex officio, and not less than seven additional
members of the board who shall not be active officers of the bank. It shall be
the duty of this committee to exercise such powers and perform such duties in
respect to the making of loans and discounts as shall from time to time be
specified by resolution of the board. During such periods as the board shall not
be in session, the executive committee shall have and may exercise all the
powers of the board except such as are by law or by these bylaws required to be
exercised only by the board. The executive committee may make rules for holding
and conducting its meetings and keep in the minute book of the bank a report of
all action taken which shall be submitted for approval at each regular meeting
of the board and the action of the board shall be recorded in the minutes of
that meeting. A quorum of the executive committee shall consist of not less than
five of its members, at least three of whom shall not be active officers of the
bank. The chairman of the board, or in his absence in the order named if
present, the chairman of the executive committee or the president, may designate
any director who is not an active officer of the bank, or a designated member,
to serve as a member of the executive committee at any specified meeting.
Vacancies in the executive committee at any time existing may be filled by
appointment by the board. The board may at anytime revise or change the
membership and chairmanship of the executive committee and make new or
additional appointments thereto. The chairman of the executive committee shall
be ex officio a member of all committees except the examining committee and the
trust audit committee, and shall have such other duties as may from time to time
be assigned him by the board.
SECTION 3.2. OFFICERS' COMPENSATION COMMITTEE. There shall be an
officers' compensation committee of the board. The members of the officers'
compensation committee shall consist of the members ex officio provided for in
other sections of these bylaws and not less than three additional non-officer
members of the board who shall be appointed by the board each year at its first
meeting after the directors have been elected and qualified. It shall be the
duty of this committee to study the compensation of all officers of the bank and
from time to time report their recommendations to the board; and such other
duties, if any, as may from time to time be assigned to it by the board. A
majority of the committee, including at least two non-officer members, shall be
necessary for the committee to keep records of its action.
SECTION 3.3. EXAMINING COMMITTEE. There shall be an examining committee
of the board. The members of the examining committee shall consist of the
members ex officio provided for in other sections of these bylaws, but exclusive
of any active officer of the bank and not less than three additional non-officer
members of the board who shall be appointed by the board each year at its first
meeting after the directors have been elected and qualified. It shall be the
duty of this committee to make an examination at least twice each year into the
affairs of the bank or to cause the examinations to be made by accountants (who
may be the bank's own accountants) responsible only to the board in such
examinations, and to report the result of such examinations in writing to the
board at the next regular meeting thereafter, or it may, at its sole discretion,
submit the reports of the national bank examiner or of
<PAGE> 23
the Chicago Clearing House Association examination, with or without additional
comments by the committee itself, for, and in lieu of its personal examinations.
Such reports shall state whether the bank is in sound condition, whether
adequate internal audit controls and procedures are being maintained and shall
recommend to the board such changes in the manner of doing business or
conducting the affairs of the bank as shall be deemed advisable.
SECTION 3.4. OTHER COMMITTEES. The board may appoint, from time to time,
from its own members, other committees of one or more persons, for such purposes
and with such powers as the board may determine.
ARTICLE IV
OFFICERS AND EMPLOYEES
SECTION 4.1. CHAIRMAN OF THE BOARD. The board shall appoint one of its
members to be chairman of the board. The chairman of the board shall supervise
the carrying out of the policies adopted or approved by the board. He shall have
general executive powers, as well as the specific powers conferred by these
bylaws. He shall be ex officio a member of all committees, except the examining
committee and the trust audit committee. He shall have general supervision and
direction of the business, affairs and personnel of the bank. He shall also have
and may exercise such further powers and duties as from time to time may be
conferred upon, or assigned to him by the board.
SECTION 4.2. VICE CHAIRMAN OF THE BOARD. The board may appoint one of
its members to be vice chairman of the board. He shall perform such duties as
may from time to time be assigned to him by the board.
SECTION 4.3. PRESIDENT. The board shall appoint one of its members to be
president of the bank. He shall be the chief executive officer and the chief
administrative officer of the bank and in the absence of the chairman of the
board, he shall preside at any meeting of the board at which he is present. The
president shall have general executive powers, and shall have and may exercise
any and all other powers and duties pertaining by law, regulation, or practice
to the office of president, or imposed by these bylaws. He shall be ex officio a
member of all committees, except the examining committee and trust audit
committee. He shall have general supervision of the business, affairs and
personnel of the bank and in the absence of the chairman of the board, shall
exercise the powers and perform the duties of the chairman of the board. He
shall also have and may exercise such further powers and duties as from time to
time may be conferred upon or assigned to him by the board.
SECTION 4.4. SENIOR OFFICERS. The board may appoint one or more
executive vice presidents and one or more senior vice presidents. Each such
senior officer shall have such powers and duties as may be assigned to him by
the board, the chairman of the board, or the president.
SECTION 4.5. VICE PRESIDENT. The board may appoint one or more vice
presidents. Each vice president shall have such powers and duties as may be
assigned to him by the board, the chairman of the board, or the president.
SECTION 4.6. CASHIER. The board shall appoint a cashier who shall have
such powers and duties as may be assigned to him by the board, the chairman of
the board, or the president. The cashier shall be custodian of the corporate
seal, records, documents and papers of the bank. He shall provide for keeping of
proper records of all transactions of the bank.
SECTION 4.7. SECRETARY. The board shall appoint a secretary who shall be
secretary of the bank. He shall also perform such duties as may be assigned to
him from time to time by the board.
<PAGE> 24
The board may appoint a secretary of the board who shall keep accurate minutes
of all meetings. He shall attend to the giving of all notices; he shall also
perform such other duties as may be assigned to him from time to time by the
board.
SECTION 4.8. OTHER OFFICERS. The board may appoint one or more assistant
vice presidents, one or more trust officers, one or more assistant secretaries,
one or more assistant cashiers, and such other officers and attorneys-in-fact as
from time to time may appear to the board to be required or desirable to
transact the business of the bank. Such officers, respectively, shall exercise
such powers and perform such duties as pertain to their several offices or as
may be conferred upon or assigned to them by the board the chairman of the board
or the president.
SECTION 4.9. CLERKS AND AGENTS. The chairman of the board, the
president, or any other active officer of the bank authorized by the chairman of
the board, or the president, may appoint and dismiss all or any paying tellers
receiving tellers note tellers, vault custodians, bookkeepers and other clerks,
agents and employees as they may deem advisable for the prompt and orderly
transaction of the business of the bank, define their duties, fix the salaries
to be paid them and the conditions of their employment.
SECTION 4.10. RESPONSIBILITY FOR MONEYS, ETC. Each of the active
officers and clerks of this bank shall be responsible for all moneys, funds
valuables and property of every kind and description that may from time to time
be entrusted to his care or placed in his hands by the board or others, or that
otherwise may come into his possession as an active officer or clerk of this
bank.
SECTION 4.11. SURETY BONDS. All the active officers and clerks of this
bank may be covered by one of the blanket form bonds customarily written by the
surety companies, drawn for such an amount, and executed by such surety company,
as the board may from time to time require, and duly approve; or at the
discretion of the board, all such active officers and clerks shall, each for
himself, give such bond, with such security, and in such denominations as the
board may from time to time require and direct. All bonds approved by the board
shall assure the faithful and honest discharge of the respective duties of such
active officer or clerk and shall provide that such active officer or clerk
shall faithfully apply and account for all moneys, funds, valuables and property
of every kind and description that may from time to time come into his hands or
be entrusted to his care, and pay over and deliver the same to the order of the
board or to such other person or persons as may be authorized to demand and
receive the same.
SECTION 4.12. TERM OF OFFICE - OFFICER DIRECTOR. The chairman of the
board, the vice chairman of the board and the president, together with any other
active officers who may be duly elected members of the board, shall hold their
respective offices for the current year for which the board (of which they shall
be members) was elected and until their successors are appointed, unless they
shall resign, be disqualified, or be removed; and any vacancy occurring in the
office of the chairman of the board, the vice chairman of the board, the
president, or in the board, shall, if required by these bylaws, be filled by the
remaining members.
SECTION 4.13. TERM OF OFFICE - OFFICER. The executive vice presidents,
the senior vice presidents, the vice presidents, the assistant vice presidents,
the cashier, the secretary, the trust officers and all other officers and
attorneys-in-fact who are not duly elected members of the board, shall be
appointed to hold their offices, respectively, during the pleasure of the board.
<PAGE> 25
ARTICLE V
TRUST DEPARTMENT
SECTION 5.1. TRUST DEPARTMENT. There shall be a department of the bank
known as the trust department which shall perform the fiduciary responsibilities
of the bank.
SECTION 5.2. TRUST OFFICER. There shall be a senior vice president and
trust officer, or vice president and trust officer of this bank, who shall be
designated as the managing officer of the trust department and whose duties
shall be to manage, supervise and direct all the activities of the trust
department. He shall do, or cause to be done, all things necessary or proper in
carrying on the business of the trust department in accordance with provisions
of law and regulations. He shall act pursuant to opinion of counsel where such
opinion is deemed necessary. Opinions of counsel shall be retained on file in
connection with all important matters pertaining to fiduciary activities. The
trust officer shall be responsible for all assets and documents held by the bank
in connection with fiduciary matters. The board may appoint such other officers
of the trust department as it may deem necessary, with such duties as may be
assigned to them by the board, the chairman of the board, or the president.
SECTION 5.3. TRUST INVESTMENT COMMITTEE. There shall be appointed by the
board a trust investment committee of this bank composed of not less than four
members, including members ex officio provided for in other sections of these
bylaws, who shall be capable and experienced officers or directors of the bank.
All investments of funds held in a fiduciary capacity shall be made, retained or
disposed of only with the approval of the trust investment committee; and the
committee shall keep minutes of all its meetings, showing the disposition of all
matters considered and passed upon by it. The committee shall, promptly after
the acceptance of an account for which the bank has investment responsibilities,
review the assets thereof, to determine the advisability of retaining or
disposing of such assets. The committee shall conduct a similar review at least
once during each calendar year thereafter and within fifteen months of the last
such review. A report of all such reviews, together with the action taken as a
result thereof, shall be noted in the minutes of the committee. Three members of
the trust investment committee shall constitute a quorum, and any action
approved by a majority of those present shall constitute the action of the
committee.
SECTION 5.4. TRUST AUDIT COMMITTEE. The board shall appoint a committee
of not less than three directors, including members ex officio provided for in
other sections of these bylaws, exclusive of any active officers of the bank,
which shall at least once during each calendar year and within fifteen months of
the last such audit make suitable audits of the trust department, or cause
suitable audits to be made, by auditors responsible only to the board, and at
such time shall ascertain whether the department has been administered in
accordance with law, Regulation 9, and sound fiduciary principles.
Notwithstanding the provisions of this Section, the board at any time may assign
to the Examining Committee, in addition to the duties of the Examining Committee
set forth in Section 3.3 of these bylaws, all of the duties of the Trust Audit
Committee and during such time as the Examining Committee is performing the
duties of both committees, the Trust Audit Committee shall cease to function as
a committee of this board. The board at any time may reassign the duties
provided for in this Section to the Trust Audit Committee.
SECTION 5.5. TRUST DEPARTMENT FILES. There shall be maintained in the
trust department, files containing all fiduciary records necessary to assure
that its fiduciary responsibilities have been properly undertaken and
discharged.
SECTION 5.6. TRUST INVESTMENTS. Funds held in a fiduciary capacity shall
be invested in accordance with the instrument establishing the fiduciary
relationship and local law. Where such instrument does not specify the character
and class of investments to be made and does not vest in the bank a discretion
in the matter, fund shield pursuant to such instrument shall be invested in
investments in which corporate fiduciaries may invest under local law.
<PAGE> 26
ARTICLE VI
STOCK AND STOCK CERTIFICATES
SECTION 6.1. TRANSFERS. Shares of capital stock shall be transferable on
the books of the bank and a transfer book shall be kept in which all transfers
of stock shall be recorded. Every person becoming a shareholder be such transfer
shall in proportion to his shares, succeed to all rights and liabilities of the
prior holder of such shares.
SECTION 6.2. STOCK CERTIFICATES. Certificates of capital stock shall
bear the signature of any one of, the chairman of the board, or the president
(which may be engraved, printed or impressed) and shall be signed manually or by
facsimile process by the secretary, assistant secretary, cashier, assistant
cashier, or any other officer appointed by the board for that purpose, to be
known as an authorized officer and the seal of the bank shall be engraven
thereon. Each certificate shall recite on its face that the stock represented
thereby is transferable, properly endorsed, only on the books of the bank.
ARTICLE VII
CORPORATE SEAL
SECTION 7.1. CORPORATE SEAL. The chairman of the board, the president,
the cashier, the secretary or any assistant cashier or assistant secretary, or
other officer thereunto designated by the board, shall have authority to affix
the corporate seal to any document requiring such seal, and to attest the same.
Such seal shall be substantially in the form set forth herein.
ARTICLE VIII
INDEMNIFYING OFFICERS AND DIRECTORS
SECTION 8.1. INDEMNIFYING OFFICERS AND DIRECTORS. Any person, his heirs,
executors or administrators, may be indemnified or reimbursed by the bank for
reasonable expenses actually incurred in connection with any action, suit or
proceeding, civil or criminal, to which he or they shall be made a party by
reason of his being or having been a director, officer or employee of the bank
or of any firm, corporation or organization which he served in any such capacity
at the request of the bank; provided, however, that no person shall be so
indemnified or reimbursed in relation to any matter in such action, suit or
proceeding as to which he shall finally be adjudged to have been guilty of or
liable for negligence or willful misconduct in the performance of his duties to
the bank; and, provided further, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit or proceeding which
has been made the subject of a compromise settlement except with the approval of
a court of competent jurisdiction, or the holders of record of a majority of the
outstanding shares of the bank, or the board, acting by vote of directors not
parties to the same or substantially the same action suit or proceeding,
constituting a majority of the whole number of the directors. The foregoing
right of indemnification or reimbursement shall not be exclusive of other rights
to which such person, his heirs, executors or administrators, may be entitled as
a matter of law.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1. FISCAL YEAR. The fiscal year of the bank shall be the
calendar year.
<PAGE> 27
SECTION 9.2. EXECUTION OF INSTRUMENTS. All agreements, indentures
mortgages, deeds, conveyances transfers certificates declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
for the bank by the chairman of the board, or the vice chairman of the board, or
the president, or any executive vice president, or any senior vice president, or
any vice president, or the secretary or the cashier, or, if in connection with
the exercise of fiduciary powers of the bank by any of said officers or by any
officer in the trust department. Any such instruments may also be signed,
executed, acknowledged, verified, delivered or accepted for the bank in such
other manner and by such other officers as the board may from time to time
direct. The provisions of this Section 9.2 are supplementary to any other
provisions of these bylaws.
SECTION 9.3. RECORDS. The articles of association, the bylaws, and the
proceedings of all meetings of the shareholders and of the board shall be
recorded in appropriate minute books provided for the purpose; where these
bylaws so provide, the proceedings of standing committees of the board shall be
recorded in appropriate minute books provided for the purpose.
ARTICLE X
EMERGENCIES
SECTION 10.1. CONTINUATION OF BUSINESS. In the event of a state of
emergency of sufficient severity to interfere with the conduct and management of
the affairs of this bank, the officers and employees will continue to conduct
the affairs of the bank under such guidance from the directors as may be
available except as to matters which by statute require specific approval of the
board of directors and subject to conformance with any governmental directives
during the emergency.
SECTION 10.2. DESIGNATION OF PLACE OF BUSINESS. The offices of the bank
at which its business shall be conducted shall be the main office thereof
located at 135 South LaSalle Street, Chicago, Illinois, and any other legally
authorized location which may be leased or acquired by this bank to carry on its
business. During an emergency resulting in any authorized place of business of
this bank being unable to function, the business ordinarily conducted at such
location shall be relocated elsewhere in suitable quarters, in addition to or in
lieu of the locations heretofore mentioned, as may be designated by the board of
directors or by the executive committee or by such persons as are then, in
accordance with resolutions adopted from time to time by the board of directors
dealing with the exercise of authority in the time of such emergency, conducting
the affairs of this bank. Any temporarily relocated place of business of this
bank shall be returned to its legally authorized location as soon as practicable
and such temporary place of business shall then be discontinued.
ARTICLE XI
BYLAWS
SECTION 11.1 INSPECTION. A copy of the bylaws with all amendments
thereto, shall at all times be kept in a convenient place at the main office of
the bank and shall be open for inspection to all shareholders, during banking
hours.
SECTION 11.2 AMENDMENTS. The bylaws may be amended, altered or repealed,
at any regular meeting of the board, by a vote of a majority of the whole number
of the directors.
***
<PAGE> 28
I___________________________________________ hereby certify that I am
the________________________________ Cashier/Secretary of LaSalle National Bank,
Chicago, Illinois and that the foregoing is a true and correct copy of the
bylaws of this bank as amended and that the same are in full force and effect
_____________ day of___________________19________
_______________________________
Cashier/Secretary.
December 15, 1982
(SEAL)
<PAGE> 29
EXHIBIT 5
NOT APPLICABLE
<PAGE> 30
EXHIBIT 6
LaSalle National Bank hereby consents in accordance with the provisions of
Section 321(b) of the Trust Indenture Act of 1939, that reports of examinations
by Federal, State, Territorial and District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon its request therefor.
LA SALLE NATIONAL BANK
By: /s/ Sarah H. Webb
----------------------
Sarah H. Webb
First Vice President
<PAGE> 31
EXHIBIT 7
Latest Report of Condition of
Trustee published pursuant to
law or the requirement of its
surviving or examining authority.
<PAGE> 32
EXHIBIT 8
NOT APPLICABLE
<PAGE> 33
EXHIBIT 9
NOT APPLICABLE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 81,548
<SECURITIES> 0
<RECEIVABLES> 8,785
<ALLOWANCES> 878
<INVENTORY> 0
<CURRENT-ASSETS> 102,059
<PP&E> 3,150
<DEPRECIATION> 608
<TOTAL-ASSETS> 109,904
<CURRENT-LIABILITIES> 21,931
<BONDS> 63,250
0
0
<COMMON> 69,311
<OTHER-SE> (44,588)
<TOTAL-LIABILITY-AND-EQUITY> 109,904
<SALES> 36,650
<TOTAL-REVENUES> 36,650
<CGS> 31,074
<TOTAL-COSTS> 31,074
<OTHER-EXPENSES> 36,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> (31,073)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 51
<CHANGES> 0
<NET-INCOME> (31,124)
<EPS-PRIMARY> (1.65)<F1>
<EPS-DILUTED> (1.28)<F2>
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic & Diluted.
<F2>For Purposes of This Exhibit, Diluted means Pro-forma.
</FN>
</TABLE>
